uhs-def14a_20200520.htm

 

110% 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

Filed by the Registrant                                Filed by a party other than the Registrant  

Check the appropriate box:

 

 

Preliminary Proxy Statement

 

 

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

 

 

Definitive Proxy Statement

 

 

 

Definitive Additional Materials

 

 

 

Soliciting Material Under Rule 14a-12

UNIVERSAL HEALTH SERVICES, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

No fee required.

 

 

 

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

 

 

 

 

 

(1)

 

Title of each class of securities to which transaction applies:

 

 

(2)

 

Aggregate number of securities to which transaction applies:

 

 

(3)

 

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

 

 

(4)

 

Proposed maximum aggregate value of transaction:

 

 

(5)

 

Total fee paid:

 

Fee paid previously with preliminary materials.

 

 

 

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

 

 

 

 

 

(1)

 

Amount previously paid:

 

 

(2)

 

Form, Schedule or Registration Statement No:

 

 

(3)

 

Filing party:

 

 

(4)

 

Date Filed:

 

 

 


 

UNIVERSAL HEALTH SERVICES, INC.

April 9, 2020

Dear Stockholder:

You are cordially invited to attend the 2020 Annual Meeting of Stockholders of Universal Health Services, Inc. (the “Company”) to be held on Wednesday, May 20, 2020, beginning at 10:00 a.m. Due to the unprecedented public health impact of the novel coronavirus (COVID-19) outbreak and to support the health and well-being of our communities, employees, stockholders and other stakeholders, this year’s Annual Meeting will be conducted completely virtually, via a live audio webcast; there will be no physical meeting location. You will be able to attend and participate in the Annual Meeting by visiting www.meetingcenter.io/266493346, where you will be able to listen to the meeting live, submit questions, and vote. The annual meeting is being held for the following purposes:

 

(1)

the election of one director by the holders of Class A and Class C Common Stock (voting together as a single class) and the election of one director by the holders of Class B and Class D Common Stock (voting together as a single class);

 

(2)

to consider approval of the Company’s 2020 Omnibus Stock and Incentive Plan;

 

(3)

to conduct an advisory (nonbinding) vote to approve named executive officer compensation;

 

(4)

the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and

 

(5)

the transaction of such other business as may properly come before the meeting or any adjournment thereof.

Detailed information concerning these matters is set forth in the Important Notice Regarding the Availability of Proxy Materials (the “Notice”) you received in the mail and in the attached Notice of Annual Meeting of Stockholders and Proxy Statement. We have elected to provide access to our Proxy Materials over the internet under the Securities and Exchange Commission’s “notice and access” rules. If you want more information, please see the Questions and Answers section of this Proxy Statement.

Your vote is important. Whether or not you plan to attend the meeting online, please either vote by telephone or internet or, if you received printed Proxy Materials and wish to vote by mail, by promptly signing and returning your Proxy card in the enclosed envelope. Please review the instructions on each of your voting options described in this Proxy Statement as well as in the Notice you received in the mail. If you then attend and wish to vote your shares online, you still may do so. In addition to the matters noted above, we will discuss the business of the Company and be available for your questions relating to the Company.

 

 

Sincerely,

 

Alan B. Miller

Chairman and

Chief Executive Officer

 


 


 

 

 

UNIVERSAL HEALTH SERVICES, INC.

UNIVERSAL CORPORATE CENTER

367 SOUTH GULPH ROAD

KING OF PRUSSIA, PENNSYLVANIA 19406

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 20, 2020

Notice is hereby given that the Annual Meeting of Stockholders (the “Annual Meeting”) of Universal Health Services, Inc. (the “Company”) will be held on Wednesday, May 20, 2020 beginning at 10:00 a.m. The Annual Meeting will be held via live audio webcast available at www.meetingcenter.io/266493346 for the following purposes:

 

(1)

the election of one director by the holders of Class A and Class C Common Stock (voting together as a single class) and the election of one director by the holders of Class B and Class D Common Stock (voting together as a single class);

 

(2)

to consider approval of the Company’s 2020 Omnibus Stock and Incentive Plan;

 

(3)

to conduct an advisory (nonbinding) vote to approve named executive officer compensation;

 

(4)

the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and

 

(5)

the transaction of such other business as may properly come before the meeting or any adjournment thereof.

You are entitled to vote at the Annual Meeting only if you were a Company stockholder of record at the close of business on March 24, 2020.

This year, out of an abundance of caution, to proactively deal with the unprecedented health impact of coronavirus disease, also known as COVID-19, and to mitigate risks to the health and well-being or our communities, employees, stockholders and other stakeholders, we will hold the Annual Meeting in a virtual only format, which will be conducted via live audio webcast. Stockholders will have an equal opportunity to participate at the Annual Meeting online regardless of their geographic location.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING ONLINE, PLEASE VOTE BY TELEPHONE OR INTERNET OR, IF YOU RECEIVED PRINTED PROXY MATERIALS AND WISH TO VOTE BY MAIL, MARK YOUR VOTES, THEN DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES ONLINE AT THE MEETING.


 


 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on Wednesday, May 20, 2020:

The Proxy Statement and Annual Report to Stockholders are available at

http://www.edocumentview.com/uhs.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

STEVE G. FILTON, Secretary

King of Prussia, Pennsylvania

April 9, 2020

 

 


 

 

 

UNIVERSAL HEALTH SERVICES, INC.

UNIVERSAL CORPORATE CENTER

367 SOUTH GULPH ROAD

KING OF PRUSSIA, PA 19406

PROXY STATEMENT

QUESTIONS AND ANSWERS

1.

Q: Why am I receiving these materials?

 

A:

This Proxy Statement and enclosed forms of Proxy (first mailed to the holders of Class A and Class C Common Stock, and to the holders of Class B and Class D Common Stock who requested to receive printed Proxy Materials, on or about April 9, 2020) are furnished in connection with the solicitation by our Board of Directors of Proxies for use at the Annual Meeting of Stockholders, or at any adjournment thereof. A Notice Regarding the Availability of Proxy Materials was first mailed to all of our other stockholders beginning on or about April 9, 2020. The Annual Meeting will be held on Wednesday, May 20, 2020, beginning at 10:00 a.m. The Annual Meeting will be accessible via live audiocast on the internet.  To participate at the Annual Meeting online, please visit www.meetingcenter.io/266493346 (password: UHS2020) and review the instructions under the Q&A entitled “How can I attend the online meeting?” below.  As a stockholder, you are invited to attend the Annual Meeting and are requested to vote on the items of business described in this Proxy Statement.

2.

Q: What is the purpose of the Annual Meeting?

A:     The Annual Meeting is being held for the following purposes (1) to have the holders of Class A and C Common Stock (voting together as a single class) elect one Class III director and to have the holders of Class B and D Common Stock (voting together as a single class) elect one Class III director, each such director to serve for a term of three years until the annual election of directors in 2023 or the election and qualification of his respective successor; (2) to have the holders of Class A and Class C Common Stock and the holders of Class B and Class D Common Stock (voting together as a single class) vote upon a proposal to approve the Company’s 2020 Omnibus Stock and Incentive Plan; (3) conduct an advisory (nonbinding) vote to approve named executive officer compensation; (4) the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and (5) to transact such other business as may properly be brought before the meeting or any adjournment thereof. We will also discuss our business and be available for your comments and discussion.

 

3.

Q: Why did holders of Class B and Class D Common Stock receive a notice in the mail regarding the internet availability of Proxy Materials instead of a full set of Proxy Materials?

 

A:

In accordance with “notice and access” rules adopted by the U.S. Securities and Exchange Commission, or SEC, we may furnish Proxy Materials, including this Proxy Statement and our Annual Report to Stockholders, to our stockholders by providing access to such documents on the

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internet instead of mailing printed copies. Holders of Class B and Class D Common Stock will not receive printed copies of the Proxy Materials unless they request them. Instead, the Notice, which was mailed to holders of Class B and Class D Common Stock that did not request printed copies of the Proxy Materials, will instruct you as to how you may access and review all of the Proxy Materials on the internet. Please visit http://www.edocumentview.com/uhs. The Notice also instructs you as to how you may submit your Proxy on the internet. If you would like to receive a paper or e-mail copy of our Proxy Materials, you should follow the instructions for requesting such materials in the Notice.

4.

Q: Who may attend the Annual Meeting?

 

A:

Stockholders of record as of the close of business on March 24, 2020, or their duly appointed Proxies, may attend the meeting online at www.meetingcenter.io/266493346  (password: UHS2020) and review the Q&A entitled “How can I attend the online meeting?” below. Stockholders whose shares are held through a broker or other nominee will need to bring a copy of a brokerage statement reflecting their ownership of our Common Stock as of the record date.

5.

Q: How can I attend the online meeting?

 

A:

We are sensitive to the public health and travel concerns our stockholders may have and the protocols that federal, state, and local governments may impose as it relates to the current, ongoing COVID-19 coronavirus pandemic. Therefore, the Annual Meeting will be a completely virtual meeting of stockholders, which will be conducted exclusively by a live webcast.  No physical meeting will be held.

For registered stockholders:

If you were a stockholder as of the close of business on March 24, 2020 and have your control number, you may participate at the Annual Meeting by following the instructions available on the meeting website.  Registered stockholders can attend the meeting by accessing the meeting site at www.meetingcenter.io/266493346 and entering the 15-digit control number that can be found on your Notice of Internet Availability of Proxy Materials or proxy card mailed with the proxy materials and the meeting password, UHS2020.

For beneficial owners:

If you were a stockholder as of the close of business on March 24, 2020 and hold your shares through an intermediary, such as a bank or broker or other nominee, you must register in advance to attend the Annual Meeting. To register you will need to obtain a Legal Proxy from your bank, broker or other nominee.  Once you have received a Legal Proxy form from them, forward the email with your name and the Legal Proxy attached or send a separate email with your name and Legal Proxy attached labeled “Legal Proxy” in the subject line to Computershare, at legalproxy@computershare.com.   Requests for registration must be received no later than 5:00 p.m., Eastern daylight time, on May 15, 2020. You will receive a confirmation email from Computershare of your registration. At the time of the meeting, go to www.meetingcenter.io/266493346 and enter your control number and the meeting password, UHS2020.  If you do not have your control number you may attend as a guest (non-stockholder) by going to www.meetingcenter.io/266493346 and entering the information requested on the following screen.  Please note that guest access is in listen-only mode and you will not have the ability to ask questions or vote during the Annual Meeting.

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6.

Q: Who is entitled to vote at the Annual Meeting?

 

A:

Only stockholders of record as of the close of business on March 24, 2020 are entitled to vote at the Annual Meeting. On that date, 6,577,100 shares of Class A Common Stock, par value $.01 per share, 661,688 shares of Class C Common Stock, par value $.01 per share, 78,351,105 shares of Class B Common Stock, par value $.01 per share, and 18,411 shares of Class D Common Stock, par value $.01 per share, were outstanding.

7.

Q: Who is soliciting my vote?

 

A:

The principal solicitation of Proxies is being made by the Board of Directors by mail. Certain of our officers, directors and employees, none of whom will receive additional compensation therefor, may solicit Proxies by telephone or other personal contact. We will bear the cost of the solicitation of the Proxies, including postage, printing and handling and will reimburse the reasonable expenses of brokerage firms and others for forwarding material to beneficial owners of shares. We have not engaged any third party to assist us in solicitation of proxies at the Annual Meeting, but we may decide to retain the services of a proxy solicitation firm in the future if we believe it is appropriate under the circumstances.

8.

Q: What items of business will be voted on at the Annual Meeting?

 

A:

The holders of Class A and C Common Stock (voting together as a single class) will elect one Class III director and the holders of Class B and Class D Common Stock (voting together as a single class) will elect one Class III director, each such director to serve for a term of three years until the annual election of directors in 2023 or the election and qualification of his respective successor. The holders of Class A, Class C, Class B and Class D Common Stock (voting together as a single class) will vote on the following matters: a proposal to approve the Company’s 2020 Omnibus Stock and Incentive Plan; an advisory (nonbinding) vote to approve named executive officer compensation; and the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.

9.

Q: How does the Board of Directors recommend that I vote?

