Attached files
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8-K - FORM 8-K - HCA Healthcare, Inc. | g27505e8vk.htm |
EX-99.1 - EX-99.1 - HCA Healthcare, Inc. | g27505exv99w1.htm |
EX-99.3 - EX-99.3 - HCA Healthcare, Inc. | g27505exv99w3.htm |
EX-99.2 - EX-99.2 - HCA Healthcare, Inc. | g27505exv99w2.htm |
EX-23.1 - EX-23.1 - HCA Healthcare, Inc. | g27505exv23w1.htm |
EXHIBIT 99.4
Item 11. | Executive Compensation |
Compensation
Risk Assessment
In consultation with the Compensation Committee (the
Committee) of the Board of Directors, members of
Human Resources, Financial Reporting, Legal, Enterprise Risk
Management and Internal Audit management conducted an assessment
of whether the Companys compensation policies and
practices encourage excessive or inappropriate risk taking by
our employees, including employees other than our named
executive officers. This assessment included a review of the
risk characteristics of our business and the design of our
incentive plans and policies. Although a significant portion of
our executive compensation program is performance-based, the
Compensation Committee has focused on aligning the
Companys compensation policies with the long-term
interests of the Company and avoiding rewards or incentive
structures that could create unnecessary risks to the Company.
Management reported its findings to the Compensation Committee,
which agreed with managements assessment that our plans
and policies do not encourage excessive or inappropriate risk
taking and determined such policies or practices are not
reasonably likely to have a material, adverse effect on the
Company.
Compensation
Discussion and Analysis
The Committee is generally charged with the oversight of our
executive compensation and rewards programs. The Committee is
currently composed of John P. Connaughton, James D. Forbes
and Michael W. Michelson. Responsibilities of the Committee
include the review and approval of the following items:
| Executive compensation strategy and philosophy; | |
| Compensation arrangements for executive management; | |
| Design and administration of the annual Senior Officer Performance Excellence Program (PEP); | |
| Design and administration of our equity incentive plans; | |
| Executive benefits and perquisites (including the HCA Restoration Plan and the Supplemental Executive Retirement Plan); and | |
| Any other executive compensation or benefits related items deemed appropriate by the Committee. |
In addition, the Committee considers the proper alignment of
executive pay policies with Company values and strategy by
overseeing executive compensation policies, corporate
performance measurement and assessment, and Chief Executive
Officer performance assessment. The Committee may retain the
services of independent outside consultants, as it deems
appropriate, to assist in the strategic review of programs and
arrangements relating to executive compensation and performance.
The following executive compensation discussion and analysis
describes the principles underlying our executive compensation
policies and decisions as well as the material elements of
compensation for our named executive officers. Our named
executive officers for 2010 were:
| Richard M. Bracken, Chairman and Chief Executive Officer; | |
| R. Milton Johnson, Executive Vice President and Chief Financial Officer; | |
| Samuel N. Hazen, President Western Group; | |
| Beverly B. Wallace, President Shared Services Group; and | |
| W. Paul Rutledge, President Central Group. |
Compensation
Philosophy and Objectives
The core philosophy of our executive compensation program is to
support the Companys primary objective of providing the
highest quality health care to our patients while enhancing the
long-term value of
1
the Company to our stockholders. Specifically, the Committee
believes the most effective executive compensation program (for
all executives, including named executive officers):
| Reinforces HCAs strategic initiatives; | |
| Aligns the economic interests of our executives with those of our stockholders; and | |
| Encourages attraction and long-term retention of key contributors. |
The Committee is committed to a strong, positive link between
our objectives and our compensation and benefits practices.
Our compensation philosophy also allows for flexibility in
establishing executive compensation based on an evaluation of
information prepared by management or other advisors and other
subjective and objective considerations deemed appropriate by
the Committee, subject to any contractual agreements with our
executives. The Committee will also consider the recommendations
of our Chief Executive Officer. This flexibility is important to
ensure our compensation programs are competitive and that our
compensation decisions appropriately reflect the unique
contributions and characteristics of our executives.
Compensation
Structure and Market Positioning
Our compensation program is heavily weighted towards
performance-based compensation, reflecting our philosophy of
increasing the long-term value of the Company and supporting
strategic imperatives. Total direct compensation and other
benefits consist of the following elements:
Total Direct Compensation
|
| Base Salary | ||
| Annual Incentives (offered through our PEP) | |||
| Long-Term Equity Incentives | |||
Other Benefits
|
| Retirement Plans | ||
| Limited Perquisites and Other Personal Benefits | |||
| Severance Benefits |
The Committee does not support rigid adherence to benchmarks or
compensatory formulas and strives to make compensation decisions
which effectively support our compensation objectives and
reflect the unique attributes of the Company and each executive.
Our general practice, however, with respect to pay positioning,
is that executive base salaries and annual incentive (PEP)
target values should generally position total annual cash
compensation between the median and 75th percentile of
similarly-sized general industry companies. We utilize the
general industry as our primary source for competitive pay
levels because HCA is significantly larger than its industry
peers. See the discussion of market positioning below for
further information. The named executive officers pay fell
within the range noted above for jobs with equivalent market
comparisons.
The cash compensation mix between salary and PEP has
historically been more weighted towards salary than competitive
practice among our general industry peers would suggest. Over
time, we have made steps towards a mix of cash compensation that
will place a greater emphasis on annual performance-based
compensation.
Although we look at competitive long-term equity incentive award
values in similarly-sized general industry companies when
assessing the competitiveness of our compensation programs, we
do not make annual executive option grants (and we did not base
our initial post-Merger 2007 stock option grants on these
levels) since equity is structured differently in closely-held
companies than in publicly-traded companies. As is typical in
similar situations, the Investors wanted to share a certain
percentage of the equity with executives shortly after the
consummation of the Merger and establish performance objectives
and incentives up front in lieu of annual grants to ensure our
executives long-term economic interests would be aligned
with those of the Investors. This pool of equity was then
further allocated based on the executives responsibilities
and anticipated impact on, and potential for, driving Company
strategy and performance. On a cumulative basis, the resulting
total direct pay mix is heavily weighted towards
performance-based pay (PEP plus stock options)
2
rather than fixed pay, which the Committee believes reflects the
compensation philosophy and objectives discussed above.
Compensation
Process
The Committee ensures executives pay levels are materially
consistent with the compensation strategy described above, in
part, by conducting annual assessments of competitive executive
compensation. Semler Brossy Consulting Group, LLC has been
retained by, and reports directly to the Committee, and does not
have any other consulting engagements with management or HCA.
Management (but no named executive officer), in collaboration
with Semler Brossy, collects and presents compensation data from
similarly-sized general industry companies, based to the extent
possible on comparable position matches and compensation
components. The following nationally recognized survey sources
were utilized in anticipation of establishing 2010 executive
compensation:
Survey
|
Revenue Scope
|
|
Towers Perrin Executive Compensation Database
|
Greater than $20B | |
Hewitt Total Compensation Measurement
|
$10B - $25B | |
Hewitt Total Compensation Measurement
|
Greater than $25B |
These particular revenue scopes were selected because they were
the closest approximations to HCAs revenue size. Each
survey that provided an appropriate position match and
sufficient sample size to be used in the compensation review was
weighted equally. For this purpose, the two Hewitt survey cuts
were considered as one survey, and we used an average of the two
surveys (50% for the $10B $25B cut and 50% for the
Greater than $25B).
Data was also collected from health care providers within our
industry including Community Health Systems, Inc., Health
Management Associates, Inc., Kindred Healthcare, Inc., LifePoint
Hospitals, Inc., Tenet Healthcare Corporation and Universal
Health Services, Inc. These health care providers are used only
to obtain a general understanding of current industry
compensation practices since we are significantly larger than
these companies. CEO and CFO compensation data was also
collected and reviewed for large public health care companies
which included, in addition to health care providers, companies
in the health insurance, pharmaceutical, medical supplies and
related industries. This peer groups 2009 revenues ranged
from $7.4 billion to $87.1 billion with median
revenues of $24.8 billion. The companies in this analysis
included Abbott Laboratories, Aetna Inc., Amgen Inc., Baxter
International Inc., Boston Scientific Corp., Bristol-Myers
Squibb Company, CIGNA Corp., Coventry Health Care, Inc., Express
Scripts, Inc., Humana Inc., Johnson & Johnson, Eli
Lilly and Company, Medco Health Solutions Inc.,
Merck & Co., Inc., Pfizer Inc., Quest Diagnostics
Incorporated, Thermo Fisher Scientific Inc., UnitedHealth Group
Incorporated and Wellpoint, Inc.
Consistent with our flexible compensation philosophy, the
Committee is not required to approve compensation precisely
reflecting the results of these surveys, and may also consider,
among other factors (typically not reflected in these surveys):
the requirements of the applicable employment agreements, the
executives individual performance during the year, his or
her projected role and responsibilities for the coming year, his
or her actual and potential impact on the successful execution
of Company strategy, recommendations from our Chief Executive
Officer and compensation consultants, an officers prior
compensation, experience, and professional status, internal pay
equity considerations, and employment market conditions and
compensation practices within our peer group. The weighting of
these and other relevant factors is determined on a
case-by-case
basis for each executive upon consideration of the relevant
facts and circumstances.
Employment
Agreements
In connection with the Merger, we entered into employment
agreements with each of our named executive officers and certain
other members of senior management to help ensure the retention
of those executives critical to the future success of the
Company. Among other things, these agreements set the
executives compensation terms, their rights upon a
termination of employment, and restrictive covenants around
non-competition, non-solicitation, and confidentiality. These
terms and conditions are further explained
3
in the remaining portion of this Compensation Discussion and
Analysis and under Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Employment Agreements.
Elements
of Compensation
Base
Salary
Base salaries are intended to provide reasonable and competitive
fixed compensation for regular job duties. The threshold base
salaries for our executives are set forth in their employment
agreements. In light of actual total cash compensation realized
for 2009 and cash compensation opportunities levels for 2010
(including the cash distributions on vested options), we did not
increase named executive officer base salaries in 2010, other
than a 3.7% increase in Mr. Rutledges salary
effective April 1, 2010 as an internal equity adjustment to
internal peer roles. Mr. Hazens salary was increased by
7.78%, effective May 1, 2011, as a result of his promotion to the
position of President of Operations.
Annual
Incentive Compensation: PEP
The PEP is intended to reward named executive officers for
annual financial performance, with the goals of providing high
quality health care for our patients and increasing stockholder
value. Accordingly, the Companys 2010 Senior Officer
Performance Excellence Program, (the 2010 PEP), was
approved by the Committee to cover annual incentive awards for
2010. Each named executive officer in the 2010 PEP was assigned
a 2010 annual award target expressed as a percentage of salary
ranging from 66% to 130%. For 2010, the Committee had the
ability to apply negative discretion based on performance of
Company-wide quality metrics against industry benchmarks, and
for Ms. Wallace, negative discretion could have been
applied based on performance of individuals goals related to the
operations of the Shared Services Group. The Committee set
Mr. Brackens 2010 target percentage at 130% of his
2010 base salary for his role as Chairman and Chief Executive
Officer and set Mr. Johnsons 2010 target percentage
at 80% of his 2010 base salary for the position of Executive
Vice President and Chief Financial Officer. The 2010 target
percentage for each of Messrs. Hazen and Rutledge and
Ms. Wallace was set at 66% of their respective 2010 base
salaries (see individual targets in the table below). These
targets were intended to provide a meaningful incentive for
executives to achieve or exceed performance goals.
The 2010 PEP was designed to provide 100% of the target award
for target performance, 25% of the target award for a minimum
acceptable (threshold) level of performance, and a maximum of
200% of the target award for maximum performance, while no
payments were to be made for performance below threshold levels.
The Committee believes this payout curve is consistent with
competitive practice. More importantly, it promotes and rewards
continuous growth as performance goals have consistently been
set at increasingly higher levels each year. Actual awards under
the PEP are generally determined using the following two steps:
1. The executives conduct must reflect our mission
and values by upholding our Code of Conduct and following our
compliance policies and procedures. This step is critical to
reinforcing our commitment to integrity and the delivery of high
quality health care. In the event the Committee determines the
participants conduct during the fiscal year is not in
compliance with the first step, he or she will not be eligible
for an incentive award.
2. The actual award amount is determined based upon Company
performance. In 2010, the PEP for all named executive officers,
other than Mr. Hazen and Mr. Rutledge, incorporated
one Company financial performance measure, EBITDA, defined in
the 2010 PEP as earnings before interest, taxes, depreciation,
amortization, minority interest expense (now, net income
attributable to noncontrolling interests), gains or losses on
sales of facilities, gains or losses on extinguishment of debt,
asset or investment impairment charges, restructuring charges,
and any other significant nonrecurring non-cash gains or charges
(but excluding any expenses for share-based compensation under
Financial Accounting Standards Board (FASB) Accounting Standards
Codification Topic 718, Compensation-Stock Compensation
(ASC 718)) (EBITDA). The Company
EBITDA target for 2010, as adjusted, was $5.752 billion for
the named executive officers. Mr. Hazens 2010 PEP, as
the Western Group President, was based 50% on Company EBITDA and
50% on Western Group EBITDA (with a Western Group
4
EBITDA target for 2010 of $2.993 billion, as adjusted) to
ensure his accountability for his groups results.
Similarly, Mr. Rutledges 2010 PEP, as the Central
Group President, was based 50% on Company EBITDA and 50% on
Central Group EBITDA (with a Central Group EBITDA target for
2010 of $1.392 billion, as adjusted). The Committee chose
to base annual incentives on EBITDA for a number of reasons:
| It effectively measures overall Company performance; | |
| It can be considered an important surrogate for cash flow, a critical metric related to paying down the Companys significant debt obligation; | |
| It is the key metric driving the valuation in the internal Company model, consistent with the valuation approach used by industry analysts; and | |
| It is consistent with the metric used for the vesting of the financial performance portion of our option grants. |
These EBITDA targets should not be understood as
managements predictions of future performance or other
guidance and investors should not apply these in any other
context. Our 2010 threshold performance level was set at the
prior years performance level and the maximum performance
goal was set at approximately 5% above the target goal to
reflect likely performance volatility. EBITDA targets were
linked to the Companys short-term and long-term business
objectives to ensure incentives are provided for appropriate
annual growth.
Upon review of the Companys 2010 financial performance,
the Committee determined that Company EBITDA performance for the
fiscal year ended December 31, 2010 was approximately
102.6% of target performance levels as set by the Compensation
Committee, as adjusted, resulting in a 151.8% of target payout.
The EBITDA performance of the Western Group was 103.1% of the
performance target, resulting in a 161.9% of target payout, and
the EBITDA performance of the Central Group was under the
threshold performance level.