 

A:

The Board of Directors recommends that holders of Class A and Class C Common Stock and Class B and Class D Common Stock vote shares “FOR” the election of the respective nominees to the Board of Directors (Proposal 1).

 

The Board of Directors recommends that holders of Class A, Class C, Class B, and Class D Common Stock vote shares “FOR” the approval of the Company’s 2020 Omnibus Stock and Incentive Plan (Proposal 2).

 

The Board of Directors recommends that holders of Class A, Class C, Class B, and Class D Common Stock vote shares “FOR” the advisory (nonbinding) vote to approve named executive officer compensation (Proposal 3).

The Board of Directors recommends that holders of Class A, Class C, Class B and Class D Common Stock vote shares “FOR” the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020 (Proposal 4).

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10.

Q: How will voting on any other business be conducted?

 

A:

Other than the items of business described in this Proxy Statement, we know of no other business to be presented for action at the Annual Meeting. As for any business that may properly come before the Annual Meeting, your signed Proxy gives authority to the persons named therein. Those persons may vote on such matters at their discretion and will use their best judgment with respect thereto.

 

11.

Q: What is the difference between a “stockholder of record” and a “street name” holder?

 

A:

These terms describe how your shares are held. If your shares are registered directly in your name with Computershare, our transfer agent, you are a “stockholder of record.” If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder.

12.

Q: How do I vote my shares if I am a stockholder of record?

 

A:

A separate form of Proxy applies to our Class A and Class C Common Stock and a separate form of Proxy applies to our Class B and Class D Common Stock. For specific instructions on how to vote your shares, please refer to the instructions on the Notice Regarding the Availability of Proxy Materials you received in the mail or, if you received printed Proxy Materials, your enclosed Proxy card. If you received printed Proxy Materials, enclosed is a Proxy card for the shares of stock held by you on the record date. If you received printed Proxy Materials, you may vote by signing and dating each Proxy card you receive and returning it in the enclosed prepaid envelope, or you may vote by telephone or internet. Unless otherwise indicated on the Proxy, shares represented by any Proxy will, if the Proxy is properly executed and received by us prior to the Annual Meeting, be voted “FOR” each of the nominees for director; “FOR” the approval of the Company’s 2020 Omnibus Stock and Incentive Plan; “FOR” the advisory (nonbinding) vote to approve named executive officer compensation; and “FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.

13.

Q: How do I vote by telephone or electronically?

 

A:

Instead of submitting your vote by mail on the enclosed Proxy card (if you received printed Proxy Materials), your vote can be submitted by telephone or electronically, via the internet. Please refer to the specific instructions set forth on the Notice Regarding the Availability of Proxy Materials or, if you received printed Proxy Materials, on the enclosed Proxy card. For security reasons, our electronic voting system has been designed to authenticate your identity as a stockholder.

14.

Q: How do I vote my shares if they are held in street name?

 

A:

If your shares are held in street name, your broker or other nominee will provide you with a form seeking instruction on how your shares should be voted.

15.

Q: Can I change or revoke my vote?

 

A:

Yes. Any Proxy executed and returned to us is revocable by delivering a later signed and dated Proxy or other written notice to our Secretary at any time prior to its exercise. Your Proxy is also subject to revocation by attending the meeting and voting online.

16.     Q:  How do I vote during the meeting?

A:     If you have not already voted your shares in advance as described above, provided you are a registered stockholder with a control number or a beneficial stockholder that has submitted a Legal Proxy and has received a control number from Computershare, you will also be able to vote your shares

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electronically during the Annual Meeting by clicking on the “Cast Your Vote” link on the Meeting Center site. Whether or not you plan to attend the Annual Meeting, we urge you to vote and submit your proxy in advance of or during the Annual Meeting by one of the methods described in the proxy materials.

17.     Q:  How do I ask questions during the meeting?

A:     If you are attending the meeting as a stockholder of record or registered beneficial owner, questions can be submitted by accessing the meeting center at www.meetingcenter.io/266493346, entering your control number and meeting password, UHS2020, and clicking on the message icon in the upper right-hand corner of the page.  To return to the main page, click the “i” icon at the top of the screen. Please note that guest access is in listen-only mode and you will not have the ability to ask questions or vote during the Annual Meeting.

18.

Q: What constitutes a “quorum”?

 

A:

The holders of a majority of the common stock votes issued and outstanding and entitled to vote, either in person or represented by Proxy, constitutes a quorum. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.

19.

Q: What are our voting rights with respect to the election of directors?

 

A:

Our Restated Certificate of Incorporation provides that, with respect to the election of directors, holders of Class A Common Stock vote as a class with the holders of Class C Common Stock, and holders of Class B Common Stock vote as a class with holders of Class D Common Stock, with holders of all classes of Common Stock entitled to one vote per share.

As of March 24, 2020, the shares of Class A and Class C Common Stock constituted 8.5% of the aggregate outstanding shares of our Common Stock, had the right to elect five members of the Board of Directors and constituted 87.9% of our general voting power; and as of that date the shares of Class B and Class D Common Stock (excluding shares issuable upon exercise of options) constituted 91.5% of the outstanding shares of our Common Stock, had the right to elect two members of the Board of Directors and constituted 12.1% of our general voting power.

20.

Q: What are our voting rights with respect to matters other than the election of directors?

 

A:

As to matters other than the election of directors, our Restated Certificate of Incorporation provides that holders of Class A, Class B, Class C and Class D Common Stock all vote together as a single class, except as otherwise provided by law.

Each share of Class A Common Stock entitles the holder thereof to one vote; each share of Class B Common Stock entitles the holder thereof to one-tenth of a vote; each share of Class C Common Stock entitles the holder thereof to 100 votes (provided the holder of Class C Common Stock holds a number of shares of Class A Common Stock equal to ten times the number of shares of Class C Common Stock that holder holds); and each share of Class D Common Stock entitles the holder thereof to ten votes (provided the holder of Class D Common Stock holds a number of shares of Class B Common Stock equal to ten times the number of shares of Class D Common Stock that holder holds).

In the event a holder of Class C or Class D Common Stock holds a number of shares of Class A or Class B Common Stock, respectively, less than ten times the number of shares of Class C or Class D Common Stock that holder holds, then that holder will be entitled to only one vote for every share of Class C Common Stock, or one-tenth of a vote for every share of Class D Common Stock, which that

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holder holds in excess of one-tenth the number of shares of Class A or Class B Common Stock, respectively, held by that holder. The Board of Directors, in its discretion, may require holders of Class C or Class D Common Stock to provide satisfactory evidence that such owner holds ten times as many shares of Class A or Class B Common Stock as Class C or Class D Common Stock, respectively, if such facts are not apparent from our stock records.

21.

Q: Will my shares be voted if I do not sign and return my Proxy card or vote by telephone or internet?

 

A:

If you are a stockholder of record and you do not sign and return your Proxy card or vote by telephone or internet, your shares will not be voted at the Annual Meeting. If your shares are held in street name and you do not issue instructions to your broker, your broker may vote your shares at its discretion on routine matters, but may not vote your shares on nonroutine matters. Under the New York Stock Exchange rules, each of the proposals other than the ratification of the selection of the Company’s independent registered public accounting firm is deemed to be a nonroutine matter with respect to which brokers and nominees may not exercise their voting discretion without receiving instructions from the beneficial owner of the shares.

22.

Q: What is a “broker non-vote”?

 

A:

“Broker non-votes” are shares held by brokers or nominees which are present in person or represented by Proxy, but which are not voted on a particular matter because instructions have not been received from the beneficial owner. Under the rules of the Financial Industry Regulatory Authority, member brokers generally may not vote shares held by them in street name for customers unless they are permitted to do so under the rules of any national securities exchange of which they are a member. Under the rules of the New York Stock Exchange, New York Stock Exchange-member brokers who hold shares of Common Stock in street name for their customers and have transmitted our Proxy solicitation materials to their customers, but do not receive voting instructions from such customers, are not permitted to vote on nonroutine matters. Under the New York Stock Exchange rules, each of the proposals other than the ratification of the selection of the Company’s independent registered public accounting firm is deemed to be nonroutine matters with respect to which brokers and nominees may not exercise their voting discretion without receiving instructions from the beneficial owner of the shares.

23.

Q: What is the effect of a broker non-vote?

 

A:

Broker non-votes will be counted for the purpose of determining the presence or absence of a quorum but will not be considered present and entitled to vote on any matter for which a broker, bank or other nominee does not have authority. For the Annual Meeting, pursuant to the rules of the New York Stock Exchange, your broker, bank or other nominee will be permitted to vote for you without instruction only with respect to Proposal 4 regarding the ratification of PricewaterhouseCoopers LLP. A broker non-vote will not have any impact on the outcome of any other proposals.

24.

Q: What is the vote required to approve each proposal?

 

A:

    

 

Item of Business

Votes Required for Approval

Abstentions  

Signed But  

Unmarked  

Proxy Cards  

Broker  

Non-Votes  

 

 

 

 

 

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Item of Business

Votes Required for Approval

Abstentions  

Signed But  

Unmarked  

Proxy Cards  

Broker  

Non-Votes  

Proposal 1: Election of Directors

One Class III director will be elected by the highest

number of affirmative votes of the shares of Class A and Class C Common Stock, voting together as a single class, present in person or represented by Proxy and entitled to vote.

 

One Class III director will be elected by the highest number of affirmative votes of the shares of Class B and Class D Common Stock, voting together as a single class, present in person or represented by Proxy and entitled to vote.

 

No effect

Count as votes FOR

No effect on voting

 

 

 

 

 

Proposal 2: Approval of the Company’s 2020 Omnibus Stock and Incentive Plan

Affirmative “FOR” vote of the holders of a majority of the voting power of shares of Class A, B, C, and D Common Stock, present in person or represented by Proxy and entitled to vote, voting together as a single class.  

 

Count as votes AGAINST

Count as votes FOR

No effect on voting

 

 

 

 

 

Proposal 3: Advisory (nonbinding) Vote of Named Executive Officer Compensation

Affirmative “FOR” vote of the holders of a majority of the voting power of shares of Class A, B, C, and D Common Stock, present in person or represented by Proxy and entitled to vote, voting together as a single class.  

 

Count as votes AGAINST

Count as votes FOR

No effect on voting

 

 

 

 

 

Proposal 4: Ratification of Independent Registered Public Accounting Firm

Majority of the Class A, B, C and D Common Stock votes, present in person or represented by Proxy and entitled to vote.

Count as votes AGAINST

Count as votes FOR

Not applicable

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25.

Q: Who will count the votes?

 

A:

The Secretary will count the Class A and Class C votes. Our transfer agent will count the Class B and Class D votes and serve as inspector of elections.

26.

Q: When are stockholder proposals due in order to be included in our Proxy Statement for the 2020 Annual Meeting?

 

A:

Any stockholder proposal intended to be included in the proxy materials for the 2020 Annual Meeting must be received by us no later than December 10, 2020. Such proposals should be sent in writing by courier or certified mail to our Secretary at Universal Health Services, Inc., Universal Corporate Center, 367 South Gulph Road, P.O. Box 61558, King of Prussia, Pennsylvania 19406. Any stockholder proposal must also be in proper form and substance, as determined in accordance with the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

27.

Q: Can I receive more than one set of Annual Meeting materials?

 

A:

If you share an address with another stockholder, each stockholder may not receive a separate copy of our Annual Report and Proxy Statement. We will promptly deliver a separate copy of either document to any stockholder upon written or oral request to our Secretary at Universal Health Services, Inc., Universal Corporate Center, 367 South Gulph Road, P.O. Box 61558, King of Prussia, Pennsylvania 19406, telephone (610) 768-3300. If you share an address with another stockholder and (i) would like to receive multiple copies of the Proxy Statement or Annual Report to Stockholders in the future, or (ii) if you are receiving multiple copies and would like to receive only one copy per household in the future, please contact your bank, broker, or other nominee record holder, or you may contact us at the above address and phone number.

 

28.

Q: How can I obtain additional information about the Company?