2010 Adjusted |
2010 Actual |
|||||||
EBITDA Target | Adjusted EBITDA | |||||||
Company
|
$ | 5.752 billion | $ | 5.901 billion | ||||
Western Group
|
$ | 2.993 billion | $ | 3.086 billion | ||||
Central Group
|
$ | 1.392 billion | $ | 1.272 billion |
Accordingly, the 2010 PEP will be paid out as follows to the
named executive officers (the actual 2010 PEP payout amounts are
included in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table):
2010 Actual PEP |
||||||||
2010 Target PEP |
Award |
|||||||
Named Executive Officer
|
(% of Salary) | (% of Salary) | ||||||
Richard M. Bracken (Chairman and CEO)
|
130 | % | 197 | % | ||||
R. Milton Johnson (Executive Vice President and CFO)
|
80 | % | 121 | % | ||||
Samuel N. Hazen (President, Western Group)
|
66 | % | 104 | % | ||||
Beverly B. Wallace (President, Shared Services Group)
|
66 | % | 100 | % | ||||
W. Paul Rutledge (President, Central Group)
|
66 | % | 50 | % |
Under the 2010 PEP, incentive payouts up to the target will be
paid in cash during the first quarter of 2011. Payouts above the
target will be paid 50% in cash and 50% in Restricted Stock
Units (RSUs). The RSU grants will vest 50% on the
second anniversary of grant date and 50% on the third
anniversary of the grant date. Messrs. Bracken, Johnson and
Hazen and Ms. Wallace will each receive an RSU grant for
achieving PEP payouts over the target level.
The Company can recover (or clawback) incentive
compensation pursuant to our 2010 PEP that was based on
(i) achievement of financial results that are subsequently
the subject of a restatement due to material
5
noncompliance with any financial reporting requirement under
either GAAP or federal securities laws, other than as a result
of changes to accounting rules and regulations, or (ii) a
subsequent finding that the financial information or performance
metrics used by the Committee to determine the amount of the
incentive compensations are materially inaccurate, in each case
regardless of individual fault. In addition, the Company may
recover any incentive compensation awarded or paid pursuant to
this policy based on the participants conduct which is not
in good faith and which materially disrupts, damages, impairs or
interferes with the business of the Company and its affiliates.
The Committee may also provide for incremental additional
payments to then-current executives in the event any restatement
or error indicates that such executives should have received
higher performance-based payments. This policy is administered
by the Committee in the exercise of its discretion and business
judgment based on the relevant facts and circumstances.
The Senior Officer Performance Excellence Program for 2011 was
adopted on March 30, 2011.
Long-Term Equity Incentive Awards: Options
In connection with the Merger, the Board of Directors of HCA
Inc. approved and adopted the 2006 Stock Incentive Plan for Key
Employees of HCA Inc. and its Affiliates (the 2006
Plan). The 2006 Plan was assumed by HCA Holdings, Inc. on
November 22, 2010 in connection with the Corporate
Reorganization. The purpose of the 2006 Plan is to:
| Promote our long term financial interests and growth by attracting and retaining management and other personnel and key service providers with the training, experience and abilities to enable them to make substantial contributions to the success of our business; | |
| Motivate management personnel by means of growth-related incentives to achieve long range goals; and | |
| Further the alignment of interests of participants with those of our stockholders through opportunities for increased stock or stock-based ownership in the Company. |
In January 2007, pursuant to the terms of the named executive
officers respective employment agreements, the Committee
approved long-term stock option grants to our named executive
officers under the 2006 Plan consisting solely of a one-time,
multi-year stock option grant in lieu of annual long-term equity
incentive award grants (New Options). In addition to
the New Options granted in 2007, the Company committed to grant
the named executive officers 2x Time Options (as defined below)
in their respective employment agreements, as described in more
detail below under Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Employment Agreements. The Committee
believes stock options are the most effective long-term vehicle
to directly align the interests of executives with those of our
stockholders by motivating performance that results in the
long-term appreciation of the Companys value, since they
only provide value to the executive if the value of the Company
increases. As is typical in leveraged buyout situations, the
Committee determined that granting all of the stock options
(except the 2x Time Options) up front rather than annually was
appropriate to aid in retaining key leaders critical to the
Companys success over the next several years and, coupled
with the executives significant personal investments in
connection with the Merger, provide an equity incentive and
stake in the Company that directly aligns the long-term economic
interests of the executives with those of the Investors.
The New Options have a ten year term and are divided so that 1/3
are time vested options, 1/3 are
EBITDA-based
performance vested options and 1/3 are performance options that
vest based on investment return to the Sponsors, each as
described below. The combination of time, performance and
investor return based vesting of these awards is designed to
compensate executives for long term commitment to the Company,
while motivating sustained increases in our financial
performance and helping ensure the Sponsors have received an
appropriate return on their invested capital before executives
receive significant value from these grants.
The time vested options were granted to aid in retention.
Consistent with this goal, the time vested options granted in
2007 vest and become exercisable in equal increments of 20% on
each of the first five
6
anniversaries of the grant date. The time vested options have an
exercise price equivalent to fair market value on the date of
grant. Since our common stock was not then traded on a national
securities exchange, fair market value was determined reasonably
and in good faith by the Board of Directors after consultation
with the Chief Executive Officer and other advisors.
The EBITDA-based performance vested options are intended to
motivate sustained improvement in long-term performance.
Consistent with this goal, the EBITDA-based performance vested
options granted in 2007 are eligible to vest and become
exercisable in equal increments of 20% at the end of fiscal
years 2007, 2008, 2009, 2010 and 2011 if certain annual EBITDA
performance targets are achieved. These EBITDA performance
targets were established at the time of the Merger and can be
adjusted by the Board of Directors in consultation with the
Chief Executive Officer as described below. We chose EBITDA
(defined in the award agreements as earnings before interest,
taxes, depreciation, amortization, minority interest expense
(now, net income attributable to noncontrolling interests),
gains or losses on sales of facilities, gains or losses on
extinguishment of debt, asset or investment impairment charges,
restructuring charges, and any other significant nonrecurring
non-cash gains or charges (but excluding any expenses for
share-based compensation under ASC 718 with respect to any
awards granted under the 2006 Plan)) as the performance metric
since it is a key driver of our valuation and for other reasons
as described above in the Annual Incentive Compensation:
PEP section of this Compensation Discussion and Analysis.
Due to the number of events that can occur within our industry
in any given year that are beyond the control of management but
may significantly impact our financial performance (e.g., health
care regulations, industry-wide significant fluctuations in
volume, etc.), we have incorporated catch up vesting
provisions. The EBITDA-based performance vested options may vest
and become exercisable on a catch up basis, such
that options that were eligible to vest but failed to vest due
to our failure to achieve prior EBITDA targets will vest if at
the end of any subsequent year or at the end of fiscal year
2012, the cumulative total EBITDA earned in all prior years
exceeds the cumulative EBITDA target at the end of such fiscal
year.
As with the EBITDA targets under our PEP, pursuant to the terms
of the 2006 Plan and the Stock Option Agreements governing the
2007 grants, the Board of Directors, in consultation with our
Chief Executive Officer, has the ability to adjust the
established EBITDA targets for significant events, changes in
accounting rules and other customary adjustment events. We
believe these adjustments may be necessary in order to
effectuate the intents and purposes of our compensation plans
and to avoid unintended consequences that are inconsistent with
these intents and purposes. For example, the Board of Directors
exercised its ability to make adjustments to the Companys
2010-2011
EBITDA performance targets (including cumulative EBITDA targets)
for facility acquisitions and accounting changes.
The options that vest based on investment return to the Sponsors
are intended to align the interests of executives with those of
our principal stockholders to ensure stockholders receive their
expected return on their investment before the executives can
receive their gains on this portion of the option grant. These
options vest and become exercisable with respect to 10% of the
common stock subject to such options at the end of fiscal years
2007, 2008, 2009, 2010 and 2011 if the Investor Return (as
defined below) is at least equal to two times the price paid to
stockholders in the Merger (or $22.64), and with respect to an
additional 10% at the end of fiscal years 2007, 2008, 2009, 2010
and 2011 if the Investor Return is at least equal to
two-and-a-half
times the price paid to stockholders in the Merger (or $28.30).
Investor Return means, on any of the first five
anniversaries of the closing date of the Merger, or any date
thereafter, all cash proceeds actually received by affiliates of
the Sponsors after the closing date in respect of their common
stock, including the receipt of any cash dividends or other cash
distributions (including the fair market value of any
distribution of common stock by the Sponsors to their limited
partners), determined on a fully diluted, per share basis. In
addition, the fair market value of the Companys common
stock held by the Sponsors shall be deemed cash
proceeds under the Investor Return options with respect to
one third of such options upon each of the closing of the
Companys initial public offering, December 31, 2011 and
December 31, 2012. The Sponsor investment return options also
may become vested and exercisable on a catch up
basis if the relevant Investor Return is achieved at any time
occurring prior to the expiration of such options.
Upon review of the Companys 2010 financial performance,
the Committee determined the Company achieved the 2010 EBITDA
performance target of $5.066 billion, as adjusted, under
the New Option awards;
7
therefore, pursuant to the terms of the 2007 Stock Option
Agreements, 20% of each named executive officers
EBITDA-based performance vested options vested as of
December 31, 2010. Further, 20% of each named executive
officers time vested options vested on the third
anniversary of their grant date, January 30, 2010. As of
the end of the 2010 fiscal year, no portion of the options that
vest based on Investor Return have vested; however, such options
remain subject to the catch up vesting provisions
described above.
In each of the employment agreements with the named executive
officers, we also committed to grant, among the named executive
officers and certain other executives, 10% of the options
initially authorized for grant under the 2006 Plan at some time
before November 17, 2011 (but with a good faith commitment
to do so before a change in control (as defined in
the 2006 Plan) or a public offering (as defined in
the 2006 Plan) and before the time when our Board of Directors
reasonably believed that the fair market value of our common
stock is likely to exceed the equivalent of $22.64 per share) at
an exercise price per share that is the equivalent of $22.64 per
share (2x Time Options). On October 6, 2009,
the 2x Time Options were granted. The Committee allocated those
options in consultation with our Chief Executive Officer based
on past executive contributions and future anticipated impact on
Company objectives. Forty percent of the 2x Time Options were
vested upon grant to reflect employment served since the Merger,
an additional twenty percent of these options vested on
November 17, 2009 and November 17, 2010, respectively,
and twenty percent of these options will vest on
November 17, 2011. The terms of the 2x Time Options are
otherwise consistent with other time vesting options granted
under the 2006 Plan.
For additional information concerning the options awarded in
2007 and 2009, see the Outstanding Equity Awards at 2010 Fiscal
Year-End Table.
Distributions
on Options
The Company declared cash distributions in respect of the
outstanding common stock of the Company in January, May and
November 2010. In recognition of the value created by management
through effective execution of operating strategies, and as
otherwise required pursuant to the terms of the applicable
option agreements, the Company also made cash distribution
payments to holders of vested stock options outstanding on the
respective distribution record dates, as outlined below.
On January 27, 2010 and May 5, 2010, the Board of
Directors of HCA Inc. declared cash distributions of $3.88 per
share of HCA Inc.s outstanding common stock and $1.11 per
share of HCA Inc.s outstanding common stock (the
February and May Distributions), respectively,
payable to stockholders of record on February 1, 2010 and
May 6, 2010 (the February and May Record
Dates), respectively.
In connection with the February and May Distributions, HCA Inc.
made cash payments to holders of vested options to purchase the
common stock granted pursuant to HCA Inc.s equity
incentive plans. The cash payments equaled the product of
(x) the number of shares of common stock subject to such
options outstanding on the February and May Record Dates,
respectively, multiplied by (y) the per share amount of the
respective February and May Distributions, less (z) any
applicable withholding taxes. In order to effect the cash
payments to holders of vested options granted pursuant to the
2006 Plan, the Committee amended the applicable option
agreements to provide that, in connection with the February and
May Distributions, HCA Inc. made the cash payments described
above to holders of vested options granted pursuant to the 2006
Plan in lieu of adjusting the exercise prices of such options.
HCA Inc. reduced the per share exercise prices of any unvested
options outstanding as of the February and May Record Dates,
respectively, by the respective per share February and May
Distributions amount paid in accordance with the terms of the
option agreements.
On November 23, 2010, the Board of Directors of HCA
Holdings, Inc. declared a cash distribution of $4.44 per share
of the HCA Holdings, Inc.s outstanding common stock (the
November Distribution), payable to stockholders of
record on November 24, 2010 (the November Record
Date).
In connection with the November Distribution, HCA Holdings, Inc.
made a cash payment to holders of vested options to purchase the
HCA Holdings, Inc. common stock granted pursuant to HCA
Holdings, Inc.s equity incentive plans. The cash payment
equaled the product of (x) the number of shares of common
stock subject to such options outstanding on the November Record
Date, multiplied by (y) the per share amount of
8
the November Distribution, less (z) any applicable
withholding taxes. HCA Holdings, Inc. reduced the per share
exercise prices of any unvested options outstanding as of the
November Record Date by the per share November Distribution
amount to the extent the per share exercise price could be
reduced under applicable tax rules. If the per share exercise
price could not be reduced by the full amount of the per share
November Distribution, HCA Holdings, Inc. agreed to pay to each
holder of unvested options to purchase shares of HCA Holdings
Inc.s common stock granted pursuant to HCA Holdings
Inc.s equity incentive plans outstanding on the November
Record Date an amount on a per share basis equal to the balance
of the per share amount of the November Distribution not
permitted to be applied to reduce the exercise price of the
applicable option in respect of each share of common stock
subject to an unvested option to purchase shares of HCA
Holdings, Inc.s common stock as of the November Record
Date on or about the date such option becomes vested.
For additional information concerning the distribution payments
on options held by the named executive officers, see the 2010
Summary Compensation Table.
Ownership
Guidelines
While we have maintained stock ownership guidelines in the past,
as a non-listed company, we no longer have a policy regarding
stock ownership guidelines. However, we do believe equity
ownership aligns our executive officers interests with
those of the Investors. Accordingly, all of our named executive
officers were required to rollover at least half their
pre-Merger equity and, therefore, maintain significant stock
ownership in the Company. See Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
Retirement
Plans
We currently maintain one
tax-qualified
retirement plan in which the named executive officers are
eligible to participate, the HCA 401(k) Plan, to aid in
retention and to assist employees in providing for their
retirement. We also formerly maintained the HCA Retirement Plan,
which as of April 1, 2008, merged into the HCA 401(k) Plan
resulting in one
tax-qualified
retirement plan. Generally all employees who have completed the
required service are eligible to participate in the HCA 401(k)
Plan. Each of our named executive officers participates in the
plan. For additional information on these plans, including
amounts contributed by HCA in 2010 to the named executive
officers, see the Summary Compensation Table and related
footnotes and narratives and 2010 Pension Benefits.