 

A:

Copies of our annual, quarterly and current reports we file with the Securities and Exchange Commission, or SEC, and any amendments to those reports, are available free of charge on our website, which is located at http://www.uhsinc.com. Copies of these reports will be sent without charge to any stockholder requesting it in writing to our Secretary at Universal Health Services, Inc., Universal Corporate Center, P.O. Box 61558, 367 South Gulph Road, King of Prussia, Pennsylvania 19406. The information posted on our website is not incorporated into this Proxy Statement.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of March 24, 2020, the number of shares of our equity securities and the percentage of each class beneficially owned, within the meaning of Securities and Exchange Commission Rule 13d-3, and the percentage of our general voting power currently held, by (i) all stockholders known by us to own more than 5% of any class of our equity securities, (ii) all of our directors and nominees who are stockholders, (iii) the executive officers named in the Summary Compensation Table and (iv) all directors and executive officers as a group. Except as otherwise specified, the named beneficial owner has sole voting and investment power.

 

 

 

Title of Class

 

 

 

 

 

 

 

 

Name and Address of

Beneficial Owner(1)

 

Class A

Common

Stock(2)

 

 

 

 

 

Class B

Common

Stock(2)

 

 

 

 

 

Class C

Common

Stock(2)

 

 

 

 

 

Class D

Common

Stock(2)

 

 

 

 

 

Percentage

of General

Voting

Power(3)

 

 

 

Shares

 

%

 

 

Shares

 

%

 

 

Shares

 

%

 

 

Shares

 

%

 

 

 

 

 

Alan B. Miller

 

5,163,885(6)(17)(20)

 

78.5%

 

 

8,883,535(4)(11)(12)(18)(21)(23)

 

10.4%

 

 

661,688

 

100%

 

 

 

 

 

 

 

 

85.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marc D. Miller

 

1,641,815(7)(15)(17)(22)

 

25.0%

 

 

2,686,872(4)(11)(14)(18)(19)

 

3.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elliot J. Sussman, M.D.

The Villages Health 1149

Main Street The Villages,

FL 32159

 

 

 

 

 

 

7,500(11)

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maria R. Singer                                                                                             245 Park Avenue                                                                                             New York, NY 10167

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warren J. Nimetz

Norton Rose Fulbright US LLP

1301 Avenue of the Americas

New York, NY 10019

 

615,330(13)(16)(20)

 

 

 

 

794,256(4)(11)(14)

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lawrence S. Gibbs

48 Crescent Road

Livingston, NJ 07039

 

 

 

 

 

 

31,299(11)

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eileen C. McDonnell

The Penn Mutual Life Insurance

Company 600 Dresher Road

Horsham, PA 19044

 

 

 

 

 

 

18,487(11)

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steve G. Filton

 

 

 

 

 

 

440,238(11)

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marvin G. Pember

 

 

 

 

 

 

97,129(11)

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matthew J. Peterson

 

 

 

 

 

 

23

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wellington Management Company, LLP

280 Congress Street

Boston, MA 02210

 

 

 

 

 

 

4,668,058(8)

 

6.0%

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 


 

BlackRock, Inc.

55 East 52nd Street

New York, NY 10055

 

 

 

 

 

 

6,335,484(9)

 

8.1%

 

 

 

 

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

 

 

 

 

 

 

9,163,943(10)

 

11.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

1.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All directors & executive officers as a

group (10 persons)

 

 

6,574,600

 

99.96%

 

 

 

11,556,483

 

12.6%

 

 

 

661,688

 

100.0%

 

 

 

 

 

 

 

 

88.3

%

 

(1)

Unless otherwise shown, the address of each beneficial owner is c/o Universal Health Services, Inc., Universal Corporate Center, 367 South Gulph Road, King of Prussia, PA 19406.

(2)

Each share of Class A, Class C and Class D Common Stock is convertible at any time into one share of Class B Common Stock.

(3)

As to matters other than the election of directors, holders of Class A, Class B, Class C and Class D Common Stock vote together as a single class. Each share of Class A Common Stock entitles the holder thereof to one vote; each share of Class B Common Stock entitles the holder thereof to one-tenth of a vote; each share of Class C Common Stock entitles the holder thereof to 100 votes (provided the holder of Class C Common Stock holds a number of shares of Class A Common Stock equal to ten times the number of shares of Class C Common Stock that holder holds); and each share of Class D Common Stock entitles the holder thereof to ten votes (provided the holder of Class D Common Stock holds a number of shares of Class B Common Stock equal to ten times the number of shares of Class D Common Stock that holder holds).

(4)

Includes shares issuable upon the conversion of Classes A, C and/or D Common Stock.

(5)

Less than 1% of the class of stock or general voting power.

(6)

Includes 400,000 shares of Class A Common Stock that are beneficially owned by Mr. Miller and are held by Mr. Miller in trust for the benefit of his spouse.

(7)

Includes 337,321 shares of Class A Common Stock which are held by three trusts (the “2002 Trusts”) for the benefit of certain of Alan B. Miller’s family members of which Marc D. Miller (who is a named executive officer, director and the son of Alan B. Miller) and Mr. Nimetz are trustees; and 532,194 shares held by the A. Miller Family, LLC, whose members are the 2002 Trusts. Marc D. Miller is the sole manager of the A. Miller Family, LLC and during his tenure as such, has voting and dispositive power with respect to the Class A Common Stock held by the A. Miller Family, LLC. Mr. Nimetz disclaims beneficial interest in all shares held by the 2002 Trusts and the A. Miller Family LLC.  Marc D. Miller disclaims beneficial interest in the shares held by the 2002 Trusts and the A Miller Family LLC other than those of which Marc Miller is the beneficiary

(8)

These securities are held by Wellington Management Group, LLP and various of its affiliates. Wellington Management Group LLP or its affiliates has shared power to vote or direct the vote of 4,359,614 shares of our Class B Common Stock and shared power to dispose or to direct the disposition of 4,668,058 shares of our Class B Common Stock. Information is based on Amendment No. 15 to Schedule 13G dated February 14, 2020.

(9)

These securities are held by Blackrock, Inc. and its subsidiaries. Blackrock, Inc. has sole power to vote with respect to 5,580,260 shares of our Class B Common Stock and sole power to dispose or to direct the

10

 


 

disposition of 6,335,484 shares of our Class B Common Stock. Information is based on Amendment No. 11 to Schedule 13G dated February 5, 2020.

(10)

These securities are held by The Vanguard Group and its subsidiaries. Vanguard Group has sole power to vote with respect to 118,698 shares and shared power to vote or direct the vote with respect to 32,196 shares of our Class B Common Stock and shared power to dispose with respect to 141,164 shares and sole power to dispose or to direct the disposition of 9,163,943 shares of our Class B Common Stock. Information is based on Amendment No. 7 to Schedule 13G dated February 10, 2020.

(11)

Includes 1,992,250 shares issuable pursuant to stock options to purchase Class B Common Stock held by our directors and executive officers and exercisable within 60 days of March 24, 2020 as follows: Elliot J. Sussman, M.D. (7,500); Alan B. Miller (1,475,000); Marc D. Miller (222,250); Lawrence S. Gibbs (30,000); Eileen C. McDonnell (11,250); Steve G. Filton (175,000); Warren Nimetz (7,500); and Marvin G. Pember (63,750).

(12)

Includes 32,997 restricted shares awarded during 2017, 2018, 2019 and 2020, net of vestings, pursuant to our 2010 Employees’ Restricted Stock Purchase Plan for Alan B. Miller. These shares are subject to forfeiture and vesting pursuant to the terms and conditions set forth in the applicable restricted stock agreements.

(13)

Does not include: (i) 337,321 shares of Class A Common Stock which are held by the 2002 Trusts of which Mr. Nimetz is a trustee; (ii) 532,194 shares of Class A Common Stock which are held by A. Miller Family, LLC whose members are the 2002 Trusts. Mr. Nimetz disclaims any beneficial interest in the shares; and (iii) 184,500 shares of Class A Common Stock which are held by three sub-trusts (the “2017 Sub-Trusts”) for the benefit of certain of Alan B. Miller’s family members of which Marc D. Miller (who is a named executive officer, director and the son of Alan B. Miller) and Mr. Nimetz are trustees.

(14)

Includes 171,426 shares held by the three 2011 Family Trusts for the benefit of Alan B. Miller’s three children. Warren Nimetz and Marc D. Miller are both Trustees. Marc D. Miller has sole voting power with respect to these shares. Mr. Nimetz disclaims beneficial ownership of all shares and Marc D. Miller disclaims beneficial ownership of the shares held by the Trust for the benefit of Abby Miller King (55,763) and the Trust for the benefit of Marni Spencer (55,763).

(15)

Includes 237,800 shares held by the 2012 Family Trust for the benefit of Abby Miller King and Marni Spencer. Warren Nimetz and Marc D. Miller are both Trustees. Marc D. Miller has sole voting power with respect to these shares. Mr. Nimetz and Marc D. Miller disclaim beneficial ownership of these shares. Includes 118,900 shares held by the 2012 Family Trust for the benefit of Marc D. Miller.  Mr. Nimetz has sole voting power with respect to these shares. Mr. Nimetz disclaims beneficial ownership of all these shares.

(16)

Includes 356,700 shares held by the 2012 Family Trust for the benefit of Alan B. Miller’s three children. Warren Nimetz is the sole Trustee of the 2002 Trust for the benefit of Marc D. Miller (which holds 118,900 shares) and Mr. Nimetz has sole voting power with respect to Marc D. Miller’s shares. Mr. Nimetz and Marc D. Miller are both Trustees of the Trusts for the benefit of Abby Miller King and Marni Spencer which each hold 118,900 shares. Marc D. Miller has sole voting power with respect to these shares. Mr. Nimetz and Marc D. Miller disclaim beneficial ownership of these shares.

(17)

Includes 350,000 shares held by three separate limited liability companies 100% of the interests of which are held by the three 2018  Grantor Retained Annuity Trusts, the three 2019 Grantor Retained Annuity Trusts, Alan B. Miller, and the three 2002 Trusts for the benefit of Alan B. Miller’s three children. Alan B. Miller has the sole dispositive power and Marc D. Miller has sole voting power with respect to these shares.

11

 


 

Marc D. Miller disclaims beneficial ownership of the shares held by the 2002 Trust for the benefit of Abby Miller King (100,000) and the shares held by the 2002 Trust for the benefit of Marni Spencer (100,000).

(18)

Includes 400,000 shares held by the three separate limited liability companies 100% of the interests of which are held by the three 2018 Grantor Retained Annuity Trusts, the three 2019 Grantor Retained Annuity Trusts, Alan B. Miller, and the three 2002 Trusts for the benefit of Alan B. Miller’s three children. Alan B. Miller has the sole dispositive power and Marc D. Miller has sole voting power with respect to these shares. Marc D. Miller disclaims beneficial ownership of the shares held by the 2002 Trust for the benefit of Abby Miller King (100,000) and the shares held by the 2002 Trust for the benefit of Marni Spencer (100,000).

(19)

Includes 110,172 shares held by the three 2002 Trusts for the benefit of Alan B. Miller’s three children. Warren Nimetz is a Trustee and disclaims beneficial ownership of these shares. Marc D. Miller has sole voting power with respect to these shares and Marc D. Miller disclaims beneficial ownership interest of the shares held by the 2002 Trust for the benefit of Abby Miller King (22,815) and the shares held by the 2002 Trust for the benefit of Marni Spencer (43,247).

(20)

Includes 258,630 shares held by The Alan B. Miller 2002 Trust. Warren Nimetz is the Trustee of the Trust and has sole voting power with respect to these shares. Mr. Nimetz disclaims any beneficial interest in the shares.

(21)

Excludes 9,810 shares in The Alan and Jill Miller Foundation.

(22)   Includes 184,500 shares of Class A Common Stock which are held by three sub-trusts (the “2017 Sub-Trusts”) for the benefit of certain of Alan B. Miller’s family members of which Marc D. Miller and Mr. Nimetz are trustees. Marc D. Miller has sole voting power with respect to these shares. Marc D. Miller disclaims beneficial ownership interest of shares held by the 2017 Sub-Trust for the benefit of descendants of Abby Miller King (61,500) and shares held by the 2017 Sub-Trust for the benefit of descendants of Marni Spencer (61,500). Mr. Nimetz disclaims beneficial ownership of all these shares.

(23) Includes 500,000 shares held by the three 2020 Grantor Retained Annuity Trusts.  Alan B. Miller has sole dispositive power and sole voting power with respect to these shares.