Our key executives, including the named executive officers, also
participate in two supplemental retirement programs. The
Committee and the Board initially approved these supplemental
programs to:
| Recognize significant long-term contributions and commitments by executives to the Company and to performance over an extended period of time; | |
| Induce our executives to continue in our employ through a specified normal retirement age (initially 62 through 65, but reduced to 60 upon the change in control at the time of the Merger in 2006); and | |
| Provide a competitive benefit to aid in attracting and retaining key executive talent. |
The HCA Restoration Plan, a non-qualified retirement plan,
provides a benefit to replace a portion of the contributions
lost in the HCA 401(k) Plan due to certain Internal Revenue
Service limitations. Effective January 1, 2008,
participants in the SERP (described below) are no longer
eligible for Restoration Plan contributions. However, the
hypothetical accounts maintained for each named executive
officer under this plan as of January 1, 2008 will continue
to be maintained and were increased or decreased with
hypothetical investment returns based on the actual investment
return of the Mix B fund within the HCA 401(k) Plan through
December 31, 2010. Subsequently, the hypothetical accounts
as of December 31, 2010 will continue to be maintained but
will not be increased or decreased with hypothetical investment
returns. For additional information concerning the Restoration
Plan, see 2010 Nonqualified Deferred Compensation.
Key executives also participate in the Supplemental Executive
Retirement Plan (the SERP), adopted in 2001. The
SERP benefit brings the total value of annual retirement income
to a specific income replacement
9
level. For named executive officers with 25 years or more
of service, this income replacement level is 60% of final
average pay (base salary and PEP payouts) at normal retirement,
a competitive level of benefit at the time the plan was
implemented. Due to the Merger, all participants are fully
vested in their SERP benefits and the plan is now frozen to new
entrants. For additional information concerning the SERP, see
2010 Pension Benefits.
In the event a participant renders service to another health
care organization within five years following retirement or
termination of employment, he or she forfeits the rights to any
further payment, and must repay any payments already made. This
non-competition provision is subject to waiver by the Committee
with respect to the named executive officers.
Personal
Benefits
Our executive officers receive limited, if any, benefits outside
of those offered to our other employees. Generally, we provide
these benefits to increase travel and work efficiencies and
allow for more productive use of the executives time.
Mr. Bracken is permitted to use the Company aircraft for
personal trips, subject to the aircrafts availability. The
named executive officers may have their spouses accompany them
on business trips taken on the Company aircraft, subject to seat
availability. In addition, there are times when it is
appropriate for an executives spouse to attend events
related to our business. On those occasions, we will pay for the
travel expenses of the executives spouse. We will, on an
as needed basis, provide mobile telephones and personal digital
assistants to our employees and certain of our executive
officers have obtained such devices through us. The value of
these personal benefits, if any, is included in the executive
officers income for tax purposes and, in certain limited
circumstances, the additional income attributed to an executive
officer as a result of one or more of these benefits may be
grossed up to cover the taxes due on that income. Except as
otherwise discussed herein, other welfare and employee-benefit
programs are the same for all of our eligible employees,
including our executive officers. For additional information,
see footnote (4) to the Summary Compensation Table.
Severance
and Change in Control Benefits
As noted above, all of our named executive officers have entered
into employment agreements, which provide, among other things,
each executives rights upon a termination of employment in
exchange for
non-competition,
non-solicitation, and confidentiality covenants. We believe that
reasonable severance benefits are appropriate in order to be
competitive in our executive retention efforts. These benefits
should reflect the fact that it may be difficult for such
executives to find comparable employment within a short period
of time. We also believe that these types of agreements are
appropriate and customary in situations such as the Merger
wherein the executives have made significant personal
investments in the Company and that investment is generally
illiquid for a significant period of time. Finally, we believe
formalized severance arrangements are common benefits offered by
employers competing for similar senior executive talent.
Severance
Benefits for Named Executive Officers
If employment is terminated by the Company without
cause or by the executive for good
reason (whether or not the termination was in connection
with a
change-in-control),
the executive would be entitled to accrued rights
(cause, good reason and accrued rights are as defined in
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table Employment
Agreements) plus:
| Subject to restrictive covenants and the signing of a general release of claims, an amount equal to two times for Messrs. Hazen and Rutledge and Ms. Wallace and three times in the case of Messrs. Bracken and Johnson the sum of base salary plus the annual PEP incentive paid or payable in respect of the fiscal year immediately preceding the fiscal year in which termination occurs, payable over a two year period; |
10
| Pro-rata bonus; and | |
| Continued coverage under our group health plans during the period over which the cash severance is paid. |
Additionally, unvested options will be forfeited; however,
vested New Options (including 2x Time Options) will remain
exercisable until the first anniversary of the termination of
the executives employment.
Because we believe a termination by the executive for good
reason (a constructive termination) is conceptually the same as
an actual termination by the Company without cause, we believe
it is appropriate to provide severance benefits following such a
constructive termination of the named executive officers
employment. All of our severance provisions are believed to be
within the realm of competitive practice and are intended to
provide fair and reasonable compensation to the executive upon a
termination event.
Change
in Control Benefits
Pursuant to the Stock Option Agreements governing the New
Options granted in 2007 and the 2x Time Options granted in 2009,
both under the 2006 Plan, upon a Change in Control of the
Company (as defined below), all unvested time vesting New
Options and 2x Time Options (that have not otherwise terminated
or become exercisable) shall become immediately exercisable.
Performance options that vest subject to the achievement of
EBITDA targets will become exercisable upon a Change in Control
of the Company if: (i) prior to the date of the occurrence
of such event, all EBITDA targets have been achieved for years
ending prior to such date; (ii) on the date of the
occurrence of such event, the Companys actual cumulative
total EBITDA earned in all years occurring after the performance
option grant date, and ending on the date of the Change in
Control, exceeds the cumulative total of all EBITDA targets in
effect for those same years; or (iii) the Investor Return
is at least
two-and-a-half
times the price paid to the stockholders in the Merger (or
$28.30). For purposes of the vesting provision set forth in
clause (ii) above, the EBITDA target for the year in which
the Change in Control occurs shall be equitably adjusted by the
Board of Directors in good faith in consultation with the chief
executive officer (which adjustment shall take into account the
time during such year at which the Change in Control occurs).
Performance vesting options that vest based on the investment
return to the Sponsors will only vest upon the occurrence of a
Change in Control if, as a result of such event, the applicable
Investor Return (i.e., at least two times the price paid to the
stockholders in the Merger for half of these options and at
least
two-and-one-half
times the price paid to the stockholders in the Merger for the
other half of these options) is also achieved in such
transaction (if not previously achieved). Change in
Control means in one or more of a series of transactions
(i) the transfer or sale of all or substantially all of the
assets of the Company (or any direct or indirect parent of the
Company) to an Unaffiliated Person (as defined below);
(ii) a merger, consolidation, recapitalization or
reorganization of the Company (or any direct or indirect parent
of the Company) with or into another Unaffiliated Person, or a
transfer or sale of the voting stock of the Company (or any
direct or indirect parent of the Company), an Investor, or any
affiliate of any of the Investors to an Unaffiliated Person, in
any such event that results in more than 50% of the common stock
of the Company (or any direct or indirect parent of the Company)
or the resulting company being held by an Unaffiliated Person;
or (iii) a merger, consolidation, recapitalization or
reorganization of the Company (or any direct or indirect parent
of the Company) with or into another Unaffiliated Person, or a
transfer or sale by the Company (or any direct or indirect
parent of the Company), an Investor or any affiliate of any of
the Investors, in any such event after which the Investors and
their affiliates (x) collectively own less than 15% of the
common stock of and (y) collectively have the ability to
appoint less than 50% of the directors to the Board (or any
resulting company after a merger). For purposes of this
definition, the term Unaffiliated Person means a
person or group who is not an Investor, an affiliate of any of
the Investors or an entity in which any Investor holds, directly
or indirectly, a majority of the economic interest in such
entity.
Additional information regarding applicable payments under such
agreements for the named executive officers is provided under
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table Employment
Agreements and Potential Payments Upon Termination
or Change in Control.
11
Recoupment
of Compensation
Information regarding the Companys policy with respect to
recovery of incentive compensation is provided under
Annual Incentive Compensation: PEP above.
Tax
and Accounting Implications
On April 29, 2008, we registered our common stock pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as
amended; and the Company became subject to Section 162(m)
of the Code, for fiscal year 2008 and beyond, so long as the
Companys stock remains registered with the SEC. The
Committee considers the impact of Section 162(m) in the
design of its compensation strategies. Under
Section 162(m), compensation paid to executive officers in
excess of $1,000,000 cannot be taken by us as a tax deduction
unless the compensation qualifies as performance-based
compensation. We have determined, however, that we will not
necessarily seek to limit executive compensation to amounts
deductible under Section 162(m) if such limitation is not
in the best interests of our stockholders. While considering the
tax implications of its compensation decisions, the Committee
believes its primary focus should be to attract, retain and
motivate executives and to align the executives interests
with those of our stakeholders.
The Committee operates its compensation programs with the good
faith intention of complying with Section 409A of the
Internal Revenue Code. We account for stock based payments with
respect to our long term equity incentive award programs in
accordance with the requirements of ASC 718.
2010
Summary Compensation Table
The following table sets forth information regarding the
compensation earned by the Chief Executive Officer, the Chief
Financial Officer and our other three most highly compensated
executive officers during 2010.
Changes in |
||||||||||||||||||||||||||||
Pension |
||||||||||||||||||||||||||||
Non-Equity |
Value and |
|||||||||||||||||||||||||||
Incentive |
Nonqualified |
|||||||||||||||||||||||||||
Option |
Plan |
Deferred |
All Other |
|||||||||||||||||||||||||
Salary |
Awards |
Compensation |
Compensation |
Compensation |
||||||||||||||||||||||||
Name and Principal Positions
|
Year | ($) | ($)(1) | ($)(2) | Earnings ($)(3) | ($)(4) | Total ($) | |||||||||||||||||||||
Richard M. Bracken
|
2010 | $ | 1,324,975 | | $ | 2,614,824 | $ | 9,250,610 | $ | 25,010,638 | $ | 38,201,047 | ||||||||||||||||
Chairman and Chief
|
2009 | $ | 1,324,975 | $ | 3,361,016 | $ | 3,445,000 | $ | 4,096,368 | $ | 25,532 | $ | 12,252,891 | |||||||||||||||
Executive Officer
|
2008 | $ | 1,060,872 | | $ | 694,370 | $ | 1,740,620 | $ | 31,781 | $ | 3,527,643 | ||||||||||||||||
R. Milton Johnson
|
2010 | $ | 849,984 | | $ | 1,032,267 | $ | 3,524,104 | $ | 16,520,422 | $ | 21,926,777 | ||||||||||||||||
Executive Vice President,
|
2009 | $ | 849,984 | $ | 2,520,714 | $ | 1,360,000 | $ | 2,032,089 | $ | 17,674 | $ | 6,780,461 | |||||||||||||||
Chief Financial Officer and Director
|
2008 | $ | 786,698 | | $ | 355,491 | $ | 1,871,790 | $ | 38,769 | $ | 3,052,748 | ||||||||||||||||
Samuel N. Hazen
|
2010 | $ | 788,672 | | $ | 816,431 | $ | 2,637,016 | $ | 10,759,757 | $ | 15,001,876 | ||||||||||||||||
President Western Group
|
2009 | $ | 788,672 | $ | 997,771 | $ | 1,041,067 | $ | 1,725,405 | $ | 16,499 | $ | 4,569,414 | |||||||||||||||
2008 | $ | 788,672 | | $ | 350,807 | $ | 810,462 | $ | 15,651 | $ | 1,965,592 | |||||||||||||||||
Beverly B. Wallace
|
2010 | $ | 700,000 | | $ | 701,348 | $ | 3,293,981 | $ | 8,538,321 | $ | 13,233,650 | ||||||||||||||||
President Shared
|
2009 | $ | 700,000 | $ | 997,771 | $ | 924,018 | $ | 2,047,036 | $ | 16,500 | $ | 4,685,325 | |||||||||||||||
Services Group
|
2008 | $ | 700,000 | | $ | 314,992 | $ | 2,080,836 | $ | 15,651 | $ | 3,111,479 | ||||||||||||||||
W. Paul Rutledge
|
2010 | $ | 693,740 | | $ | 350,667 | $ | 2,598,032 | $ | 7,944,136 | $ | 11,586,575 | ||||||||||||||||
President Central Group
|
2009 | $ | 675,000 | $ | 997,771 | $ | 891,017 | $ | 1,510,040 | $ | 16,500 | $ | 4,090,328 |
(1) | Option Awards for 2009 include the aggregate grant date fair value of the stock option awards granted during fiscal year 2009 in accordance with ASC 718 with respect to the 2x Time Options to purchase shares of our common stock awarded to the named executive officers in fiscal year 2009 under the 2006 Plan. | |
(2) | Non-Equity Incentive Plan Compensation for 2010 reflects amounts earned for the year ended December 31, 2010 under the 2010 PEP, which amounts will be paid in cash up to the target level and 50% in cash and 50% through the grant of RSU awards in the first quarter of 2011 pursuant to the terms of the 2010 PEP. For 2010, the Company achieved its target performance level, but not did not reach its |
12
maximum performance level, as adjusted, with respect to the Companys EBITDA; therefore, pursuant to the terms of the 2010 PEP, 2010 awards under the 2010 PEP will be paid out to the named executive officers at approximately 151.8% of each such officers respective target amount, with the exception of Mr. Hazen, whose award will be paid out at approximately 156.9% his target amount, due to the 50% of his PEP based on the Western Group EBITDA, which also exceeded the target performance level but did not reach the maximum performance level, and Mr. Rutledge, whose award will be paid out at approximately 75.9% of his target amount, due to the 50% of his PEP based on the Central Group EBITDA, which did not reach the threshold performance level. | ||
Non-Equity Incentive Plan Compensation for 2009 reflects amounts earned for the year ended December 31, 2009 under the 2008-2009 PEP, which amounts were paid in the first quarter of 2010 pursuant to the terms of the 2008-2009 PEP. For 2009, the Company exceeded its maximum performance level, as adjusted, with respect to the Companys EBITDA and the Central and Western Group EBITDA; therefore, pursuant to the terms of the 2008-2009 PEP, awards under the 2008-2009 PEP were paid out to the named executive officers, at the maximum level of 200% of their respective target amounts. | ||
Non-Equity Incentive Plan Compensation for 2008 reflects amounts earned for the year ended December 31, 2008 under the 2008-2009 PEP, which amounts were paid in the first quarter of 2009 pursuant to the terms of the 2008-2009 PEP. For 2008, the Company did not achieve its target performance level, but exceeded its threshold performance level, as adjusted, with respect to the Companys EBITDA; therefore, pursuant to the terms of the 2008-2009 PEP, 2008 awards under the 2008-2009 PEP were paid out to the named executive officers at approximately 68.2% of each such officers respective target amount, with the exception of Mr. Hazen, whose award was paid out at approximately 67.4% of his target amount, due to the 50% of his PEP based on the Western Group EBITDA, which also exceeded the threshold performance level but did not reach the target performance level. | ||
(3) | All amounts for 2010 are attributable to changes in value of the SERP benefits. Assumptions used to calculate these figures are provided under the table titled 2010 Pension Benefits. The changes in the SERP benefit value during 2010 were impacted mainly by: (i) the passage of time which reflects another year of pay and service plus actual investment return and (ii) the discount rate changing from 5.00% to 4.25%, which resulted in an increase in the value. The impact of these events on the SERP benefit values was: |
Bracken | Johnson | Hazen | Wallace | Rutledge | ||||||||||||||||
Passage of Time
|
$ | 6,851,260 | $ | 2,181,373 | $ | 1,351,824 | $ | 2,240,652 | $ | 1,617,037 | ||||||||||
Discount Rate Change
|
$ | 2,399,350 | $ | 1,342,731 | $ | 1,285,192 | $ | 1,053,329 | $ | 980,995 |
All amounts for 2009 are attributable to changes in value of the SERP benefits. Assumptions used to calculate these figures are provided under the table titled 2010 Pension Benefits. The changes in the SERP benefit value during 2009 were impacted mainly by: (i) the passage of time which reflects another year of pay and service plus actual investment return and (ii) the discount rate changing from 6.25% to 5.00%, which resulted in an increase in the value. The impact of these events on the SERP benefit values was: |
Bracken | Johnson | Hazen | Wallace | Rutledge | ||||||||||||||||
Passage of Time
|
$ | 1,655,097 | $ | 618,320 | $ | 343,653 | $ | 788,376 | $ | 420,979 | ||||||||||
Discount Rate Change
|
$ | 2,441,271 | $ | 1,413,769 | $ | 1,381,752 | $ | 1,258,660 | $ | 1,089,061 |
All amounts for 2008 are attributable to changes in value of the SERP benefits. Assumptions used to calculate these figures are provided under the table titled 2010 Pension Benefits. The changes in the SERP benefit value during 2008 were impacted mainly by: (i) the passage of time which reflects another year of pay and service plus actual investment return and (ii) the discount rate changing from 6.00% to |
13
6.25%, which resulted in a decrease in the value. The impact of these events on the SERP benefit values was: |
Bracken | Johnson | Hazen | Wallace | |||||||||||||
Passage of Time
|
$ | 2,142,217 | $ | 2,100,290 | $ | 1,037,631 | $ | 2,301,107 | ||||||||
Discount Rate Change
|
$ | (401,597 | ) | $ | (228,500 | ) | $ | (227,169 | ) | $ | (220,271 | ) |
(4) | 2010 amounts generally consist of: |
| Distributions paid in 2010 on vested stock options held by the named executive officers on the applicable distribution record dates. Distributions of $3.88, $1.11 and $4.44, respectively, per share of common stock subject to such outstanding vested stock options held on the February 1, May 6 and November 24, 2010 record dates, respectively, were paid to the named executive officers in 2010. The total cash distributions received on vested stock options by the named executive officers in 2010 were: |
Bracken | Johnson | Hazen | Wallace | Rutledge | ||||||||||||||||
Cash distributions on vested stock options
|
$ | 21,752,083 | $ | 14,193,133 | $ | 9,264,688 | $ | 7,228,640 | $ | 6,630,283 |
| Distributions that will become payable to the named executive officers upon the vesting of the applicable unvested stock option awards held by the named executive officers on the November 24, 2010 record date. In accordance with the award agreements governing the New Option awards held by the named executive officers, the Company reduced the per share exercise price of any unvested option outstanding as of the November 24, 2010 record date by the per share distribution amount ($4.44 per share) to the extent the per share exercise price could be reduced under applicable tax rules. Pursuant to such award agreements, to the extent the per share exercise price could not be reduced by the full $4.44 per share distribution, the Company will pay the named executive officers an amount on a per share basis equal to the balance of the per share distribution amount not permitted to be applied to reduce the exercise price of the applicable option in respect of each share of common stock subject to such unvested option outstanding as of the November 24, 2010 record date upon the vesting of such option. The total cash distributions attributable to the November 24, 2010 record date distribution (such amounts representing the balance of the distribution amount by which the exercise price of such options could not be reduced under applicable tax rules) that will become payable upon vesting of the applicable unvested stock options awards held by the named executive officers on November 24, 2010 are: |
Bracken | Johnson | Hazen | Wallace | Rutledge | ||||||||||||||||
Balance of November 24, 2010 distribution amount payable on
unvested stock options upon vesting of such options
|
$ | 3,232,926 | $ | 2,309,235 | $ | 1,477,896 | $ | 1,293,161 | $ | 1,293,161 |
| Matching Company contributions to our 401(k) Plan as set forth below. |
Bracken | Johnson | Hazen | Wallace | Rutledge | ||||||||||||||||
HCA 401(k) matching contribution
|
$ | 16,500 | $ | 16,500 | $ | 16,499 | $ | 16,500 | $ | 16,499 |
| Personal use of corporate aircraft. In 2010, Messrs. Bracken, Johnson and Rutledge were allowed personal use of Company aircraft with an estimated incremental cost of $6,149, $1,554 and $2,339, respectively, to the Company. Ms. Wallace and Mr. Hazen did not have any personal travel on Company aircraft in 2010. We calculate the aggregate incremental cost of the personal use of Company aircraft based on a methodology that includes the average aggregate cost, on a per nautical mile basis, of variable expenses incurred in connection with personal plane usage, including trip-related maintenance, landing fees, fuel, crew hotels and meals, on-board catering, trip-related hangar and parking costs and other variable costs. Because our aircraft are used primarily for business travel, our incremental cost methodology does not include fixed costs of owning and operating aircraft that do not change based on usage. We grossed up the income attributed to Mr. Bracken with respect to certain trips on Company aircraft. The additional income attributed to him as a result of gross ups was $1,891. |
14
In addition, we will pay the expenses of our executives spouses associated with travel to and/or attendance at business related events at which spouse attendance is appropriate. We paid approximately $692, $495 and $1,178 for travel and/or other expenses incurred by Messrs. Bracken, Hazen and Rutledges spouses, respectively, for such business related events, and additional income of $397, $179 and $676 was attributed to Messrs. Bracken, Hazen and Rutledge, respectively, as a result of the gross up on such amounts. |
2009 amounts generally consist of:
| Matching Company contributions to our 401(k) Plan as set forth below. |
Bracken | Johnson | Hazen | Wallace | Rutledge | ||||||||||||||||
HCA 401(k) matching contribution
|
$ | 16,500 | $ | 16,500 | $ | 16,499 | $ | 16,500 | $ | 16,500 |
| Personal use of corporate aircraft. In 2009, Messrs. Bracken and Johnson were allowed personal use of Company aircraft with an estimated incremental cost of $5,025 and $1,129, respectively, to the Company. Ms. Wallace and Messrs. Hazen and Rutledge did not have any personal travel on Company aircraft in 2009. We calculate the aggregate incremental cost of the personal use of Company aircraft based on a methodology that includes the average aggregate cost, on a per nautical mile basis, of variable expenses incurred in connection with personal plane usage, including trip-related maintenance, landing fees, fuel, crew hotels and meals, on-board catering, trip-related hangar and parking costs and other variable costs. Because our aircraft are used primarily for business travel, our incremental cost methodology does not include fixed costs of owning and operating aircraft that do not change based on usage. We grossed up the income attributed to Mr. Bracken with respect to certain trips on Company aircraft. The additional income attributed to him as a result of gross ups was $594. In addition, we will pay the expenses of our executives spouses associated with travel to and/or attendance at business related events at which spouse attendance is appropriate. We paid approximately $2,477 for travel and/or other expenses incurred by Mr. Brackens spouse for such business related events, and additional income of $891 was attributed to Mr. Bracken as a result of the gross up on such amount. |
2008 amounts consist of:
| Company contributions to our former Retirement Plan and matching Company contributions to our 401(k) Plan as set forth below. |
Bracken | Johnson | Hazen | Wallace | |||||||||||||
HCA Retirement Plan
|
$ | 3,163 | $ | 3,163 | $ | 3,163 | $ | 3,163 | ||||||||
HCA 401(k) matching contribution
|
$ | 12,488 | $ | 12,488 | $ | 12,488 | $ | 12,488 |
| Personal use of corporate aircraft. In 2008, Messrs. Bracken and Johnson were allowed personal use of Company aircraft with an estimated incremental cost of $15,233 and $4,546, respectively, to the Company. Ms. Wallace and Mr. Hazen did not have any personal travel on Company aircraft in 2008. We calculate the aggregate incremental cost of the personal use of Company aircraft based on a methodology that includes the average aggregate cost, on a per nautical mile basis, of variable expenses incurred in connection with personal plane usage, including trip-related maintenance, landing fees, fuel, crew hotels and meals, on-board catering, trip-related hangar and parking costs and other variable costs. Because our aircraft are used primarily for business travel, our incremental cost methodology does not include fixed costs of owning and operating aircraft that do not change based on usage. We grossed up the income attributed to Mr. Bracken with respect to certain trips on Company aircraft. The additional income attributed to him as a result of gross ups was $599. In addition, we will pay the expenses of our executives spouses associated with travel to and/or attendance at business related events at which spouse attendance is appropriate. We paid approximately $189 and $13,660 for travel and/or other expenses incurred by Messrs. Brackens and Johnsons spouses, respectively, for such business related events, and additional income of $109 and $4,912 was attributed to Messrs. Bracken and Johnson, respectively, as a result of the gross up on such amounts. |
15
2010
Grants of Plan-Based Awards
The following table provides information with respect to awards
made under our 2010 PEP during the 2010 fiscal year.
All Other |
||||||||||||||||||||||||||||||||||||||||
Option |
||||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts |
Estimated Possible Payouts |
Awards: |
Exercise or |
|||||||||||||||||||||||||||||||||||||
Under Non-Equity Incentive |
Under Equity Incentive |
Number of |
Base Price |
Grant Date |
||||||||||||||||||||||||||||||||||||
Plan Awards ($)(1) | Plan Awards (#) |
Securities |
of Option |
Fair Value |
||||||||||||||||||||||||||||||||||||
Grant |
Threshold |
Target |
Maximum |
Threshold |
Target |
Maximum |
Underlying |
Awards |
of Option |
|||||||||||||||||||||||||||||||
Name
|
Date | ($) | ($) | ($) | (#) | (#) | (#) | Options(2) | ($/sh) | Awards | ||||||||||||||||||||||||||||||
Richard M. Bracken
|
N/A | $ | 430,625 | $ | 1,722,500 | $ | 3,445,000 | | | | | | | |||||||||||||||||||||||||||
R. Milton Johnson
|
N/A | $ | 170,000 | $ | 680,000 | $ | 1,360,000 | | | | | | | |||||||||||||||||||||||||||
Samuel N. Hazen
|
N/A | $ | 130,133 | $ | 520,534 | $ | 1,041,067 | | | | | | | |||||||||||||||||||||||||||
Beverly B. Wallace
|
N/A | $ | 115,502 | $ | 462,009 | $ | 924,018 | | | | | | | |||||||||||||||||||||||||||
W. Paul Rutledge
|
N/A | $ | 115,500 | $ | 462,000 | $ | 924,000 | | | | | | |
(1) | Non-equity incentive awards granted to each of the named executive officers pursuant to our 2010 PEP for the 2010 fiscal year, as described in more detail under Compensation Discussion and Analysis Annual Incentive Compensation: PEP. The amounts shown in the Threshold column reflect the threshold payment, which is 25% of the amount shown in the Target column. The amount shown in the Maximum column is 200% of the target amount. Pursuant to the terms of the 2010 PEP, the Company achieved its target performance level, as adjusted, but not did not reach its maximum performance level, as adjusted, with respect to the Companys EBITDA and the Western Group EBITDA; however, the Company did not reach the threshold performance level, as adjusted, with respect to the Central Group EBITDA. Therefore, 2010 awards under the 2010 PEP will be paid out to the named executive officers at approximately 151.8% of each such officers respective target amount, with the exception of Mr. Hazen, whose award will be paid out at approximately 156.9% his target amount, due to the 50% of his PEP based on the Western Group EBITDA, and Mr. Rutledge, whose award will be paid out at approximately 75.9% of his target amount, due to the 50% of his PEP based on the Central Group EBITDA (including the International Division). Under the 2010 PEP for the 2010 fiscal year, Messrs. Bracken, Johnson, Hazen and Rutledge and Ms. Wallace will receive cash payments of $2,168,662, $856,134, $668,482, $350,667 and $581,678, respectively, and approximately $446,162, $176,133, $147,949, $0 and $119,670, respectively, payable in RSU awards at a grant price to be determined by the Board of Directors in consultation with the CEO in accordance with the 2010 PEP and our equity award policy, which RSU awards will vest 50% on the second anniversary of grant date and 50% on the third anniversary of the grant date. Such amounts are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. |
Narrative
Disclosure to Summary Compensation Table and 2010 Grants of
Plan-Based Awards Table
Total
Compensation
In 2010, 2009 and 2008, total direct compensation, as described
in the Summary Compensation Table, consisted primarily of base
salary, annual PEP awards payable in cash, and, in 2009, 2x Time
Option grants as set forth in each named executive
officers employment agreement to be fully vested on the
fifth anniversary of the Merger, and in 2010, distributions paid
on the vested stock options held by the named executive officers
on the applicable record dates and distributions that will
become payable to the named executive officers upon the vesting
of the certain unvested stock option awards held by the named
executive officers on the November 24, 2010 distribution
record date to the extent the exercise price of such options
could not be fully reduced by the distribution amount under
applicable tax rules. This mix was intended to reflect our
philosophy that a significant portion of an executives
compensation should be equity-linked
and/or tied
to our operating performance. In addition, we provided an
opportunity for executives to participate in two supplemental
retirement plans; however, effective January 1, 2008,
participants in the SERP are no longer eligible for Restoration
Plan contributions, although Restoration Plan accounts will
continue to be maintained for such participants (for additional
information concerning the Restoration Plan, see 2010
Nonqualified Deferred Compensation).