 


12

 


 

 

Equity Compensation Plan Information

The table below provides information, as of the end of December 31, 2019, concerning securities authorized for issuance under our equity compensation plans.

 

Plan Category (1.)

 

(a)

Number of

Securities to be

Issued Upon

Exercise of

Outstanding

Options,

Warrants

and Rights (2.)

 

 

(b)

Weighted

Average

Exercise Price

of Outstanding

Options,

Warrants

and Rights

 

 

(c)

Number of Securities

Remaining Available

for Future Issuance under

Equity Compensation

Plans (excluding

securities reflected in

column (a)) (3.)

 

Equity compensation plans approved by security holders

 

 

8,133,176

 

 

$

124.52

 

 

 

5,161,746

 

Total

 

 

8,133,176

 

 

$

124.52

 

 

 

5,161,746

 

 

(1.)

Shares of Class B Common Stock.

(2.)

As of March 24, 2020, there were 9,770,374 options outstanding with a weighted-average exercise price of $110.78 and weighted average remaining term of 3.31 years.  In addition, there were 320,030 full-value shares outstanding as of March 24, 2020.  

(3.)

As of March 24, 2020, the Company’s Stock Incentive Plan had 2,374,814 shares remaining for future issuance, and the Restricted Stock Purchase Plan had 98,949 shares remaining for future issuance, for a total of 2,473,763 shares.

Upon approval of The 2020 Omnibus Stock and Incentive Plan, as discussed in Proposal No. 2, no additional awards will be granted under the Stock Incentive Plan or the Restricted Stock Purchase Plan, and reserves for shares remaining for future issuance pursuant to each plan will be cancelled at that time. If our stockholders do not approve The 2020 Omnibus Stock and Incentive Plan, the Stock Incentive Plan and the Restricted Stock Plan will remain in effect in their current form.

 

13

 


 

PROPOSAL NO. 1

ELECTION OF DIRECTORS

Our Restated Certificate of Incorporation provides for a Board of Directors of not fewer than three members nor more than nine members. The Board of Directors is currently comprised of seven members, and is divided into three classes, with members of each class serving for a three-year term. At each Annual Meeting of Stockholders, directors are chosen to succeed those in the class whose term expires at such Annual Meeting and, in the case of this Annual Meeting, directors will be elected as Class III directors. Under our Restated Certificate of Incorporation, holders of shares of our outstanding Class B and Class D Common Stock (voting together as a single class) are entitled to elect 20% (but not less than one) of the directors, currently two directors, one in Class II and one in Class III, and the holders of Class A and Class C Common Stock (voting together as a single class) are entitled to elect the remaining five directors, three in Class I, one in Class II, and one in Class III.

The persons listed below include our Board of Directors and nominees. The terms of the current Class III directors, Messrs. Alan B. Miller and Lawrence S. Gibbs, expire at the 2020 Annual Meeting. Mr. Miller has been nominated to be elected by the holders of Class A and C Common Stock and Mr. Gibbs has been nominated to be elected by the holders of Class B and D Common Stock. We have no reason to believe that any of the nominees will be unavailable for election; however, if either nominee becomes unavailable for any reason, the shares represented by the Proxy will be voted for the person, if any, who is designated by the Board of Directors to replace the nominee. All nominees have consented to be named and have indicated their intent to serve if elected. The following information is furnished with respect to each of the nominees for election as a director and each member of the Board of Directors whose term of office will continue after the meeting.

 

Name

 

Class of

Director

 

Class of

Stockholders

Entitled to Vote

 

Age

 

Business Experience

 

Director

Since

DIRECTOR NOMINEES

 

 

 

 

 

 

 

 

 

 

14

 


 

Name

 

Class of

Director

 

Class of

Stockholders

Entitled to Vote

 

Age

 

Business Experience

 

Director

Since

 

 

 

 

 

 

 

 

 

 

 

Alan B. Miller

 

III

 

A Common

C Common

 

82

 

Our Chairman of the Board and Chief Executive Officer since 1978 and previously served as President until May 2009. Prior thereto, President, Chairman of the Board and Chief Executive Officer of American Medicorp, Inc. Chairman of the Board of Trustees, Chief Executive Officer and President of Universal Health Realty Income Trust. Father of Marc D. Miller, a Director and President.

 

1978

 

 

 

 

 

 

 

 

 

 

 

Lawrence S. Gibbs

 

III

 

B Common

D Common

 

48

 

Product Manager at AIG, artificial intelligence platform, since September 2019. Previously served in various portfolio manager and chief investment officer roles including chief investment officer at Erdos Capital and portfolio manager at JP Morgan Chase Bank NA.

 

2011

 

 

 

 

 

 

 

 

 

 

 

DIRECTORS WHOSE

TERMS EXPIRE IN 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elliot J Sussman, M.D.

 

I

 

A Common

C Common

 

68

 

Chairman of the Villages Health. Former President and Chief Executive Officer of Leigh Valley Hospital and Health Network from 1993 to 2010. Currently, a member of the Board of Directors of Yale New Haven Health System since 2011.

 

2018

 

 

 

 

 

 

 

 

 

 

 

Marc D. Miller

 

I

 

A Common

C Common

 

49

 

Appointed as our President in May 2009. Previously served as Senior Vice President and Co-Head of our Acute Care Division since 2007 and served as a Vice President since 2004. Also served in various roles in our Acute Care Division since 2003, and served in other management positions at various hospitals from 1999 to 2003. Currently serves as a member of the Board of Trustees of Universal Health Realty Income Trust and as a member of the Board of Directors of Premier, Inc. Son of Alan B. Miller, our Chief Executive Officer and Chairman of the Board.

 

2006

 

 

 

 

 

 

 

 

 

 

 

15

 


 

Name

 

Class of

Director

 

Class of

Stockholders

Entitled to Vote

 

Age

 

Business Experience

 

Director

Since

Eileen C. McDonnell

 

I

 

A Common

C Common

 

57

 

Ms. McDonnell currently serves as Chairman and Chief Executive Officer of The Penn Mutual Life Insurance Company since her appointment in February 2011. Ms. McDonnell joined Penn Mutual in 2008 and previously served as President of the company. She was also appointed to The Penn Mutual Board of Trustees in 2010. Ms. McDonnell also serves on the Board of Janney Montgomery Scott LLC, a wholly owned subsidiary of Penn Mutual. Ms. McDonnell also serves as a Director of the Insurance Federation of Pennsylvania, serves on the Corporate Council of Children’s Hospital of Philadelphia, and is a national advisor to Vision 2020, an initiative of Drexel University College of Medicine Institute for Women’s Health and Leadership.

 

2013

 

 

 

 

 

 

 

 

 

 

 

DIRECTORS WHOSE

TERMS EXPIRE IN 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warren J. Nimetz

 

II

 

A Common

C Common

 

63

 

Mr. Nimetz is a Partner at the law firm of Norton Rose Fulbright and has been an attorney since 1979.  We utilized during the year ended December 31, 2018, and currently utilize, the services of Norton Rose Fulbright as outside counsel.

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maria R. Singer

 

II

 

B Common

D Common

 

46

 

Maria R. Singer was elected to our Board of Directors in March 2020. She is Chief Operating Officer, Corporate Finance at Houlihan Lokey. She previously served as Managing Director and COO of Blackstone Advisory Partners from 2008-2015. She served in various roles at Lehman Brothers, Inc. from 2002-2008, including Senior Vice President, Office of the Chairman and Senior Vice President, Debt Capital Markets.

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

See the “Corporate Governance” section for additional information about our Board of Directors.

16

 


 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THESE NOMINEES AS DIRECTORS.

 

17

 


 

PROPOSAL NO. 2

APPROVAL OF THE 2020 OMNIBUS STOCK AND INCENTIVE PLAN

 

Summary of 2020 Stock Incentive Plan

In March 2020, upon the recommendation of the Compensation Committee, the Board of Directors adopted, subject to stockholder approval, the 2020 Omnibus Stock and Incentive Plan for Universal Health Services, Inc., which we refer to as the “2020 Stock Incentive Plan,” and has directed that it be submitted for the approval of our stockholders.  The 2020 Stock Incentive Plan will become effective on the date it is approved by our stockholders.  Upon approval of the 2020 Stock Incentive Plan, no additional awards will be granted under the Third Amended and Restated 2005 Stock Incentive Plan (“2005 Plan) or the 2010 Employees’ Restricted Stock Purchase Plan (“2010 Plan”), and reserves for shares remaining for future issuance pursuant to each plan will be cancelled at that time. If our stockholders do not approve the 2020 Stock Incentive Plan, the 2005 Plan and the 2010 Plan will remain in effect in their current form. The material features of the 2020 Stock Incentive Plan are discussed below, but the description is subject to, and is qualified in its entirety by, the full text of the 2020 Stock Incentive Plan, which is attached to this proxy statement as Exhibit A.

On March 24, 2020, the closing price of a share of Class B Common Stock, which we refer to as the “common stock,” as reported on the New York Stock Exchange, was $78.16 per share.

Historical Annual Share Usage

While equity-based awards are an important component of our long-term incentive compensation plan, we are mindful of our responsibility to our stockholders to exercise judgment in granting equity-based awards to minimize stockholder dilution.  Stockholder approval of the 2020 Stock Incentive Plan will enable us to continue to effectively incentivize our employees and directors while maintaining reasonable burn rates. Upon approval of the 2020 Stock Incentive Plan, no additional awards will be granted under the 2005 Plan or the 2010 Plan.

The following table includes information regarding all outstanding equity awards (i.e., awards under the 2005 Plan and the 2010 Plan, awards under any predecessor plans and inducement/make-whole awards granted on a non-plan basis) and shares available for future awards under the 2005 Plan and the 2010 Plan as of the record date of the Annual Meeting (and without giving effect to the 2020 Stock Incentive Plan under this Proposal No. 2):

Total shares underlying outstanding options and warrants

 

 

9,770,374

 

Weighted average exercise price of outstanding options and warrants

 

$

110.78

 

Weighted average remaining contractual life of outstanding options and warrants

 

3.3 years

 

Total shares subject to outstanding , unvested full-value awards

 

 

320,030

 

Total shares currently available for option grants

 

 

2,374,814

 

Total shares currently available for full-value award grants

 

 

98,949

 

The following table sets forth information regarding historical awards granted for the 2017-2019 period and the corresponding burn rate, which is defined as the number of shares subject to options and time-based restricted stock granted each year divided by the weighted-average number of shares of common stock outstanding for that year.

18

 


 

 

Year

 

Options Granted (in thousands) (1.)

 

 

Time-Based Restricted Stock Granted (in thousands) (2.)

 

Weighted Average Common Shares Outstanding (in thousands) (3.)

 

 

Burn Rate (Options)

 

 

Burn Rate (Time-Based Restricted Stock)

 

2019

 

 

 

2,460

 

 

145

 

 

88,762

 

 

2.77%

 

 

 

0.16

%

2018

 

 

 

2,568

 

 

148

 

 

93,276

 

 

2.75%

 

 

 

0.16

%

2017

 

 

 

3,062

 

 

24

 

 

95,652

 

 

3.20%

 

 

 

0.03

%

3-Year Average

 

 

 

 

 

 

 

 

 

 

 

 

2.91%

 

 

 

0.12

%

 

(1)

(2)

Reflects total number of options granted during the fiscal year and does not exclude any cancelled or forfeited awards.

Reflects total number of restricted shares subject to equity awards granted during the fiscal year and does not exclude any cancelled or forfeited awards.  

(3)

Reflects the weighted average shares outstanding used in computing basic and diluted earnings per share.  

 

Key Features of the Plan

The 2020 Stock Incentive Plan includes the following key features that are designed to serve our stockholders’ interests, including the following:

 

No Evergreen Share Increases.  There is no annual increase in the number of shares available for issuance under the 2020 Stock Incentive Plan.

 

Share Counting Method.  For purposes of determining the remaining number of shares subject to the 2020 Stock Incentive Plan, each share underlying a stock option or SAR shall be counted as one (1) share, while all other awards shall be counted as four (4) shares against the maximum number of shares issuable under the 2020 Stock Incentive Plan.

 

No Liberal Share Recycling of Stock Options or SARs.  The 2020 Stock Incentive Plan does not allow, with respect to stock options and SARs, the reuse of shares withheld or delivered to satisfy the exercise price or tax obligations.