16
Options
In January 2007, New Options to purchase common stock of the
Company were granted under the 2006 Plan to members of
management and key employees, including the named executive
officers. The New Options were designed to be long term equity
incentive awards, constituting a one-time stock option grant in
lieu of annual equity grants. The New Options granted in 2007
have a ten year term and are structured so that 1/3 are time
vested options (vesting in five equal installments on the first
five anniversaries of the grant date),
1/3 are
EBITDA-based performance vested options and 1/3 are performance
options that vest based on investment return to the Sponsors.
The terms of the New Options granted in 2007 are described in
greater detail under Compensation Discussion and Analysis
Long Term Equity Incentive Awards: Options.
In accordance with their employment agreements entered into at
the time of the Merger, as each may have been or may be
subsequently amended, our named executive officers received the
2x Time Options in October 2009 with an exercise price equal to
two times the share price at the Merger (or $22.64). The
Committee allocated the 2x Time Options in consultation with our
Chief Executive Officer, based on past executive contributions
and future anticipated impact on Company objectives. The 2x Time
Options have a ten year term and are structured so that forty
percent were vested upon grant, an additional twenty percent of
the options vested on November 17, 2009 and
November 17, 2010, respectively, and twenty percent of the
options granted to each recipient will vest on November 17,
2011. Thereby, a portion of the grant was vested on the date of
the grant based on employment served since the Merger. The terms
of the 2x Time Options are otherwise consistent with other time
vesting options granted under the 2006 Plan. The terms of the 2x
Time Options granted in 2009 are described in greater detail
under Compensation Discussion and Analysis
Long Term Equity Incentive Awards: Options. The aggregate
grant date fair value of the 2x Time Options granted in 2009 in
accordance with ASC 718 is included under the Option
Awards column of the Summary Compensation Table.
As a result of the Merger, all unvested awards under the HCA
2005 Equity Incentive Plan (the 2005 Plan) (and all
predecessor equity incentive plans) vested in November 2006.
Generally, all outstanding options under the 2005 Plan (and any
predecessor plans) were cancelled and converted into the right
to receive a cash payment equal to the number of shares of
common stock underlying the option multiplied by the amount by
which the Merger consideration of $11.32 per share exceeded the
exercise price for the options (without interest and less any
applicable withholding taxes). However, certain members of
management, including the named executive officers, were given
the opportunity to convert options held by them prior to
consummation of the Merger into options to purchase shares of
common stock of the surviving corporation (Rollover
Options). Immediately after the consummation of the
Merger, all Rollover Options (other than those with an exercise
price below $2.83) were adjusted so that they retained the same
spread value (as defined below) as immediately prior
to the Merger, but the new per share exercise price for all
Rollover Options became $2.83. The term spread value
means the difference between (x) the aggregate fair market
value of the common stock (determined using the Merger
consideration of $11.32 per share) subject to the outstanding
options held by the participant immediately prior to the Merger
that became Rollover Options, and (y) the aggregate
exercise price of those options.
New Options, 2x Time Options and Rollover Options held by the
named executive officers are described in the Outstanding Equity
Awards at 2010 Fiscal Year-End Table.
Employment
Agreements
In connection with the Merger, on November 16, 2006,
Hercules Holding entered into substantially similar employment
agreements with each of the named executive officers and certain
other executives, which agreements were shortly thereafter
assumed by HCA Inc., and then in November 2010, to the extent
applicable, by HCA Holdings, Inc., and which agreements govern
the terms of each executives employment. The Company
entered into an amendment to Mr. Brackens employment
agreement, effective January 1, 2009, to reflect his
appointment to the position of Chief Executive Officer.
Effective as of February 9, 2011, the Company entered into
amendments to Messrs. Brackens, Johnsons,
Hazens and Ms. Wallaces employment agreements
reflecting the new titles and new responsibilities resulting
from the Companys internal
17
reorganization. In addition, Mr. Johnsons amendment
reflects that he shall serve as a member of the Board of
Directors of the Company for so long as he is an officer of the
Company.
Executive
Employment Agreements
The term of employment under each of these agreements is
indefinite, and they are terminable by either party at any time;
provided that an executive must give no less than 90 days
notice prior to a resignation.
Each employment agreement sets forth the executives annual
base salary, which will be subject to discretionary annual
increases upon review by the Board of Directors, and states that
the executive will be eligible to earn an annual bonus as a
percentage of salary with respect to each fiscal year, based
upon the extent to which annual performance targets established
by the Board of Directors are achieved. The employment
agreements committed us to provide each executive with annual
bonus opportunities in 2008 that were consistent with those
applicable to the 2007 fiscal year, unless doing so would be
adverse to our interests or the interests of our stockholders,
and for later fiscal years, the agreements provide that the
Board of Directors will set bonus opportunities in consultation
with our Chief Executive Officer. With respect to the 2010
fiscal year and the 2009 and 2008 fiscal years, each executive
was eligible to earn under the 2010 PEP and the
2008-2009
PEP, respectively, (i) a target bonus, if performance
targets were met; (ii) a specified percentage of the target
bonus, if threshold levels of performance were
achieved but performance targets were not met; or (iii) a
multiple of the target bonus if maximum performance
goals were achieved, with the annual bonus amount being
interpolated, in the sole discretion of the Board of Directors,
for performance results that exceeded threshold
levels but do not meet or exceed maximum levels. The
annual bonus opportunities for 2010 were set forth in the 2010
PEP, as described in more detail under Compensation
Discussion and Analysis Annual Incentive
Compensation: PEP. As described above, the Company
achieved its target performance level, as adjusted, for 2010 but
did not reach its maximum performance level, as adjusted, with
respect to the Companys EBITDA and the Western Group
EBITDA; however, the Company did not reach the threshold
performance level, as adjusted, with respect to the Central
Group EBITDA. Therefore, 2010 awards under the 2010 PEP will be
paid out to the named executive officers at approximately 151.8%
of each such officers respective target amount, with the
exception of Mr. Hazen, whose award will be paid out at
approximately 156.9% of his target amount, due to the 50% of his
PEP based on the Western Group EBITDA, and Mr. Rutledge,
whose award will be paid out at approximately 75.9% of his
target amount, due to the 50% of his PEP based on the Central
Group EBITDA. As described above, the Company exceeded its
maximum performance level, as adjusted, for 2009 with respect to
the Companys EBITDA and the Central and Western Group
EBITDA; therefore, pursuant to the terms of the
2008-2009
PEP, awards were paid out to the named executive officers, at
the maximum level of 200% of their respective target amounts for
2009. As described above, awards under the 2008 PEP were paid
out to the named executive officers at approximately 68.2% of
each such officers respective target amount, with the
exception of Mr. Hazen, whose award was paid out at
approximately 67.4% of the target amount. Each employment
agreement also sets forth the number of options that the
executive received pursuant to the 2006 Plan as a percentage of
the total equity initially made available for grants pursuant to
the 2006 Plan. Such option awards, the New Options, were made
January 30, 2007 and are described above under
Options. In each of the employment agreements with
the named executive officers, we also committed to grant, among
the named executive officers and certain other executives, the
2x Time Options, which were granted, as described above, on
October 6, 2009. Additionally, pursuant to the employment
agreements, we agree to indemnify each executive against any
adverse tax consequences (including, without limitation, under
Section 409A and 4999 of the Internal Revenue Code), if
any, that result from the adjustment by us of stock options held
by the executive in connection with Merger or the future payment
of any extraordinary cash dividends.
Pursuant to each employment agreement, if an executives
employment terminates due to death or disability, the executive
would be entitled to receive (i) any base salary and any
bonus that is earned and unpaid through the date of termination;
(ii) reimbursement of any unreimbursed business expenses
properly incurred by the executive; (iii) such employee
benefits, if any, as to which the executive may be entitled
under our employee benefit plans (the payments and benefits
described in (i) through (iii) being accrued
rights); and (iv) a pro rata portion of any annual
bonus that the executive would have been entitled to receive
pursuant
18
to the employment agreement based upon our actual results for
the year of termination (with such proration based on the
percentage of the fiscal year that shall have elapsed through
the date of termination of employment, payable to the executive
when the annual bonus would have been otherwise payable (the
pro rata bonus)).
If an executives employment is terminated by us without
cause (as defined below) or by the executive for
good reason (as defined below) (each a
qualifying termination), the executive would be
(i) entitled to the accrued rights; (ii) subject to
compliance with certain confidentiality, non-competition and
non-solicitation covenants contained in his or her employment
agreement and execution of a general release of claims on behalf
of the Company, an amount equal to the product of (x) two
(three in the case of Richard M. Bracken and R. Milton Johnson)
and (y) the sum of (A) the executives base
salary and (B) annual bonus paid or payable in respect of
the fiscal year immediately preceding the fiscal year in which
termination occurs, payable over a two- year period;
(iii) entitled to the pro rata bonus; and
(iv) entitled to continued coverage under our group health
plans during the period over which the cash severance described
in clause (ii) is paid. The executives vested New
Options and 2x Time Options would also remain exercisable until
the first anniversary of the termination of the executives
employment. However, in lieu of receiving the payments and
benefits described in (ii), (iii) and (iv) immediately
above, the executive may instead elect to have his or her
covenants not to compete waived by us. The same severance
applies regardless of whether the termination was in connection
with a change in control of the Company.
Cause is defined as an executives
(i) willful and continued failure to perform his material
duties to the Company which continues beyond 10 business days
after a written demand for substantial performance is delivered;
(ii) willful or intentional engagement in material
misconduct that causes material and demonstrable injury,
monetarily or otherwise, to the Company or the Sponsors;
(iii) conviction of, or a plea of nolo contendere
to, a crime constituting a felony, or a misdemeanor for
which a sentence of more than six months imprisonment is
imposed; or (iv) willful and material breach of his
covenants under the employment agreement which continues beyond
the designated cure period or of the agreements relating to the
new equity. Good Reason is defined as (i) a
reduction in the executives base salary (other than a
general reduction that affects all similarly situated employees
in substantially the same proportions which is implemented by
the Board in good faith after consultation with the chief
executive officer and chief operating officer), a reduction in
the executives annual incentive compensation opportunity,
or the reduction of benefits payable to the executive under the
SERP; (ii) a substantial diminution in the executives
title, duties and responsibilities; or (iii) a transfer of
the executives primary workplace to a location that is
more than 20 miles from his or her current workplace (other
than, in the case of (i) and (ii), any isolated,
insubstantial and inadvertent failure that is not in bad faith
and is cured within 10 business days after the executives
written notice to the Company).
In the event of an executives termination of employment
that is not a qualifying termination or a termination due to
death or disability, he or she will only be entitled to the
accrued rights (as defined above).
Additional information with respect to potential payments to the
named executive officers pursuant to their employment agreements
and the 2006 Plan is contained in Potential Payments Upon
Termination or Change in Control.
19
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table includes certain information with respect to
options held by the named executive officers as of
December 31, 2010.