 

Minimum Vesting Requirement.  A one-year minimum vesting requirement, subject to a carve-out for 5% of the share reserve.

 

Vesting Required for Payment of Dividends.  Dividends and dividend equivalents will only be paid or settled on shares that ultimately vest.

 

No Discounted Stock Options or SARs.  Granting of discounted stock options or SARs is prohibited.

 

No Repricing.  Repricing of outstanding stock options or SARs and repurchases of “underwater” stock options or SARs is prohibited without stockholder approval.

 

No Transfers for Value.  No awards may be transferred for value or consideration.

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General

Purpose

The purpose of the 2020 Stock Incentive Plan is to advance the interests of the Company and increase stockholder value by providing additional incentives to attract, retain and motivate those qualified and competent employees, directors, and consultants upon whose efforts and judgment its success is largely dependent.

Eligibility

Awards may be granted pursuant to the 2020 Stock Incentive Plan to any of our present or future employees, consultants and outside directors.  Actual selection of any eligible individual to receive an award pursuant to the 2020 Stock Incentive Plan is within the sole discretion of the Compensation Committee or its authorized delegate (where applicable, references herein to the Compensation Committee are inclusive of its authorized delegate).  “Incentive stock options” may be granted only to employees, and all other awards may be granted to either employees, consultants or outside directors.

Types of Awards

The 2020 Stock Incentive Plan authorizes the granting of “incentive stock options” and “non-qualified stock options” to purchase shares of our common stock. The maximum number of shares of common stock available for issuance pursuant to incentive stock options granted under the 2020 Stock Incentive Plan is the same as the number of shares of common stock available for issuance under the 2020 Stock Incentive Plan.  In accordance with the rules under the Internal Revenue Code of 1986, as amended, for incentive stock options, the 2020 Stock Incentive Plan provides that incentive stock options granted to any particular employee may not “vest” for more than $100,000 in fair market value of the common stock (measured on the grant date) in any calendar year. If incentive stock options granted to a participant would vest for more than $100,000 in any calendar year, then such incentive stock options will, to such extent, be treated as non-statutory stock options. Unless the context otherwise requires, the term “options” includes both incentive stock options and non-qualified stock options.

The 2020 Stock Incentive Plan also authorizes awards of restricted stock.  A restricted stock award is the grant of shares of our common stock that are nontransferable and may be subject to substantial risk of forfeiture until specific conditions are met.  The vesting and number of shares of a restricted stock award may be determined by the Compensation Committee.  Except as otherwise provided in the agreement granting the restricted stock award, the recipient of restricted stock will have all of the rights of a stockholder, including with respect to voting rights, other than the right to receive dividends on unvested restricted stock (although the agreement granting the restricted stock award may allow for the accrual of dividend equivalents on unvested restricted stock).

The 2020 Stock Incentive Plan also authorizes the granting of stock appreciation rights, or SARs.  A SAR is the right to receive payment of an amount equal to the excess of the fair market value of a share of our common stock on the date of exercise of the SAR over the grant price of the SAR (which grant price may not be less than the fair market value of a share of our common stock on the date of grant of the SAR).  SARs may be granted under the 2020 Stock Incentive Plan in tandem with other awards.

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The 2020 Stock Incentive Plan also authorizes awards of restricted stock units that, that once vested (based on the criteria the Compensation Committee establishes, which may be based on the passage of time or the attainment of performance-based conditions), may be settled in a number of shares of our common stock equal to the number of units earned, or in cash equal to the fair market value of the number of shares of our common stock (or a combination of stock and cash) earned in respect of the number of units earned.  

The 2020 Stock Incentive Plan also authorizes awards of restricted stock units and awards intended to be performance-based awards that are payable in stock, cash, or a combination of stock and cash.  Any performance-based awards granted will vest upon the achievement of performance objectives.  The Compensation Committee will establish the performance measure as well as the length of the performance period.

Administration

The 2020 Stock Incentive Plan is administered by the Compensation Committee (or by the Board of Directors to the extent reserved or determined by the Board of Directors).  The Compensation Committee has the authority to interpret and adopt rules and regulations for carrying out the 2020 Stock Incentive Plan.  All decisions and acts of the Compensation Committee shall be final and binding on all participants under the 2020 Stock Incentive Plan.

The Compensation Committee will have the full power and authority under the 2020 Stock Incentive Plan to:

 

Designate participants to receive awards;

 

Determine the type or types of awards to be granted to each participant;

 

Determine the number of awards to be granted and the number of shares to which an award will relate;

 

Determine the terms and conditions of any award, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an award, based in each case on such considerations as the Compensation Committee in its sole discretion determines;

 

Determine whether, to what extent, and pursuant to what circumstances an award may be settled in, or the exercise price of an award may be paid in, cash, shares, other awards, or other property, or an award may be canceled, forfeited, or surrendered;

 

Prescribe the form of each award agreement, which need not be identical for each participant;

 

Decide all other matters that must be determined in connection with an award;

 

Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the 2020 Stock Incentive Plan;

 

Suspend or terminate the 2020 Stock Incentive Plan at any time provided that such suspension or termination does not impair rights and obligations under any outstanding award without written consent of the affected participant;

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Interpret the terms of, and any matter arising pursuant to, the 2020 Stock Incentive Plan or any award agreement thereunder; and

 

Make all other decisions and determinations that may be required pursuant to the 2020 Stock Incentive Plan or as the Compensation Committee deems necessary or advisable to administer the 2020 Stock Incentive Plan.

Authorized Shares and Share Counting Method

A total of 6,100,000 shares of our common stock (subject to adjustment as discussed below) may be issued under the 2020 Stock Incentive Plan.  Authorized shares are counted and subject to adjustments, as described below:

 

Shares that are subject to stock options and SARs shall be counted as one share for every one share subject to stock options and SARs.

 

Shares that are subject to restricted stock awards, restricted stock unit awards, performance shares and other share-based awards shall be counted as four shares for every one share subject to such awards.

 

The following shares shall not be added to the number of shares authorized: shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligation related to any award; shares not issued or delivered as a result of the net settlement of an outstanding stock option or SAR; and shares repurchased by us on the open market with the cash proceeds of the exercise price from stock options.

 

To the extent that any share-based award under the 2020 Stock Incentive Plan terminates, expires, is cancelled or is paid in cash, the available shares subject to such award shall remain available shares; shares will be added back as one share if they were subject to a stock option or a SAR and as four shares if they were subject to a restricted stock award, restricted stock unit award, performance share or other share-based award.

 

Substitute awards issued in connection with acquiring other companies shall neither increase nor decrease the shares authorized under the 2020 Stock Incentive Plan.

Granting of Awards

The Compensation Committee may from time to time grant awards in its discretion.  In granting awards, the Compensation Committee may take into consideration the contribution the eligible person has made or may be reasonably expected to make to our success and such other factors as the Compensation Committee determines.  The number of discretionary grants to be made under the 2020 Stock Incentive Plan in the future to our directors and executive officers, including our named executive officers, and the dollar values of such grants, are not determinable.

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Exercise Price of Options and Grant Price of SARs

The exercise price of options granted under the 2020 Stock Incentive Plan shall be any price determined by the Compensation Committee, but may not be less than the fair market value of our common stock on the date of grant.  The exercise price of incentive stock options shall not be less than 110% of the fair market value on the date of grant if the optionee owns, directly or indirectly, stock possessing more than 10% of the total combined voting power of all classes of our stock.  

The grant price of SARs granted under the 2020 Stock Incentive Plan shall be determined by the Compensation Committee, and may not be less than the fair market value of our common stock on the date of grant.

Price of Restricted Stock

The price, if any, to be paid by a recipient for restricted stock awarded under the 2020 Stock Incentive Plan shall be determined by the Compensation Committee.  As a condition to the grant of a restricted stock award, if required by applicable law, the Compensation Committee will require the person receiving the award to pay to us an amount equal to the par value of the restricted stock granted under the award.

Payment of Exercise Price

Unless further limited by the Compensation Committee, the exercise price of an option shall be paid solely in cash, by certified or cashier’s check, by wire transfer, by money order, by personal check, by delivery of shares of our common stock if expressly permitted by the terms of the option (including withholding of shares otherwise deliverable upon exercise of the option by “net exercise” or otherwise), by promissory note bearing interest at no less than such rate as shall then preclude the imputation of interest under the Internal Revenue Code of 1986, as amended, other property acceptable to the Committee, or by a combination of the foregoing.  If the exercise price is paid in whole or in part with shares of our common stock, the value of the shares surrendered shall be their fair market value on the date surrendered.

Restrictions on Transfer of Awards

No award granted under the 2020 Stock Incentive Plan is transferable otherwise than by will or by the laws of descent and distribution.  However, the Committee by express provision in the award or an amendment thereto may permit awards to be transferred (without consideration) to, exercised by and paid to certain persons or entities related to the participant, including, but not limited to, members of the participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the participant’s family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Compensation Committee, pursuant to such conditions and procedures as the Compensation Committee may establish.

During the lifetime of a participant, each award will be exercisable only by the participant or the guardian or legal representative of the participant.

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Restrictions on Transfer of Restricted Stock

A participant may not sell, transfer, assign or pledge shares of restricted stock until the shares have vested.  Stock certificates representing the restricted stock shall be held by us bearing a legend to restrict transfer of the certificate until the restricted stock has vested.  At the time the restricted stock vests, a certificate for the vested shares will be delivered to the participant and, if the award agreement so provides, dividend equivalents accrued on the restricted stock from the date of grant.

Exercisability of Options and SARs

Each option and SAR shall become exercisable in whole or in part and cumulatively, and shall expire, according to the terms of the option or the SAR, as applicable, to the extent not inconsistent with the express provisions of the 2020 Stock Incentive Plan.  In addition, in the case of the grant of an option to an officer, the Compensation Committee may provide that no shares acquired on the exercise of such option shall be transferable during such six month period following the date of grant of such option.

The Compensation Committee, in its sole discretion, may accelerate the date on which all or any portion of an otherwise unexercisable option or SAR may be exercised or a restriction will lapse.

Vesting of Restricted Stock and Restricted Stock Units

In granting restricted stock and restricted stock unit awards, the Compensation Committee, in its sole discretion, may determine the terms and conditions under which such awards shall vest.

The Compensation Committee also has the right, exercisable in its sole discretion, to accelerate the date on which restricted stock and restricted stock units may vest or otherwise waive or amend any conditions in respect of a grant of restricted stock or restricted stock units.

Dividends and Dividend Equivalents

The Compensation Committee may provide that any award (other than options and SARs) shall earn dividends or dividend equivalents (payable in cash or additional shares, or a combination of cash and shares).  Notwithstanding the foregoing, dividends or dividend equivalents may not be paid with respect to any award that is subject to the achievement of performance criteria (including time-based vesting conditions), unless and until the relevant performance criteria have been satisfied. Generally, holders of restricted stock and restricted stock units receive dividend equivalents which are subject to vesting in line with the underlying award to which they relate.  No dividends or dividend equivalents will be paid on options or SARs.

Minimum Vesting Requirement

A one-year minimum vesting requirement will generally apply to all awards, except for a limited carve-out with respect to awards for up to 5% of the total number of shares that are available for new awards as of the effective date of the 2020 Stock Incentive Plan. In addition, the one-year minimum vesting requirement does not apply to awards granted to non-employee directors that vest on the earlier of the one-year anniversary of the grant

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date and the next annual meeting of stockholders that occurs at least 50 weeks after the prior year’s annual meeting.

Terms of Performance Awards

The Compensation Committee may grant performance awards to any person who is eligible to receive an award pursuant to the 2020 Stock Incentive Plan which are conditioned on the satisfaction of performance objectives, including those comprising one or more of the performance measures under a performance-based award, as the Compensation Committee, in its sole discretion, may select.

Performance-based awards, in the sole discretion of the Compensation Committee, may be made in the form of:

 

Shares or unit equivalents to shares of our common stock (including, without limitation, shares of restricted stock subject to restrictions that will lapse on the basis of the satisfaction of the selected performance measure(s));

 

cash; or

 

a combination of shares of our common stock and cash.