Equity Incentive |
||||||||||||||||||||
Number of |
Number of |
Plan Awards: |
||||||||||||||||||
Securities |
Securities |
Number of |
||||||||||||||||||
Underlying |
Underlying |
Securities |
||||||||||||||||||
Unexercised |
Unexercised |
Underlying |
Option |
|||||||||||||||||
Options |
Options |
Unexercised |
Exercise |
Option |
||||||||||||||||
Exercisable |
Unexercisable |
Unearned |
Price |
Expiration |
||||||||||||||||
Name
|
(#)(1)(2)(3) | (#)(2)(3) | Options(#)(2) | ($)(4)(5)(6) | Date | |||||||||||||||
Richard M. Bracken
|
134,852 | | | $ | 2.83 | 1/24/2012 | ||||||||||||||
Richard M. Bracken
|
182,407 | | | $ | 2.83 | 1/29/2013 | ||||||||||||||
Richard M. Bracken
|
136,208 | | | $ | 2.83 | 1/29/2014 | ||||||||||||||
Richard M. Bracken
|
48,378 | | | $ | 2.83 | 1/27/2015 | ||||||||||||||
Richard M. Bracken
|
31,961 | | | $ | 2.83 | 1/26/2016 | ||||||||||||||
Richard M. Bracken
|
105,011 | 210,032 | 630,078 | $ | 5.31 | 1/30/2017 | ||||||||||||||
Richard M. Bracken
|
630,068 | | | $ | 11.32 | 1/30/2017 | ||||||||||||||
Richard M. Bracken
|
| 284,490 | | $ | 13.21 | 10/6/2019 | ||||||||||||||
Richard M. Bracken
|
284,481 | | | $ | 17.65 | 10/6/2019 | ||||||||||||||
Richard M. Bracken
|
853,445 | | | $ | 22.64 | 10/6/2019 | ||||||||||||||
R. Milton Johnson
|
43,153 | | | $ | 2.83 | 1/24/2012 | ||||||||||||||
R. Milton Johnson
|
41,689 | | | $ | 2.83 | 1/29/2013 | ||||||||||||||
R. Milton Johnson
|
36,319 | | | $ | 2.83 | 1/29/2014 | ||||||||||||||
R. Milton Johnson
|
117,188 | | | $ | 2.83 | 7/22/2014 | ||||||||||||||
R. Milton Johnson
|
29,016 | | | $ | 2.83 | 1/27/2015 | ||||||||||||||
R. Milton Johnson
|
19,374 | | | $ | 2.83 | 1/26/2016 | ||||||||||||||
R. Milton Johnson
|
75,008 | 150,021 | 450,057 | $ | 5.31 | 1/30/2017 | ||||||||||||||
R. Milton Johnson
|
450,048 | | | $ | 11.32 | 1/30/2017 | ||||||||||||||
R. Milton Johnson
|
| 213,365 | | $ | 13.21 | 10/6/2019 | ||||||||||||||
R. Milton Johnson
|
213,356 | | | $ | 17.65 | 10/6/2019 | ||||||||||||||
R. Milton Johnson
|
640,070 | | | $ | 22.64 | 10/6/2019 | ||||||||||||||
Samuel N. Hazen
|
86,306 | | | $ | 2.83 | 1/24/2012 | ||||||||||||||
Samuel N. Hazen
|
104,232 | | | $ | 2.83 | 1/29/2013 | ||||||||||||||
Samuel N. Hazen
|
75,670 | | | $ | 2.83 | 1/29/2014 | ||||||||||||||
Samuel N. Hazen
|
29,016 | | | $ | 2.83 | 1/27/2015 | ||||||||||||||
Samuel N. Hazen
|
19,374 | | | $ | 2.83 | 1/26/2016 | ||||||||||||||
Samuel N. Hazen
|
48,005 | 96,015 | 288,031 | $ | 5.31 | 1/30/2017 | ||||||||||||||
Samuel N. Hazen
|
288,030 | | | $ | 11.32 | 1/30/2017 | ||||||||||||||
Samuel N. Hazen
|
| 84,464 | | $ | 13.21 | 10/6/2019 | ||||||||||||||
Samuel N. Hazen
|
84,450 | | | $ | 17.65 | 10/6/2019 | ||||||||||||||
Samuel N. Hazen
|
253,352 | | | $ | 22.64 | 10/6/2019 | ||||||||||||||
Beverly B. Wallace
|
62,538 | | | $ | 2.83 | 1/29/2013 | ||||||||||||||
Beverly B. Wallace
|
51,456 | | | $ | 2.83 | 1/29/2014 | ||||||||||||||
Beverly B. Wallace
|
20,726 | | | $ | 2.83 | 1/27/2015 | ||||||||||||||
Beverly B. Wallace
|
16,032 | | | $ | 2.83 | 1/26/2016 | ||||||||||||||
Beverly B. Wallace
|
42,004 | 84,013 | 252,027 | $ | 5.31 | 1/30/2017 | ||||||||||||||
Beverly B. Wallace
|
252,026 | | | $ | 11.32 | 1/30/2017 |
20
Equity Incentive |
||||||||||||||||||||
Number of |
Number of |
Plan Awards: |
||||||||||||||||||
Securities |
Securities |
Number of |
||||||||||||||||||
Underlying |
Underlying |
Securities |
||||||||||||||||||
Unexercised |
Unexercised |
Underlying |
Option |
|||||||||||||||||
Options |
Options |
Unexercised |
Exercise |
Option |
||||||||||||||||
Exercisable |
Unexercisable |
Unearned |
Price |
Expiration |
||||||||||||||||
Name
|
(#)(1)(2)(3) | (#)(2)(3) | Options(#)(2) | ($)(4)(5)(6) | Date | |||||||||||||||
Beverly B. Wallace
|
| 84,464 | | $ | 13.21 | 10/6/2019 | ||||||||||||||
Beverly B. Wallace
|
84,450 | | | $ | 17.65 | 10/6/2019 | ||||||||||||||
Beverly B. Wallace
|
253,352 | | | $ | 22.64 | 10/6/2019 | ||||||||||||||
W. Paul Rutledge
|
37,756 | | | $ | 2.83 | 1/24/2012 | ||||||||||||||
W. Paul Rutledge
|
41,689 | | | $ | 2.83 | 1/29/2013 | ||||||||||||||
W. Paul Rutledge
|
24,214 | | | $ | 2.83 | 1/29/2014 | ||||||||||||||
W. Paul Rutledge
|
10,346 | | | $ | 2.83 | 1/27/2015 | ||||||||||||||
W. Paul Rutledge
|
24,304 | | | $ | 2.83 | 10/1/2015 | ||||||||||||||
W. Paul Rutledge
|
19,374 | | | $ | 2.83 | 1/26/2016 | ||||||||||||||
W. Paul Rutledge
|
42,004 | 84,013 | 252,027 | $ | 5.31 | 1/30/2017 | ||||||||||||||
W. Paul Rutledge
|
252,026 | | | $ | 11.32 | 1/30/2017 | ||||||||||||||
W. Paul Rutledge
|
| 84,464 | | $ | 13.21 | 10/6/2019 | ||||||||||||||
W. Paul Rutledge
|
84,450 | | | $ | 17.65 | 10/6/2019 | ||||||||||||||
W. Paul Rutledge
|
253,352 | | | $ | 22.64 | 10/6/2019 |
(1) | Reflects Rollover Options, as further described under Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Options, the 60% of the named executive officers time vested New Options, comprised of the 20% that vested as of January 30, 2008, January 30, 2009 and January 30, 2010, respectively, the 80% of the named executive officers EBITDA-based performance vested New Options, comprised of the 20% that vested as of December 31, 2007, December 31, 2008, December 31, 2009 and December 31, 2010, respectively (upon the Committees determination that the Company achieved the 2007, 2008, 2009 and 2010 EBITDA performance targets under the option awards, as adjusted, as described in more detail under Compensation Discussion and Analysis Long Term Equity Incentive Awards: Options) and the 80% of the named executive officers vested 2x Time Options, comprised of the 40% that were vested on the grant date and the 20% that vested on November 17, 2009 and November 17, 2010, respectively. | |
(2) | Reflects New Options awarded in January 2007 under the 2006 Plan by the Compensation Committee as part of the named executive officers long term equity incentive award. The New Options granted in 2007 are structured so that 1/3 are time vested options (vesting in five equal installments on the first five anniversaries of the January 30, 2007 grant date), 1/3 are EBITDA-based performance vested options (vesting in equal increments of 20% at the end of fiscal years 2007, 2008, 2009, 2010 and 2011 if certain annual EBITDA performance targets are achieved, subject to catch up vesting, such that, options that were eligible to vest but failed to vest due to our failure to achieve prior EBITDA targets will vest if at the end of any subsequent year or at the end of fiscal year 2012, the cumulative total EBITDA earned in all prior years exceeds the cumulative EBITDA target at the end of such fiscal year) and 1/3 are performance options that vest based on investment return to the Sponsors (vesting with respect to 10% of the common stock subject to such options at the end of fiscal years 2007, 2008, 2009, 2010 and 2011 if the Investor Return is at least $22.64 and with respect to an additional 10% at the end of fiscal years 2007, 2008, 2009, 2010 and 2011 if the Investor Return is at least $28.30, subject to catch up vesting if the relevant Investor Return is achieved at any time occurring prior to January 30, 2017, so long as the named executive officer remains employed by the Company). The time vested options are reflected in the Number of Securities Underlying Unexercised Options Unexercisable column (with the exception of the 60% of the time vested options that were vested as of December 31, 2010, which are reflected in the Number of Securities Underlying Unexercised Options Exercisable column), and the EBITDA-based |
21
performance vested options and investment return performance vested options are both reflected in the Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options column (with the exception of the 80% of the EBITDA-based performance vested options that were vested as of December 31, 2010, which are reflected in the Number of Securities Underlying Unexercised Options Exercisable column). The terms of these option awards are described in more detail under Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Options. | ||
(3) | Reflects 2x Time Options awarded in October 2009 under the 2006 Plan by the Compensation Committee, pursuant to the named executive officers employment agreement, as part of the named executive officers long term equity incentive award. The 2x Time Options are structured, pursuant to the named executive officers respective employment agreements, so that 40% were vested on the grant date, an additional 20% vested on November 17, 2009 and November 17, 2010, respectively, and an additional 20% will vest on November 17, 2011. The 80% of the 2x Time Options that were vested as of December 31, 2010 are reflected in the Number of Securities Underlying Unexercised Options Exercisable column, and the 20% of the 2x Time Options that were not vested as of December 31, 2010 are reflected in the Number of Securities Underlying Unexercised Options Unexercisable column. The terms of these option awards are described in more detail under Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Options. | |
(4) | Immediately after the consummation of the Merger, all Rollover Options (other than those with an exercise price below $2.83) were adjusted such that they retained the same spread value (as defined below) as immediately prior to the Merger, but the new per share exercise price for all Rollover Options would be $2.83. The term spread value means the difference between (x) the aggregate fair market value of the common stock (determined using the Merger consideration of $11.32 per share) subject to the outstanding options held by the participant immediately prior to the Merger that became Rollover Options, and (y) the aggregate exercise price of those options. | |
(5) | The exercise price for the New Options granted under the 2006 Plan to the named executive officers on January 30, 2007 was equal to the fair value of our common stock on the date of the grant, as determined by our Board of Directors in consultation with our Chief Executive Officer and other advisors, pursuant to the terms of the 2006 Plan. Pursuant to the New Options award agreements, in connection with the distributions of $3.88, $1.11 and $4.44, respectively, per share of outstanding common stock and outstanding vested stock option held on the February 1, May 6 and November 24, 2010 record dates, respectively, the Company reduced the per share exercise price of any unvested New Options outstanding as of the applicable record dates by the per share distribution amount to the extent the per share exercise price could be reduced under applicable tax rules. With respect to the November 24, 2010 distribution and pursuant the New Option award agreements, to the extent the per share exercise price could not be reduced by the full $4.44 per share distribution, the Company will pay the named executive officers an amount on a per share basis equal to the balance of the per share distribution amount not permitted to be applied to reduce the exercise price of the applicable option in respect of each share of common stock subject to such unvested option outstanding as of the November 24, 2010 record date upon the vesting of such option. The total cash distributions attributable to the November 24, 2010 record date distribution (such amounts representing the balance of the distribution amount by which the exercise price of such options could not be reduced under applicable tax rules) that will become payable upon vesting of the applicable unvested stock options awards held by the named executive officers on November 24, 2010 are reflected in the All Other Compensation column of the Summary Compensation Table. | |
(6) | The exercise price for the 2x Time Options granted under the 2006 Plan to the named executive officers on October 6, 2009 was $22.64, pursuant to the named executive officers employment agreements. Pursuant to the New Options award agreements, in connection with the distributions of $3.88, $1.11 and $4.44, respectively, per share of outstanding common stock and outstanding vested stock option held on the February 1, May 6 and November 24, 2010 record dates, respectively, the Company reduced the per share exercise price of any unvested 2x Time Options outstanding as of the applicable record dates by the per share distribution amount to the extent the per share exercise price could be reduced under applicable tax rules. |
22
Option
Exercises and Stock Vested in 2010
The following table includes certain information with respect to
options exercised by the named executive officers during the
fiscal year ended December 31, 2010.
Option Awards | ||||||||
Number of Shares |
||||||||
Acquired on |
Value Realized on |
|||||||
Name
|
Exercise(1) | Exercise ($)(2) | ||||||
Richard M. Bracken
|
154,521 | $ | 3,137,421 | |||||
R. Milton Johnson
|
15,173 | $ | 552,387 | |||||
Samuel N. Hazen
|
86,328 | $ | 1,752,840 | |||||
Beverly B. Wallace
|
70,358 | $ | 1,428,578 |
(1) | Messrs. Bracken and Hazen and Ms. Wallace elected a cash exercise of 154,521, 86,328 and 70,358 stock options, respectively, resulting in net shares realized of 154,521, 86,328 and 70,358, respectively. Mr. Johnson elected a cashless exercise of 27,205 stock options, resulting in net shares realized of 15,173. | |
(2) | Represents the difference between the exercise price of the options and the fair market value of the common stock on the date of exercise, as determined by our Board of Directors in consultation with our Chief Executive Officer and other advisors. |
2010
Pension Benefits
Our SERP is intended to qualify as a top-hat plan
designed to benefit a select group of management or highly
compensated employees. There are no other defined benefit plans
that provide for payments or benefits to any of the named
executive officers. Information about benefits provided by the
SERP is as follows:
Plan |
Number of Years |
Present Value of |
Payments During |
|||||||||||||
Name
|
Name | Credited Service | Accumulated Benefit | Last Fiscal Year | ||||||||||||
Richard M. Bracken
|
SERP | 29 | $ | 23,554,306 | | |||||||||||
R. Milton Johnson
|
SERP | 28 | $ | 9,877,428 | | |||||||||||
Samuel N. Hazen
|
SERP | 28 | $ | 7,967,999 | | |||||||||||
Beverly B. Wallace
|
SERP | 27 | $ | 11,990,524 | | |||||||||||
W. Paul Rutledge
|
SERP | 29 | $ | 8,102,058 | |
Messrs. Bracken and Rutledge and Ms. Wallace are
eligible for early retirement. The remaining named executive
officers have not satisfied the eligibility requirements for
normal or early retirement. All of the named executive officers
are 100% vested in their accrued SERP benefit.
Plan
Provisions
In the event the employees accrued benefits under
the Companys Plans (computed using actuarial
factors) are insufficient to provide the life
annuity amount, the SERP will provide a benefit equal to
the amount of the shortfall. Benefits can be paid in the form of
an annuity or a lump sum. The lump sum is calculated by
converting the annuity benefit using the actuarial
factors. All benefits with a present value not exceeding
one million dollars are paid as a lump sum regardless of the
election made.
Normal retirement eligibility requires attainment of age 60
for employees who were participants at the time of the change in
control which occurred as a result of the Merger, including all
of the named executive officers. Early retirement eligibility
requires age 55 with 20 or more years of service. The
service requirement for early retirement is waived for employees
participating in the SERP at the time of its inception in 2001,
including all of the named executive officers. The life
annuity amount payable to a participant who takes early
retirement is reduced by three percent for each full year or
portion thereof that the participant retires prior to normal
retirement age.
The life annuity amount is the annual benefit
payable as a life annuity to a participant upon normal
retirement. It is equal to the participants accrual
rate multiplied by the product of the participants
years of
23
service times the participants pay
average. The SERP benefit for each year equals the life
annuity amount less the annual life annuity amount produced by
the employees accrued benefit under the
Companys Plans.
The accrual rate is a percentage assigned to each
participant, and is either 2.2% or 2.4%. All of the named
executive officers are assigned a percentage of 2.4%.
A participant is credited with a year of service for
each calendar year that the participant performs
1,000 hours of service for HCA Inc. or one of its
subsidiaries, or for each year the participant is otherwise
credited by us, subject to a maximum credit of 25 years of
service.
A participants pay average is an amount equal
to one-fifth of the sum of the compensation during the period of
60 consecutive months for which total compensation is greatest
within the 120 consecutive month period immediately preceding
the participants retirement. For purposes of this
calculation, the participants compensation includes base
compensation, payments under the PEP, and bonuses paid prior to
the establishment of the PEP.
The accrued benefits under the Companys Plans
for an employee equals the sum of the employer-funded benefits
accrued under the former HCA Retirement Plan (which was merged
into the HCA 401(k) Plan in 2008), the HCA 401(k) Plan and any
other tax-qualified plan maintained by HCA Inc. or one of its
subsidiaries, the income/loss adjusted amount distributed to the
participant under any of these plans, the account credit and the
income/loss adjusted amount distributed to the participant under
the Restoration Plan and any other nonqualified retirement plans
sponsored by HCA Inc. or one of its subsidiaries.
The actuarial factors include (a) interest at
the long term Applicable Federal Rate under Section 1274(d)
of the Code or any successor thereto as of the first day of
November preceding the plan year in which the participants
retirement, death, disability, or termination with benefit
rights under Section 5.3 or 6.2 occurs, and
(b) mortality being the applicable Section 417(e)(3)
of the Code mortality table, as specified and changed by the
U.S. Treasury Department.
Credited service does not include any amount other than service
with HCA Inc. or one of its subsidiaries.
Assumptions
The Present Value of Accumulated Benefit is based on a
measurement date of December 31, 2010. The measurement date
for valuing plan liabilities on the Companys balance sheet
is December 31, 2010.
The assumption is made that there is no probability of
pre-retirement death or termination. Retirement age is assumed
to be the Normal Retirement Age as defined in the SERP for all
named executive officers, as adjusted by the provisions relating
to change in control, or age 60. Age 60 also
represents the earliest date the named executive officers are
eligible to receive an unreduced benefit.
All other assumptions used in the calculations are the same as
those used for the valuation of the plan liabilities in the
plans most recent annual valuation.
Supplemental
Information
In the event a participant renders service to another health
care organization within five years following retirement or
termination of employment, he or she forfeits his rights to any
further payment, and must repay any benefits already paid. This
non-competition provision is subject to waiver by the Committee
with respect to the named executive officers.
24
2010
Nonqualified Deferred Compensation
Amounts shown in the table are attributable to the HCA
Restoration Plan, an unfunded, nonqualified defined contribution
plan designed to restore benefits under the HCA 401(k) Plan
based on compensation in excess of the Code
Section 401(a)(17) compensation limit.
Executive |
Registrant |
Aggregate |
Aggregate |
|||||||||||||||||
Contributions |
Contributions |
Earnings |
Aggregate |
Balance |
||||||||||||||||
in Last |
in Last |
in Last |
Withdrawals/ |
at Last |
||||||||||||||||
Name
|
Fiscal Year | Fiscal Year | Fiscal Year | Distributions | Fiscal Year End | |||||||||||||||
Richard M. Bracken
|
| | $ | 206,549 | | $ | 1,624,946 | |||||||||||||
R. Milton Johnson
|
| | $ | 84,699 | | $ | 666,338 | |||||||||||||
Samuel N. Hazen
|
| | $ | 113,066 | | $ | 889,505 | |||||||||||||
Beverly B. Wallace
|
| | $ | 69,780 | | $ | 548,966 | |||||||||||||
W. Paul Rutledge
|
| | $ | 62,128 | | $ | 488,770 |
The following amounts from the column titled Aggregate
Balance at Last Fiscal Year have been reported in the
Summary Compensation Tables in prior years:
Restoration Contribution | ||||||||||||||||||||||||||||
Name
|
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||||||||
Richard M. Bracken
|
$ | 87,924 | $ | 146,549 | $ | 162,344 | $ | 192,858 | $ | 172,571 | $ | 409,933 | $ | 91,946 | ||||||||||||||
R. Milton Johnson
|
| | | | $ | 71,441 | $ | 212,109 | $ | 57,792 | ||||||||||||||||||
Samuel N. Hazen
|
| | $ | 79,510 | $ | 101,488 | $ | 97,331 | $ | 247,060 | $ | 62,004 | ||||||||||||||||
Beverly B. Wallace
|
| | | | | | $ | 52,250 |
Plan
Provisions
Until 2008, hypothetical accounts for each participant were
credited each year with a contribution designed to restore the
HCA Retirement Plan based on compensation in excess of the Code
Section 401(a)(17) compensation limit, based on years of
service. Effective January 1, 2008, participants in the
SERP are no longer eligible for Restoration Plan contributions.
However, the hypothetical accounts as of January 1, 2008
will continue to be maintained and were increased or decreased
with hypothetical investment returns based on the actual
investment return of the Mix B fund of the HCA 401(k) Plan
through December 31, 2010. Subsequently, the hypothetical
accounts as of December 31, 2010 will continue to be
maintained but will not be increased or decreased with
hypothetical investment returns.
No employee deferrals are allowed under this or any other
nonqualified deferred compensation plan.
Prior to April 30, 2009, eligible employees made a one-time
election prior to participation (or prior to December 31,
2006, if earlier) regarding the form of distribution of the
benefit. Participants chose between a lump sum and five or
ten-year installments. All distributions are paid in the form of
a lump-sum distribution unless the participant submitted an
installment payment election prior to April 30, 2009.
Distributions are paid (or begin) during the July following the
year of termination of employment or retirement. All balances
not exceeding $500,000 are automatically paid as a lump sum,
regardless of election.
Supplemental
Information
In the event a named executive officer renders service to
another health care organization within five years following
retirement or termination of employment, he or she forfeits the
rights to any further payment, and must repay any payments
already made. This non-competition provision is subject to
waiver by the Committee with respect to the named executive
officers.
Potential
Payments Upon Termination or Change in Control
The following tables show the estimated amount of potential cash
severance payable to each of the named executive officers (based
upon his or her 2010 base salary and PEP payment received in
2010 for 2009
25
performance), as well as the estimated value of continuing
benefits, based on compensation and benefit levels in effect on
December 31, 2010, assuming the executives employment
terminates or the Company undergoes a Change in Control (as
defined in the 2006 Plan and set forth above under
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table
Options) effective December 31, 2010. Due to the
numerous factors involved in estimating these amounts, the
actual value of benefits and amounts to be paid can only be
determined upon an executives termination of employment.
As noted above, in the event a named executive officer breaches
or violates those certain confidentiality, non-competition
and/or
non-solicitation covenants contained in his or her employment
agreement, the SERP or the HCA Restoration Plan, certain of the
payments described below may be subject to forfeiture
and/or
repayment. See Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Executive Employment Agreements,
2010 Pension Benefits Supplemental
Information, and 2010 Nonqualified Deferred
Compensation Supplemental Information.
Richard
M. Bracken
Involuntary |
Voluntary |
|||||||||||||||||||||||||||||||||||
Termination |
Termination |
|||||||||||||||||||||||||||||||||||
Voluntary |
Early |
Normal |
Without |
Termination |
for Good |
Change in |
||||||||||||||||||||||||||||||
Termination | Retirement | Retirement | Cause | for Cause | Reason | Disability | Death | Control | ||||||||||||||||||||||||||||
Cash Severance(1)
|
| | | $ | 14,310,001 | | $ | 14,310,001 | | | | |||||||||||||||||||||||||
Non-Equity Incentive Bonus(2)
|
$ | 2,614,824 | $ | 2,614,824 | $ | 2,614,824 | $ | 2,614,824 | | $ | 2,614,824 | $ | 2,614,824 | $ | 2,614,824 | $ | 2,614,824 | |||||||||||||||||||
Unvested Stock Options(3)
|
| | | | | | | | $ | 17,800,598 | ||||||||||||||||||||||||||
SERP(4)
|
$ | 22,425,973 | $ | 22,425,973 | | $ | 22,425,973 | $ | 22,425,973 | $ | 22,425,973 | $ | 22,425,973 | $ | 19,717,244 | | ||||||||||||||||||||
Retirement Plans(5)
|
$ | 2,901,084 | $ | 2,901,084 | $ | 2,901,084 | $ | 2,901,084 | $ | 2,901,084 | $ | 2,901,084 | $ | 2,901,084 | $ | 2,901,084 | | |||||||||||||||||||
Health and Welfare Benefits
|
| | | | | | | | | |||||||||||||||||||||||||||
Disability Income(6)
|
| | | | | | $ | 1,727,128 | | | ||||||||||||||||||||||||||
Life Insurance Benefits(7)
|
| | | | | | | $ | 1,401,000 | | ||||||||||||||||||||||||||
Accrued Vacation Pay
|
$ | 183,462 | $ | 183,462 | $ | 183,462 | $ | 183,462 | $ | 183,462 | $ | 183,462 | $ | 183,462 | $ | 183,462 | | |||||||||||||||||||
Total
|
$ | 28,125,343 | $ | 28,125,343 | $ | 5,699,370 | $ | 42,435,344 | $ | 25,510,519 | $ | 42,435,344 | $ | 29,852,471 | $ | 26,817,614 | $ | 20,415,422 | ||||||||||||||||||
(1) | Represents amounts Mr. Bracken would be entitled to receive pursuant to his employment agreement. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(2) | Represents the amount Mr. Bracken would be entitled to receive for the 2010 fiscal year pursuant to the 2010 PEP and his employment agreement, which amount is also included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. Under the 2010 PEP, incentive payouts up to the target will be paid in cash during the first quarter of 2011. Payouts above the target will be paid 50% in cash and 50% in RSUs. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(3) | Represents the intrinsic value of all unvested stock options, which will become vested upon the Change in Control, calculated as the difference between the exercise price of Mr. Brackens unvested New Options and the fair value price of our common stock on December 31, 2010 as determined by our Board of Directors in consultation with our Chief Executive Officer and other advisors for internal purposes ($23.13 per share). For the purposes of this calculation, it is assumed that the Company achieved an Investor Return of at least 2.5 times the Base Price of $11.32 at the end of the 2010 fiscal year. | |
(4) | Reflects the actual lump sum value of the SERP based on the 2010 interest rate of 4.01%. | |
(5) | Reflects the estimated lump sum present value of qualified and nonqualified retirement plans to which Mr. Bracken would be entitled. The value includes $1,276,138 from the HCA 401(k) Plan (which represents the value of the Companys contributions) and $1,624,946 from the HCA Restoration Plan. | |
(6) | Reflects the estimated lump sum present value of all future payments which Mr. Bracken would be entitled to receive under our disability program, including five months of salary continuation, monthly long term disability benefits of $10,000 per month payable after the five-month elimination period until |
26
age 66, and monthly benefits of $10,000 per month from our Supplemental Insurance Program payable after the 180 day elimination period to age 65. | ||
(7) | No post-retirement or post-termination life insurance or death benefits are provided to Mr. Bracken. Mr. Brackens payment upon death while actively employed includes $1,326,000 of Company-paid life insurance and $75,000 from the Executive Death Benefit Plan. |
R. Milton
Johnson
Involuntary |
Voluntary |
|||||||||||||||||||||||||||||||||||
Termination |
Termination |
|||||||||||||||||||||||||||||||||||
Voluntary |
Early |
Normal |
Without |
Termination |
for Good |
Change in |
||||||||||||||||||||||||||||||
Termination | Retirement | Retirement | Cause | for Cause | Reason | Disability | Death | Control | ||||||||||||||||||||||||||||
Cash Severance(1)
|
| | | $ | 6,630,001 | | $ | 6,630,001 | | | | |||||||||||||||||||||||||
Non-Equity Incentive Bonus(2)
|
$ | 1,032,267 | $ | 1,032,267 | $ | 1,032,267 | $ | 1,032,267 | | $ | 1,032,267 | $ | 1,032,267 | $ | 1,032,267 | $ | 1,032,267 | |||||||||||||||||||
Unvested Stock Options(3)
|
| | | | | | | | $ | 12,815,562 | ||||||||||||||||||||||||||
SERP(4)
|
$ | 10,627,544 | | | $ | 10,627,544 | $ | 10,627,544 | $ | 10,627,544 | $ | 10,627,544 | $ | 9,724,399 | | |||||||||||||||||||||
Retirement Plans(5)
|
$ | 1,789,401 | $ | 1,789,401 | $ | 1,789,401 | $ | 1,789,401 | $ | 1,789,401 | $ | 1,789,401 | $ | 1,789,401 | $ | 1,789,401 | | |||||||||||||||||||
Health and Welfare Benefits
|
| | | | | | | | | |||||||||||||||||||||||||||
Disability Income(6)
|
| | | | | | $ | 2,047,604 | | | ||||||||||||||||||||||||||
Life Insurance Benefits(7)
|
| | | | | | | $ | 851,000 | | ||||||||||||||||||||||||||
Accrued Vacation Pay
|
$ | 117,692 | $ | 117,692 | $ | 117,692 | $ | 117,692 | $ | 117,692 | $ | 117,692 | $ | 117,692 | $ | 117,692 | | |||||||||||||||||||
Total
|
$ | 13,566,904 | $ | 2,939,360 | $ | 2,939,360 | $ | 20,196,905 | $ | 12,534,637 | $ | 20,196,905 | $ | 15,614,508 | $ | 13,514,759 | $ | 13,847,829 | ||||||||||||||||||
(1) | Represents amounts Mr. Johnson would be entitled to receive pursuant to his employment agreement. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(2) | Represents the amount Mr. Johnson would be entitled to receive for the 2010 fiscal year pursuant to the 2010 PEP and his employment agreement, which amount is also included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. Under the 2010 PEP, incentive payouts up to the target will be paid in cash during the first quarter of 2011. Payouts above the target will be paid 50% in cash and 50% in RSUs. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(3) | Represents the intrinsic value of all unvested stock options, which will become vested upon the Change in Control, calculated as the difference between the exercise price of Mr. Johnsons unvested New Options and the fair value price of our common stock on December 31, 2010 as determined by our Board of Directors in consultation with our Chief Executive Officer and other advisors for internal purposes ($23.13 per share). For the purposes of this calculation, it is assumed that the Company achieved an Investor Return of at least 2.5 times the Base Price of $11.32 at the end of the 2010 fiscal year. | |
(4) | Reflects the actual lump sum value of the SERP based on the 2010 interest rate of 4.01%. | |
(5) | Reflects the estimated lump sum present value of qualified and nonqualified retirement plans to which Mr. Johnson would be entitled. The value includes $1,123,063 from the HCA 401(k) Plan (which represents the value of the Companys contributions) and $666,338 from the HCA Restoration Plan. | |
(6) | Reflects the estimated lump sum present value of all future payments which Mr. Johnson would be entitled to receive under our disability program, including five months of salary continuation, monthly long term disability benefits of $10,000 per month payable after the five-month elimination period until age 66 and 4 months, and monthly benefits of $10,000 per month from our Supplemental Insurance Program payable after the 180 day elimination period to age 65. | |
(7) | No post-retirement or post-termination life insurance or death benefits are provided to Mr. Johnson. Mr. Johnsons payment upon death while actively employed with the Company includes $851,000 of Company-paid life insurance. |
27
Samuel
N. Hazen
Involuntary |
Voluntary |
|||||||||||||||||||||||||||||||||||
Termination |
Termination |
|||||||||||||||||||||||||||||||||||
Voluntary |
Early |
Normal |
Without |
Termination |
for Good |
Change in |
||||||||||||||||||||||||||||||
Termination | Retirement | Retirement | Cause | for Cause | Reason | Disability | Death | Control | ||||||||||||||||||||||||||||
Cash Severance(1)
|
| | | $ | 3,659,479 | | $ | 3,659,479 | | | | |||||||||||||||||||||||||
Non-Equity Incentive Bonus(2)
|
$ | 816,431 | $ | 816,431 | $ | 816,431 | $ | 816,431 | | $ | 816,431 | $ | 816,431 | $ | 816,431 | $ | 816,431 | |||||||||||||||||||
Unvested Stock Options(3)
|
| | | | | | | | $ | 7,684,802 | ||||||||||||||||||||||||||
SERP(4)
|
$ | 8,384,265 | | | $ | 8,384,265 | $ | 8,384,265 | $ | 8,384,265 | $ | 8,384,265 | $ | 8,059,608 | | |||||||||||||||||||||
Retirement Plans(5)
|
$ | 1,533,429 | $ | 1,533,429 | $ | 1,533,429 | $ | 1,533,429 | $ | 1,533,429 | $ | 1,533,429 | $ | 1,533,429 | $ | 1,533,429 | | |||||||||||||||||||
Health and Welfare Benefits
|