The Compensation Committee shall establish the performance measures which will be required to be satisfied during the performance period in order to earn the amounts specified in a performance-based award, as well as the duration of any performance period, each of which may differ with respect to each covered person, or with respect to separate performance-based awards issued to the same covered person.  The performance measures may be one or more (or a combination) of the following:

 

pre-tax income, after-tax income or adjusted net income;

 

earnings per share (basic or diluted), adjusted earnings per share (basic or diluted);

 

earnings, including one or more of operating income, earnings before or after interest, depreciation, amortization, rent (or restructuring) costs, adjusted EBITDA, adjusted EBITDAR, economic earnings, or extraordinary or special items or book value per share (which may exclude nonrecurring items);

 

operating profit;

 

revenue, revenue growth or rate of revenue growth;

 

return on assets (gross or net), return on investment, return on capital, or return on equity;

 

operating expenses;

 

total stockholder return or stock price appreciation;

 

cash flow, free cash flow, cash flow return on investment (discounted or otherwise), or net cash provided by operations;

 

implementation or completion of critical projects or processes;

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acquisition financing;

 

cumulative earnings per share growth;

 

operating margin or profit margin;

 

containment of our expenses;

 

expense targets, reductions and savings, productivity and efficiencies;

 

strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion, employee satisfaction, resident satisfaction, human resources management, supervision of litigation and/or information technology goals, goals relating to acquisitions, divestitures, joint ventures and/or similar transactions and/or goals relating to budget comparisons;

 

personal professional objectives, including, without limitation, any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions;

 

any combination of, or a specified increase or decrease in, any of the foregoing; and

 

any other criteria as determined by the Committee in its sole discretion, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group or securities or stock market index.

Expiration of Options

The expiration date of an option will be determined by the Compensation Committee at the time of the grant. However, unless the terms of the option expressly provide for a different date of termination, the unexercised portion of the option shall automatically and without notice terminate and become null and void on the earlier of:

 

the date that holder ceases to be employed by or provide services to us, if such cessation is for “Cause,” as defined in the 2020 Stock Incentive Plan;

 

three months following the date on which the holder ceases to be employed by or provide services to us for any reason other than because of the holder’s death or disability or for Cause;

 

the first anniversary of the date on which the holder ceased to be employed by or provide services to us by reason of the holder’s death or disability; or

 

the tenth anniversary of the date of grant.

Change in Control

In the event of the occurrence of a “change in control” as defined in the 2020 Stock Incentive Plan, outstanding awards may be assumed by, or converted into an award with respect to shares of common stock of, the successor or acquiring company.  If an outstanding award is not assumed by the successor or acquiring

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company, then the award (to the extent not exercised and whether or not otherwise vested) will be cancelled immediately prior to the change in control in exchange for the right to receive the product of (a) the number of shares still covered by the outstanding award multiplied by (b) the excess, if any, of the per share consideration received by our stockholders over the exercise or base price specified in the award.  If the per share transaction value is not greater than the exercise or base price under the award, then the award will be cancelled for no consideration. The Board of Directors may accelerate the vesting of an outstanding award in connection with a change in control, whether or not the vesting requirements set forth in the applicable award agreement have been satisfied and whether or not the award is otherwise assumed or substituted by the successor company.

Prohibition on Repricing

Repricing of outstanding stock options or SARs and repurchases of “underwater” stock options or SARs is prohibited without stockholder approval.

Clawback / Recovery

All Awards granted under the 2020 Stock Incentive Plan will be subject to recoupment in accordance with the Company’s recoupment policy.  In addition, the Compensation Committee may impose such other clawback, recovery or recoupment provisions on an award as the Compensation Committee determines necessary or appropriate in view of applicable laws, governance requirements or best practices, including, but not limited to, a reacquisition right in respect of previously acquired shares or other cash or property upon the occurrence of cause (as determined by the Compensation Committee).

Expiration of the 2020 Stock Incentive Plan

Assuming the 2020 Stock Incentive Plan is approved at the annual stockholder meeting, unless terminated sooner by the Board of Directors, the 2020 Stock Incentive Plan will terminate on May 20, 2030.

Adjustments

The 2020 Stock Incentive Plan provides for adjustments to (a) the aggregate number and kind of shares that may be issued, (b) the terms and conditions of any outstanding awards (including, any applicable performance targets or criteria with respect thereto), and (c) the grant or exercise price per share for outstanding awards, in the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of our assets to stockholders, or any other change affecting the shares or the price of the shares other than an equity restructuring.

Amendments

The Compensation Committee (with the approval of the Board of Directors) may amend or modify the 2020 Stock Incentive Plan at any time, provided that no amendment may, without the approval of our stockholders:

 

increase the number of shares available for issuance under the 2020 Stock Incentive Plan; or

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permit the Compensation Committee to extend the exercise period for an option beyond 10 years from the date of grant.

Notwithstanding any provision in the 2020 Stock Incentive Plan to the contrary, absent approval of the stockholders of the Company, no option or SAR may be amended to reduce the per share exercise price of the shares subject to such option or SAR below the per share exercise price as of the date of grant and, except as otherwise permitted in the 2020 Stock Incentive Plan, (a) no option or SAR may be granted in exchange for, or in connection with, the cancellation, surrender or substitution of an option or SAR having a higher per share exercise price and (b) no option or SAR may be cancelled in exchange for, or in connection with, the payment of a cash amount or another award at a time when the option or SAR has a per share exercise price that is higher than the fair market value of a share.

In addition, in general no amendment shall adversely affect in any material way any award previously granted pursuant to the 2020 Stock Incentive Plan without the prior written consent of the participant; provided, however, that an amendment or modification that may cause an incentive stock option to become a non-qualified stock option shall not be treated as adversely affecting the rights of the participant.

Federal Income Tax Consequences

Grants of Options

Under current tax laws, the grant of an option will not be a taxable event to the recipient and we will not be entitled to a deduction with respect to such grant.

Exercise of Incentive Stock Options and Subsequent Sale of Stock

An optionee will not recognize taxable income, and we will not be entitled to any deduction, upon the timely exercise of an incentive stock option if the optionee was our employee at all times from the date the option was granted to the day three months (or, in the case of an employee who is disabled within the meaning of Code Section 22(e)(3), one year) before the date of such exercise.  However, the excess of the fair market value of the shares acquired at the time of exercise over the option exercise price will be includable in the employee's “alternative minimum taxable income” and may therefore be subject to the “alternative minimum tax” imposed on such income.  If the optionee holds the shares acquired for at least one year (and two years after the option was granted), gain or loss recognized on the subsequent disposition of the shares will be treated as long-term taxable capital gain or loss.  If there is an earlier disposition, the optionee will recognize ordinary taxable income in the year of disposition in an amount equal to the lesser of (i) the excess of the fair market value of the shares on the date of exercise over the option exercise price, or (ii) if the disposition is a taxable sale or exchange, the amount of any gain recognized.  Any taxable gain recognized on the disposition of the shares in excess of the amount thus taxable as ordinary income will be treated as capital gain, long-term or short-term depending on whether the shares have been held for more than one year.  Upon such a disqualifying disposition, we will be entitled to a deduction at the same time and in an amount equal to the ordinary taxable income recognized by the optionee, subject to the limitations of Section 162(m) of the Internal Revenue Code (“Code Section 162(m)”).

If an optionee is not our employee at all times from the date the option was granted to the day three months (or, in the case of an employee who is disabled within the meaning of Code Section 22(e)(3), one year) before the

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date on which an incentive stock option is exercised, the optionee will recognize ordinary taxable income at the time of exercise equal to the excess of the then fair market value of the shares of our common stock received over the exercise price.  The taxable income recognized upon exercise of the option will be treated as compensation income subject to withholding and, subject to the limitations of Code Section 162(m), we will be entitled to deduct as a compensation expense an amount equal to the ordinary income an optionee recognizes with respect to such exercise.  When shares of our common stock received upon the exercise of a the option subsequently are sold or exchanged in a taxable transaction, the holder thereof generally will recognize capital gain (or loss) equal to the difference between the total amount realized and the adjusted tax basis in the shares (the exercise price plus the amount of ordinary income recognized at the time of exercise); the character of such gain or loss as long-term or short-term capital gain or loss will depend upon the holding period of the shares following exercise.

Exercise of Non-qualified Options and Subsequent Sale of Stock

Upon the exercise of a non-qualified stock option, an optionee will recognize ordinary income at the time of exercise equal to the excess of the then fair market value of the shares of our common stock received over the exercise price.  The taxable income recognized upon exercise of a non-qualified stock option will be treated as compensation income subject to withholding and, subject to the limitations of Code Section 162(m), we will be entitled to deduct as a compensation expense an amount equal to the ordinary income an optionee recognizes with respect to such exercise.  When shares of our common stock received upon the exercise of a non-qualified stock option subsequently are sold or exchanged in a taxable transaction, the holder thereof generally will recognize capital gain (or loss) equal to the difference between the total amount realized and the adjusted tax basis in the shares (the exercise price plus the amount of ordinary income recognized at the time of exercise); the character of such gain or loss as long-term or short-term capital gain or loss will depend upon the holding period of the shares following exercise.  Special tax rules apply when all or a portion of the exercise price of a non-qualified stock option is paid by the delivery of already owned shares.

Restricted Stock

Except as noted below, a recipient of restricted stock normally will not recognize taxable income upon an award of restricted stock, and we will not be entitled to a deduction, until the termination of the restrictions.  Upon such termination, the holder will recognize ordinary taxable income in an amount equal to the fair market value of the shares at that time and we will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Code Section 162(m).

However, a holder of restricted stock may elect under Code Section 83(b) (within 30 days following receipt of the stock) to recognize ordinary taxable income in the year the restricted stock is awarded in an amount equal to their fair market value at the time received, determined without regard to the restrictions.  In this event, we will be entitled to a deduction in such year in the same amount, subject to the limitations of Code Section 162(m), and any gain or loss recognized by the holder upon subsequent disposition of the shares will be capital gain or loss.  If the shares are forfeited pursuant to the restrictions, no deduction will be allowed in respect of the amount previously includable in taxable income because of the election.

The tax basis of restricted stock will be equal to its fair market value at the time the restrictions terminate, and its holding period will begin at that time, except that, if an election is made under Code Section 83(b), then the holding period of the restricted stock will begin at the time received and its tax basis will be equal to its fair

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market value at that time, determined without regard to the restrictions.  Notwithstanding an election under Code Section 83(b), dividends and/or dividend equivalents, and any interest thereon, on restricted stock for which the election has been made will not be includable in the holder's taxable income until paid to the holder.

Stock Appreciation Rights (SARs)

The grant of either a tandem SAR or a freestanding SAR will not result in any immediate tax consequences to us or the grantee.  Upon the exercise of either a tandem SAR or a freestanding SAR, the grantee will recognize ordinary taxable income in an amount equal to any cash received and the fair market value on the exercise date of any shares received.  We will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Code Section 162(m).

The grant of stock appreciation rights with respect to a previously granted incentive stock option may constitute a “modification” of the related option.  In this event, the option will be treated as having been granted at the time the stock appreciation rights were granted, with the result that the option could not qualify as an incentive stock option if the market price of the stock at that time were greater than the option price.

Restricted Stock Units

The grant of a restricted stock unit will not result in any immediate tax consequences to us or the recipient.  When a restricted stock unit is paid out, the recipient will recognize ordinary taxable income in an amount equal to the fair market value of the shares received at that time.  We will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Code Section 162(m).

Performance Shares and Performance Units

The grant of a performance share or a performance unit will not result in any immediate tax consequences to us or the recipient.  When a performance share or a performance unit is paid out, the recipient will recognize ordinary taxable income in an amount equal to any cash and the fair market value of any shares received at that time.  We will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Code Section 162(m).

Payouts of Performance Compensation Awards

The designation of an award of restricted stock or the grant of a restricted stock unit, performance share, or performance unit as a performance compensation award will not change the tax treatment described above to an employee who receives such an award or grant.  In the past, such a designation had generally been intended to enable an award or grant to qualify as performance-based compensation not subject to the $1 million limitation on deductible compensation under Code Section 162(m).  However, legislation enacted in 2017 generally eliminated the exception to the $1 million deduction limit for performance-based compensation paid to covered executive officers for tax years beginning after December 31, 2017.