| | | | | | | | | |||||||||||||||||||||||||||
Disability Income(6)
|
| | | | | | $ | 2,380,816 | | | ||||||||||||||||||||||||||
Life Insurance Benefits(7)
|
| | | | | | | $ | 789,000 | | ||||||||||||||||||||||||||
Accrued Vacation Pay
|
$ | 109,203 | $ | 109,203 | $ | 109,203 | $ | 109,203 | $ | 109,203 | $ | 109,203 | $ | 109,203 | $ | 109,203 | | |||||||||||||||||||
Total
|
$ | 10,843,328 | $ | 2,459,063 | $ | 2,459,063 | $ | 14,502,807 | $ | 10,026,897 | $ | 14,502,807 | $ | 13,224,144 | $ | 11,307,671 | $ | 8,501,233 | ||||||||||||||||||
(1) | Represents amounts Mr. Hazen would be entitled to receive pursuant to his employment agreement. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(2) | Represents the amount Mr. Hazen would be entitled to receive for the 2010 fiscal year pursuant to the 2010 PEP and his employment agreement, which amount is also included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. Under the 2010 PEP, incentive payouts up to the target will be paid in cash during the first quarter of 2011. Payouts above the target will be paid 50% in cash and 50% in RSUs. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(3) | Represents the intrinsic value of all unvested stock options, which will become vested upon the Change in Control, calculated as the difference between the exercise price of Mr. Hazens unvested New Options and the fair value price of our common stock on December 31, 2010 as determined by our Board of Directors in consultation with our Chief Executive Officer and other advisors for internal purposes ($23.13 per share). For the purposes of this calculation, it is assumed that the Company achieved an Investor Return of at least 2.5 times the Base Price of $11.32 at the end of the 2010 fiscal year. | |
(4) | Reflects the actual lump sum value of the SERP based on the 2010 interest rate of 4.01%. | |
(5) | Reflects the estimated lump sum present value of qualified and nonqualified retirement plans to which Mr. Hazen would be entitled. The value includes $643,924 from the HCA 401(k) Plan (which represents the value of the Companys contributions) and $889,505 from the HCA Restoration Plan. | |
(6) | Reflects the estimated lump sum present value of all future payments which Mr. Hazen would be entitled to receive under our disability program, including five months of salary continuation, monthly long term disability benefits of $10,000 per month payable after the five-month elimination period until age 67, and monthly benefits of $10,000 per month from our Supplemental Insurance Program payable after the 180 day elimination period to age 65. | |
(7) | No post-retirement or post-termination life insurance or death benefits are provided to Mr. Hazen. Mr. Hazens payment upon death while actively employed with the Company includes $789,000 of Company-paid life insurance. |
28
Beverly
B. Wallace
Involuntary |
Voluntary |
|||||||||||||||||||||||||||||||||||
Termination |
Termination |
|||||||||||||||||||||||||||||||||||
Voluntary |
Early |
Normal |
Without |
Termination |
for Good |
Change in |
||||||||||||||||||||||||||||||
Termination | Retirement | Retirement | Cause | for Cause | Reason | Disability | Death | Control | ||||||||||||||||||||||||||||
Cash Severance(1)
|
| | | $ | 3,248,035 | | $ | 3,248,035 | | | | |||||||||||||||||||||||||
Non-Equity Incentive Bonus(2)
|
$ | 701,348 | $ | 701,348 | $ | 701,348 | $ | 701,348 | | $ | 701,348 | $ | 701,348 | $ | 701,348 | $ | 701,348 | |||||||||||||||||||
Unvested Stock Options(3)
|
| | | | | | | | $ | 6,829,019 | ||||||||||||||||||||||||||
SERP(4)
|
$ | 10,679,246 | $ | 10,679,246 | | $ | 10,679,246 | $ | 10,679,246 | $ | 10,679,246 | $ | 10,679,246 | $ | 9,554,436 | | ||||||||||||||||||||
Retirement Plans(5)
|
$ | 1,084,745 | $ | 1,084,745 | $ | 1,084,745 | $ | 1,084,745 | $ | 1,084,745 | $ | 1,084,745 | $ | 1,084,745 | $ | 1,084,745 | | |||||||||||||||||||
Health and Welfare Benefits
|
| | | | | | | | | |||||||||||||||||||||||||||
Disability Income(6)
|
| | | | | | $ | 1,235,049 | | | ||||||||||||||||||||||||||
Life Insurance Benefits(7)
|
| | | | | | | $ | 701,000 | | ||||||||||||||||||||||||||
Accrued Vacation Pay
|
$ | 96,925 | $ | 96,925 | $ | 96,925 | $ | 96,925 | $ | 96,925 | $ | 96,925 | $ | 96,925 | $ | 96,925 | | |||||||||||||||||||
Total
|
$ | 12,562,264 | $ | 12,562,264 | $ | 1,883,018 | $ | 15,810,299 | $ | 11,860,916 | $ | 15,810,299 | $ | 13,797,313 | $ | 12,138,454 | $ | 7,530,367 | ||||||||||||||||||
(1) | Represents amounts Ms. Wallace would be entitled to receive pursuant to her employment agreement. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(2) | Represents the amount Ms. Wallace would be entitled to receive for the 2010 fiscal year pursuant to the 2010 PEP and her employment agreement, which amount is also included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. Under the 2010 PEP, incentive payouts up to the target will be paid in cash during the first quarter of 2011. Payouts above the target will be paid 50% in cash and 50% in RSUs. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(3) | Represents the intrinsic value of all unvested stock options, which will become vested upon the Change in Control, calculated as the difference between the exercise price of Ms. Wallaces unvested New Options and the fair value price of our common stock on December 31, 2010 as determined by our Board of Directors in consultation with our Chief Executive Officer and other advisors for internal purposes ($23.13 per share). For the purposes of this calculation, it is assumed that the Company achieved an Investor Return of at least 2.5 times the Base Price of $11.32 at the end of the 2010 fiscal year. | |
(4) | Reflects the actual lump sum value of the SERP based on the 2010 interest rate of 4.01%. | |
(5) | Reflects the estimated lump sum present value of qualified and nonqualified retirement plans to which Ms. Wallace would be entitled. The value includes $535,779 from the HCA 401(k) Plan (which represents the value of the Companys contributions) and $548,966 from the HCA Restoration Plan. | |
(6) | Reflects the estimated lump sum present value of all future payments which Ms. Wallace would be entitled to receive under our disability program, including five months of salary continuation, monthly long term disability benefits of $10,000 per month payable after the five-month elimination period until age 66, and monthly benefits of $10,000 per month from our Supplemental Insurance Program payable after the 180 day elimination period to age 65. | |
(7) | No post-retirement or post-termination life insurance or death benefits are provided to Ms. Wallace. Ms. Wallaces payment upon death while actively employed includes $701,000 of Company-paid life insurance. |
29
W.
Paul Rutledge
Involuntary |
Voluntary |
|||||||||||||||||||||||||||||||||||
Termination |
Termination |
|||||||||||||||||||||||||||||||||||
Voluntary |
Early |
Normal |
Without |
Termination |
for Good |
Change in |
||||||||||||||||||||||||||||||
Termination | Retirement | Retirement | Cause | for Cause | Reason | Disability | Death | Control | ||||||||||||||||||||||||||||
Cash Severance(1)
|
| | | $ | 3,182,034 | | $ | 3,182,034 | | | | |||||||||||||||||||||||||
Non-Equity Incentive Bonus(2)
|
$ | 350,667 | $ | 350,667 | $ | 350,667 | $ | 350,667 | | $ | 350,667 | $ | 350,667 | $ | 350,667 | $ | 350,667 | |||||||||||||||||||
Unvested Stock Options(3)
|
| | | | | | | | $ | 6,829,019 | ||||||||||||||||||||||||||
SERP(4)
|
$ | 8,479,517 | $ | 8,479,517 | | $ | 8,479,517 | $ | 8,479,517 | $ | 8,479,517 | $ | 8,479,517 | $ | 7,673,752 | | ||||||||||||||||||||
Retirement Plans(5)
|
$ | 1,308,476 | $ | 1,308,476 | $ | 1,308,476 | $ | 1,308,476 | $ | 1,308,476 | $ | 1,308,476 | $ | 1,308,476 | $ | 1,308,476 | | |||||||||||||||||||
Health and Welfare Benefits
|
| | | | | | | | | |||||||||||||||||||||||||||
Disability Income(6)
|
| | | | | | $ | 1,770,423 | | | ||||||||||||||||||||||||||
Life Insurance Benefits(7)
|
| | | | | | | $ | 776,000 | | ||||||||||||||||||||||||||
Accrued Vacation Pay
|
$ | 96,923 | $ | 96,923 | $ | 96,923 | $ | 96,923 | $ | 96,923 | $ | 96,923 | $ | 96,923 | $ | 96,923 | | |||||||||||||||||||
Total
|
$ | 10,235,583 | $ | 10,235,583 | $ | 1,756,066 | $ | 13,417,617 | $ | 9,884,916 | $ | 13,417,617 | $ | 12,006,006 | $ | 10,205,818 | $ | 7,179,686 | ||||||||||||||||||
(1) | Represents amounts Mr. Rutledge would be entitled to receive pursuant to his employment agreement. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(2) | Represents the amount Mr. Rutledge would be entitled to receive for the 2010 fiscal year pursuant to the 2010 PEP and his employment agreement, which amount is also included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. See Narrative Disclosure to Summary Compensation Table and 2010 Grants of Plan-Based Awards Table Executive Employment Agreements. | |
(3) | Represents the intrinsic value of all unvested stock options, which will become vested upon the Change in Control, calculated as the difference between the exercise price of Mr. Rutledges unvested New Options and the fair value price of our common stock on December 31, 2010 as determined by our Board of Directors in consultation with our Chief Executive Officer and other advisors for internal purposes ($23.13 per share). For the purposes of this calculation, it is assumed that the Company achieved an Investor Return of at least 2.5 times the Base Price of $11.32 at the end of the 2010 fiscal year. | |
(4) | Reflects the actual lump sum value of the SERP based on the 2010 interest rate of 4.01%. | |
(5) | Reflects the estimated lump sum present value of qualified and nonqualified retirement plans to which Mr. Rutledge would be entitled. The value includes $819,706 from the HCA 401(k) Plan (which represents the value of the Companys contributions) and $488,770 from the HCA Restoration Plan. | |
(6) | Reflects the estimated lump sum present value of all future payments which Mr. Rutledge would be entitled to receive under our disability program, including five months of salary continuation, monthly long term disability benefits of $10,000 per month payable after the five-month elimination period until age 66 and 2 months, and monthly benefits of $10,000 per month from our Supplemental Insurance Program payable after the 180 day elimination period to age 65. | |
(7) | No post-retirement or post-termination life insurance or death benefits are provided to Mr. Rutledge. Mr. Rutledges payment upon death while actively employed includes $701,000 of Company-paid life insurance and $75,000 from the Executive Death Benefit Plan. |
Director
Compensation
During the year ended December 31, 2010, none of our
directors received compensation for their service as a member of
our Board. Our directors are reimbursed for any expenses
incurred in connection with their service.
Our Board of Directors has adopted a director compensation
program to be effective upon the completion of this offering.
Pursuant to this program, each member of our Board of Directors
who is not an employee of
30
the Company will receive quarterly payment of the following cash
compensation, as applicable, for Board services:
| $100,000 annual retainer for service as a Board member (prorated for partial years); | |
| $15,000 annual retainer for service as a member of the Audit and Compliance Committee; | |
| $10,000 annual retainer for service as a member on each of the Compensation Committee, Nominating and Corporate Governance Committee or Patient Safety and Quality of Care Committee; | |
| $20,000 annual retainer for service as Chairman of the Audit and Compliance Committee; and | |
| $12,500 annual retainer for service as Chairman on each of the Compensation Committee, Nominating and Corporate Governance Committee or Patient Safety and Quality of Care Committee. |
We expect that we will continue to reimburse our directors for
their reasonable expenses incurred in their service as Board
members.
In addition to the director compensation described above, we
anticipate that each non-employee director, upon joining the
Board of Directors, will receive a one-time initial equity award
with a value of $150,000. These equity grants will consist of
restricted stock units (RSUs) ultimately payable in
shares of our common stock. These RSUs will vest as to 100% of
the award on the third anniversary of the grant date, subject to
the directors continued service on our Board of Directors.
Each non-employee director will also receive an annual board
equity award with a value of $125,000, awarded upon joining the
Board of Directors (prorated at the time of hire for months of
service) and at each annual meeting of the stockholders
thereafter. These RSUs will vest as to 100% of the award on the
subsequent annual meeting of the stockholders after each award
was granted, each subject to the directors continued
service on our Board of Directors. We also anticipate allowing
our directors to elect to defer receipt of shares under the RSUs.
Each non-employee director is expected to directly or indirectly
acquire a number of shares of our common stock with a value of
three times the value of the annual cash retainer for a
directors service on the Board of Directors within three
years from the later of the Companys listing on the NYSE
or the date on which they are elected to the Board of Directors.
Compensation
Committee Interlocks and Insider Participation
During 2010, the Compensation Committee of the Board of
Directors was composed of John P. Connaughton, James D. Forbes
and Michael W. Michelson. None of the members of the
Compensation Committee have at any time been an officer or
employee of HCA or any of its subsidiaries. In addition, none of
our executive officers serves as a member of the board of
directors or compensation committee of any entity which has one
or more executive officers serving as a member of our Board of
Directors or Compensation Committee. Each member of the
Compensation Committee is also a manager of Hercules Holding,
and the Amended and Restated Limited Liability Company Agreement
of Hercules Holding requires that the members of Hercules
Holding take all necessary action to ensure that the persons who
serve as managers of Hercules Holding also serve on our Board of
Directors. Messrs. Michelson, Forbes and Connaughton are
affiliated with KKR, BAML Capital Partners (the private equity
division of Bank of America Corporation) and Bain Capital
Partners, LLC respectively, each of which is a party to the
sponsor management agreement with us. The Amended and Restated
Limited Liability Company Agreement of Hercules Holding, the
sponsor management agreement and certain transactions with
affiliates of BAML Capital Partners and KKR are described in
greater detail in Certain Relationships and Related Party
Transactions.
31