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Dividend Equivalents

Dividend equivalents generally will be taxed at ordinary income rates when paid.  In most instances, they will be treated as additional compensation that we will be able to deduct at that time, subject to the limitations of Code Section 162(m).

Section 409A of the Internal Revenue Code

If an award is subject to Section 409A of the Internal Revenue Code (which relates to nonqualified deferred compensation arrangements) (“Code Section 409A”), and if the requirements of Code Section 409A are not met, the taxable events as described above could apply earlier than described, and could result in the imposition of additional taxes and penalties to the participants.  It is anticipated that all awards made in compliance with the terms of the 2020 Stock Incentive Plan will be exempt from the application of Code Section 409A or will comply with the requirements of Code Section 409A in order to avoid such early taxation and additional taxes and penalties.

The foregoing does not purport to be a complete description of the federal income tax aspects of the benefits under the 2020 Stock Incentive Plan and does not consider the effect of any state or foreign laws, or potential changes to the applicable tax laws.  Employees should consult their tax advisors on any questions they may have.

New Plan Benefits

Awards under the 2020 Stock Incentive Plan are made by the Compensation Committee in its sole discretion and therefore cannot be determined in advance.

Vote Required for Approval

Approval of this Proposal requires a number of votes “FOR” the proposal that at least a majority of the voting power of shares of our Class A, Class B, Class C and Class D common stock, present in person or represented by proxy at the meeting and entitled to vote, voting together as a single class.  Abstentions will be counted toward the tabulation of votes cast on this proposal and will have the same effect as a negative vote on this matter, while broker non-votes will have no effect on the outcome of the vote.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE 2020 STOCK INCENTIVE PLAN.

 

 

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PROPOSAL NO. 3

ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION

Pursuant to rules of the Securities and Exchange Commission, we are asking you to approve, on an advisory (non-binding) basis, the compensation paid to our named executive officers as disclosed in the Compensation Discussion and Analysis below, the compensation tables below, and any related narrative discussion contained in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives stockholders the opportunity to express their views on the compensation paid to our named executive officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we are asking the stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders, pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion contained in this Proxy Statement.”

 

Vote Required

The affirmative vote of the holders of a majority of the Class A, B, C and D Common Stock votes present in person or represented by proxy and entitled to vote on the matter is required for the approval of this proposal.

If you are a stockholder of record and you do not sign and return your Proxy card or vote by telephone or internet, your shares will not be voted at the Annual Meeting. Under the New York Stock Exchange rules, this proposal is not a routine matter and broker non-votes may occur with respect to this proposal. If your shares are held in street name and you do not issue instructions to your broker, your broker or nominee may not vote your shares on these matters without receiving instructions.

Broker non-votes with respect to this matter will be treated as neither a vote “for” nor a vote “against” the matter, although they will be counted in determining the number of votes required to attain a majority of the shares present or represented at the meeting and entitled to vote. An abstention from voting by a stockholder present in person or by proxy at the meeting has the same legal effect as a vote “against” the matter because it represents a share present or represented at the meeting and entitled to vote, thereby increasing the number of affirmative votes required to approve this proposal.

The “say-on-pay” vote is advisory and will not be binding upon the Company, the Board of Directors or the Compensation Committee. However, the Compensation Committee will take into account the outcome of the vote when considering future named executive officer compensation arrangements.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS, AS DISCLOSED PURSUANT TO ITEM 402 OF REGULATION S-K, INCLUDING THE COMPENSATION DISCUSSION AND ANALYSIS, COMPENSATION TABLES AND NARRATIVE DISCUSSION CONTAINED IN THIS PROXY STATEMENT.

 

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PROPOSAL NO. 4

RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

The Audit Committee of the Board has selected, and as a matter of good corporate governance, is requesting the ratification by the stockholders of the selection of PricewaterhouseCoopers LLP to serve as our independent registered public accountants for the year ending December 31, 2020. PricewaterhouseCoopers LLP has served as our independent registered public accountants since 2007. If a favorable vote is not obtained, the Audit Committee may reconsider the selection of PricewaterhouseCoopers LLP. Even if the selection is ratified, the Audit Committee, in its discretion, may select different independent auditors if it subsequently determines that such a change would be in the best interest of the Company and its stockholders.

PricewaterhouseCoopers LLP representatives will attend the Annual Meeting and respond to questions where appropriate. Such representatives may make a statement at the Annual Meeting should they so desire.

Vote Required

Ratification of the selection of the independent registered public accountants by the stockholders requires that affirmative “FOR” vote of the holders of a majority of the Class A, Class B, Class C and Class D Common Stock votes present in person or represented by proxy and entitled to vote on the matter. Unless marked to the contrary, proxies will be voted FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accountants.

 

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.


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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Our 2019 Performance

The following are highlights of our 2019 financial and operating performance:

 

During 2019, our adjusted net income attributable to UHS (see footnote A. below) was $891.8 million, or $9.99 per diluted share, as compared to $894.4 million, or $9.53 per diluted share, during 2018.

 

Our net revenues increased 5.6% to $11.38 billion during 2019 as compared to $10.77 billion during 2018.

 

Net revenues at our acute care hospitals owned during both years increased 7.7% during 2019 as compared to 2018. During 2019 at these facilities, adjusted admissions (adjusted for outpatient activity) increased 4.8% and adjusted patient days increased 5.7% as compared to 2018.

 

Net revenues at our behavioral health care facilities owned during both years increased 3.1% during 2019 as compared to 2018. During 2019 at these facilities, adjusted admissions increased 1.2% and adjusted patient days increased 0.6% as compared to 2018.

 

We invested more than $428 million in our acute care division, and approximately $194 million in our behavioral health care division, to construct, expand, equip and improve our facilities.

 

A.

Adjusted net income and adjusted net income per diluted share for 2019 and 2018 were publicly disclosed and reconciled to our reported results for each year on the Schedule of Non-GAAP Supplemental Consolidated Statements of Income Information, included with our earnings for the years ended December 31, 2019 and 2018, as filed on Form 8-K on February 26, 2020. Annex A contains a reconciliation of these non-GAAP financial measures to financial measurements determined in accordance with GAAP.

In addition to strong financial performance, we continued to focus on delivering quality care to our patients. The following are a few of the quality and patient care highlights achieved in 2019:

Acute Care Services:

 

Our acute care hospitals delivered nearly $2.2 billion in uncompensated care.

 

The Patient Safety Index 90 (“PSI-90”) is a composite of indicators created by the Agency for Healthcare, Research and Quality. The PSI-90 provides an overview of hospital level quality as it relates to a set of potentially preventable hospital related events associated with harmful outcomes for patients. For 2019, the UHS PSI 90 score of 0.91 was better than the national average of 0.99.

 

Risk-adjusted observed to expected mortality (“O:E Ratio”) is another commonly used method to assess acute care quality (an O:E Ratio of 1.0 represents the average mortality rate; less than 1.0 represents a better-than-expected mortality rate). The Company’s acute care 2019 O:E Ratio of 0.770 compared favorably to the expected O:E Ratio.

 

Nine of our acute care hospitals were awarded an ‘A’ from The Leapfrog Group’s Fall 2019 Hospital Safety Grade. Three of our acute care hospitals were recipients of The Leapfrog Group’s elite 2019 Top Hospitals award. The designations recognize our hospitals’ efforts in protecting patients from harm and meeting the highest safety standards in the United States.  Overall, the mean 2019 score

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across our acute care division improved to 3.09, up from 3.07, resulting in 3 hospitals improving to a ‘B’ Leapfrog Hospital Safety Grade.  

 

Behavioral Health Care Services:

 

The Centers for Medicare and Medicaid Services’ inpatient psychiatric facility quality reporting measures compare our behavioral health care facilities to approximately 1,600 providers in the U.S. Our 2018 behavioral health results exceed the average of the group in 12 out of 15 indicators.

•       The Joint Commission’s Core Measures for hospital-based inpatient psychiatric services quality compares our behavioral health care facilities to over 700 providers in the U.S.  The results indicate that, on a comparative basis, our behavioral health care facilities outperform the group in all four measures.

•       In 2019, patients in our behavioral health care facilities rated their overall care, on average, as 4.5 out of 5 in our patient satisfaction surveys. More than 91% indicated they felt better following care at one of our facilities.  

Our Executive Officers

Alan B. Miller - Chairman of the Board and Chief Executive Officer: Mr. Alan B. Miller has served in these roles since our inception and also served as President from inception until May, 2009. Prior thereto, he was President, Chairman of the Board and Chief Executive Officer of American Medicorp, Inc. He currently serves as Chairman of the Board, Chief Executive Officer and President of Universal Health Realty Income Trust.

Marc D. Miller – President and Director:  Mr. Marc D. Miller was elected President in May, 2009 and prior thereto served as Senior Vice President and co-head of our Acute Care Hospitals since 2007. He was elected a Director in May, 2006 and Vice President in 2005. He has served in various capacities related to our acute care division since 2000. He was elected to the Board of Trustees of Universal Health Realty Income Trust in December, 2008. He also serves as a member of the Board of Directors of Premier, Inc., a publicly traded healthcare performance improvement alliance.  

Steve G. Filton – Executive Vice President, Chief Financial Officer and Secretary: Mr. Filton was elected Executive Vice President in 2017 and continues to serve as Chief Financial Officer since his appointment in 2003. He has also served as Secretary since 1999.  He had served as Senior Vice President since 2003, as Vice President and Controller since 1991, and as Director of Corporate Accounting since 1985.

Marvin G. Pember – Executive Vice President, President of Acute Care Division:  Mr. Pember was elected Executive Vice President in 2017 and continues to serve as President of our Acute Care Division since commencement of his employment with us in 2011.  He had served as Senior Vice President since 2011.  He was formerly employed for 12 years at Indiana University Health, Inc. (formerly known as Clarian Health Partners, Inc.), a nonprofit hospital system that operates multiple facilities in Indiana, where he served as Executive Vice President and Chief Financial Officer.

Matthew J. Peterson – Executive Vice President, President of Behavioral Health Division:  Mr. Peterson’s employment with us commenced in September, 2019 as Executive Vice President and President of our Behavioral Health Division.  He was formerly employed at UnitedHealth Group for 11 years serving in

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various capacities including Chief Operating Officer for OptumGovernment, a health services and technology company, as well as various other Senior Vice President/Vice President roles.  In addition to his civilian business career, Mr. Peterson has served for nearly 30 years as a member of the United States Military, currently serving as a Colonel and hospital/healthcare administrator in the Air National Guard.    

 

 

Compensation Philosophy and Objectives

Our compensation philosophy of aligning pay strongly with performance is grounded in best practices that are regulatory compliant, financially sound and provide long-term value to stockholders. Specifically, we:

 

Review peer group market data on an annual basis;

 

Discuss financial and operational performance rigorously in determining any base salary and incentive decisions;

 

Enforce maximums on incentive payments to limit undue risk;

 

Evaluate our compensation practices on an annual basis;

 

Retain an independent, outside consultant;

 

Do not provide plans generally outside of current market practices, and;

 

Do not offer excessive perquisites to our executives.

In designing our compensation programs for our named executive officers, we follow our belief that compensation should reflect the value created for stockholders while supporting our strategic business goals. In doing so, our compensation programs reflect the following objectives:

 

Compensation should encourage increases in stockholder value;

 

Compensation programs should support our short-term and long-term strategic business goals and objectives;

 

Compensation programs should reflect and promote our core values set forth in our mission statement, which includes commitment to excellence, high ethical standards, teamwork and innovation;

 

Compensation should reward individuals for outstanding performance and contributions toward business goals, and;

 

Compensation programs should enable us to attract, retain and motivate highly qualified professionals.

These objectives govern the decisions that the Compensation Committee of the Board of Directors (the “Compensation Committee”) and management of the Company make with respect to the amount and type of compensation payable to our named executive officers. The Compensation Committee believes that linking executive compensation to corporate performance results in a strong alignment of compensation with corporate business goals and stockholder value. This belief has been adhered to through the use of incentive pay programs that provide competitive compensation for achieving superior performance and creating value for stockholders. Executives are rewarded commensurately for the achievement of specified business goals and performance objectives, which may increase the value of our stock. Our compensation programs are reviewed annually to ensure that these objectives continue to be met.

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Compensation Setting Process

The Compensation Committee has traditionally taken into account the input and recommendations of our Chairman and Chief Executive Officer, Mr. Alan Miller, with respect to our compensation programs, including the compensation arrangements with our named executive officers other than himself. The Compensation Committee believes that Mr. Alan Miller, due to his role within the Company, his years of healthcare experience and other factors, as mentioned below, is a valuable resource to the Compensation Committee. Mr. Alan Miller attends certain Compensation Committee meetings by invitation, however, he does not have the right to vote on matters addressed by the Compensation Committee and he does not participate in the discussions with respect to his own compensation. Mr. Alan Miller conducts formal performance evaluations on an annual basis of the named executives who have direct reporting responsibility to him.

Unlike our other named executive officers, Mr. Alan Miller’s base salary, target annual bonus and certain perquisites are determined under his employment agreement. Please also refer to the discussion of Mr. Alan Miller’s employment agreement in the Chief Executive Officer Employment Agreement section of this Proxy Statement. In addition, the compensation setting process for Mr. Alan Miller varies from that of our other named executive officers because it is determined by the Compensation Committee without Mr. Alan Miller’s participation. The Compensation Committee, in determining Mr. Alan Miller’s compensation, takes into account his position as Chief Executive Officer, his role as a founder of our Company in 1978, his years of dedicated service and his expertise and reputation in the hospital management industry. The Compensation Committee also considers Mr. Alan Miller’s responsibilities in overseeing all of our Company’s businesses, operations, development and overall strategy and his role as the public face of our Company, which shapes our corporate image and identity. These factors differentiate Mr. Alan Miller from the other named executive officers.

In addition, for Mr. Alan Miller and the Company’s other named executive officers, the Compensation Committee reviewed data prepared in early 2019 by Pay Governance LLC that compared the Company’s executive compensation levels to data for comparable positions from two reference points: a primary reference of other similar companies within the healthcare industry; and a secondary reference of size-adjusted (by revenues) data from the broader general industry. Data for the primary reference were drawn from publicly filed proxies of peer healthcare companies, and data for the secondary reference were drawn from published compensation surveys covering a range of companies and industries. Data were compiled for all elements of compensation including base salary, annual incentive opportunity, and equity/long-term incentive awards. These data, as well as Company-specific factors including the prior year performance of our executives and the Company’s operating and stockholder return performance relative to our competitors, were considered by the Committee in determining 2019 compensation for Mr. Alan Miller and our other named officers. In light of the above factors, the Compensation Committee approved the base salary, annual cash incentive opportunity, and long-term compensation award to each of the named executive officers in 2019 and believes that the forms and amounts of compensation for each year adequately reflect our compensation goals and policies.

In October, 2019, FW Cook was engaged to perform a comprehensive review of our executive compensation program, including consideration of any changes that could be implemented in fiscal 2020. In connection with their review, FW Cook had discussions with members of the Board of Directors and management. Before engaging FW Cook, we determined that no conflicts of interest were raised, and that FW Cook was independent from the Compensation Committee and management.

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Say on Pay Considerations

We received comments last year that our equity award program could be enhanced by including performance-based equity awards. After undertaking our comprehensive review with FW Cook to identify potential performance-based equity award design alternatives, we decided to modify our stock option award program. It is currently intended, although not required by the terms of the 2020 Stock Incentive Plan, that a portion of the options awarded to the named executive officers of the Company will be exercisable at 110% of the fair market value on the date of grant. Beginning in 2020, we have delivered 50% of our award value to named executive officers, including the Chief Executive Officer, in stock options with a premium exercise price of 10% above grant date market value.  

Elements of Compensation

Our executive compensation is based on six primary components, each of which is intended to serve the overall compensation objectives. These components include:

 

annual base salary;

 

annual cash incentive;

 

long-term incentive awards, and;

 

deferred compensation, retirement benefits and other benefits, including perquisites.

Annual Base Salary

Our annual base salary levels are intended to be consistent with competitive pay practices and level of responsibility, with salary increases reflecting competitive trends, our overall financial performance, the performance of each individual executive and general economic conditions.

In establishing the base salary for our named executive officers, various criteria are reviewed including the following:

 

the executive officer’s achievements, performance in his or her position with us, taking into account the tenure of service, the complexity of the position and current job responsibilities;

 

Mr. Alan Miller’s recommendations as to the proposed base salary, other than his own;

 

company financial performance, and;

 

salaries of similar positions in our healthcare competitor companies and general industry comparisons.

For our named executive officers, an analysis was conducted in 2019 utilizing the most currently available proxy statements and financial results, as filed with the Securities and Exchange Commission, from five companies that we believe are our most direct competitors. We believe these companies, which are indicated below, are comparable peer companies based upon the median revenues of this peer group, which were approximately $13.2 billion as compared to our 2019 revenues of approximately $11.4 billion.

The companies are:

 

Acadia Healthcare Company, Inc.

 

Brookdale Senior Living Inc.

 

Community Health Systems Inc.

 

HCA Healthcare, Inc.

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Tenet Healthcare Corporation

For Mr. Alan Miller, his 2019 base salary exceeded the 90th percentile of the peer and general industry groups, due to his long tenure in the position, his value as the Company’s founder, his status within the healthcare industry and his performance. The average years of same company/role experience of other executives in the peer group was 6 years compared to Mr. Alan Miller’s 41 years.

For 2019, the actual base salary rates for our named executives were within approximately 15% of their respective median base salary market rates (as assessed relative to our peer and general industry groups).  For 2019, for our other named executive officers (excluding Mr. Alan Miller), we targeted the median (50th percentile) base salary paid by the peer companies (listed above), along with the median of broader general industry data, to establish our base market rate. We generally consider our base salaries to be competitive if they are approximately within a 15% range of the median market rate. However, actual base salaries are not dictated solely by the median market rate. We also take into account an individual’s expertise, tenure in the position, responsibilities and achievements.

For 2020 base salary decisions, we will be expanding our analysis to more specifically include a broader group of for-profit hospitals and health care service companies comparable to our operation and will directly compare base salaries to the following updated peer group:

 

Acadia Healthcare Company, Inc.

Brookdale Senior Living, Inc.

Community Health Systems, Inc.

DaVita, Inc.*

Encompass Health Corporation*

Genesis Healthcare, Inc.*

HCA Healthcare, Inc.

Henry Schein, Inc.*

Laboratory Corporation of America Holdings*

Molina Healthcare, Inc.*

Quest Diagnostics Incorporated*

Select Medical Holdings Corporation*

Tenet Healthcare Corporation

*indicates company will be new to our peer group analysis.

Annual Cash Incentives

Cash incentives for our named executive officers are awarded under the Executive Incentive Plan, which was adopted by our stockholders at our 2010 Annual Meeting and re-approved by our stockholders at our 2015 Annual Meeting. The Executive Incentive Plan is intended to support our efforts to attract, retain and motivate highly qualified senior management and other executive officers of the Company and its affiliates through the payment of performance-based incentive compensation. Annual incentive compensation may be awarded under the Executive Incentive Plan to our named executive officers and others as selected by the Compensation Committee for any calendar year. The Compensation Committee believes that the payment of cash incentives to our named executive officers under the Executive Incentive Plan is consistent with the objectives for our compensation programs by rewarding such officers for the achievement of specified business goals and performance objectives and that may increase the value of our stock.

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The amount of an employee’s cash incentive award for a calendar year is based upon the employee’s target cash incentive and the extent to which the performance goal(s) applicable to the employee are achieved. For each calendar year, an employee’s target cash incentive will be equal to a fixed percentage of the employee’s base salary earned during the year.

The Compensation Committee establishes performance goals for the named executive officers using such business criteria and other measures of performance discussed herein and the Compensation Committee will establish objective performance goals based upon one or more of the following business criteria:

 

attainment of certain target levels of, or a specified increase in, after-tax or pre-tax profits;

 

attainment of certain target levels of, or a specified increase in, earnings per diluted share or adjusted earnings per diluted share, and;

 

attainment of certain target levels of, or a specified increase in, return on capital or return on invested capital.

In the case of an award intended to qualify as “performance-based compensation”, the applicable target cash incentive, performance goals and performance factors with respect to any calendar year will be established in writing by the Compensation Committee no later than 90 days after the commencement of that year. Promptly after the date on which the necessary financial or other information for a particular year becomes available, the Compensation Committee will determine the amount, if any, of the cash incentive compensation payable to each participant for that calendar year and will certify in writing prior to payment that the performance goals for the year were in fact satisfied. The maximum incentive award which any participant may earn under the Executive Incentive Plan for any calendar year shall not exceed $5 million. The Executive Incentive Plan provides the Compensation Committee with the discretion to establish higher or lower performance factors for levels of performance that are more or less than the target levels. Performance goals may be adjusted for changes in accounting methods, corporate transactions and other similar types of events.

On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “TCJA-17”).  TCJA-17 modifies Section 162(m) under the Code removing the exception for performance-based compensation applicable to years beginning after December 31, 2017.  This change does not apply to compensation stemming from contracts entered into on or before November 2, 2017, unless such contracts were materially modified on or after that date.  Compensation agreements entered into and share-based payment awards granted after this date will be subject to the revised terms of Section 162(m).

2019 Annual Cash Incentive Formula and Performance Goals:    The Compensation Committee approved the specific formula for the determination of the target annual cash incentive compensation for our executive officers pursuant to the Executive Incentive Plan with respect to the year ending December 31, 2019. Under the formulae approved by the Compensation Committee, each of the Company’s executive officers was assigned a percentage of such executive officer’s base salary as a target bonus to be paid based on pre-specified performance criteria. The target bonus award indicated below for Mr. Alan B. Miller is stipulated in his employment agreement dated July 24, 2013, as amended on November 5, 2018.

The following table shows each named executive officer’s target bonus as a percentage of his or her base salary for 2019. With respect to Messrs. Alan B. Miller, Marc D. Miller and Steve G. Filton, 100% of their annual incentive bonus for 2019 was determined using the corporate performance criteria, as described below. With respect to Mr. Pember, 25% of his annual incentive bonus was based upon the achievement of the corporate

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performance criteria and 75% of his annual incentive bonus was based upon the achievement of the divisional income targets, as described below. Mr. Peterson was not eligible for a 2019 annual incentive bonus since his employment commenced in September, 2019.

 Name

 

Title

 

Target Incentive

Bonus Award

as a % of salary

 

Alan B. Miller

 

Chief Executive Officer and

Chairman of the Board

 

 

100

%

Marc D. Miller

 

President

 

 

65

%

Steve G. Filton

 

Executive Vice President

and Chief Financial Officer

 

 

50

%

Marvin G. Pember

 

Executive Vice President

and President-Acute

Care Division

 

 

50

%

Matthew J. Peterson (commenced employment in September, 2019)

 

Executive Vice President

and President-Behavioral Health Division

 

 

0

%

 

As part of our peer company compensation review for executive officers as discussed above in Annual Base Salary, we also target the median (50th percentile) market rate from our healthcare peers and the broader general industry data when determining each officer’s target annual incentive. For 2019, our target annual incentive opportunities were assessed as being below the market 25th percentile. Actual cash incentive awards, however, appropriately vary from this targeted level based upon performance, consistent with our pay for performance philosophy, and are detailed in the Summary Compensation Table in this Proxy Statement. The Compensation Committee believes that the annual incentive opportunities offered to our named executive officers are appropriate to facilitate our ability to attract, retain, motivate and reward our named executive officers, and that actual incentive payouts appropriately reflect the Company’s performance.

Pursuant to the Plan and the formulae approved by the Compensation Committee, each executive officer is entitled to receive between 0% and 250% of that executive officer’s target bonus based, either entirely or in part, on the Company’s achievement of a combination of: (i) a specified range of target levels of adjusted net income per diluted share attributable to UHS, and; (ii) a specified range of target levels of return on capital (adjusted net income attributable to UHS divided by quarterly average net capital) for the year ending December 31, 2019. The adjusted net income per diluted share attributable to UHS generally excludes amounts that may be nonrecurring or non-operational in nature or amounts that may be reflected in the current year financial statements that relate to prior years. As disclosed on the Schedule of Non-GAAP Supplemental Information for the year ended December 31, 2019 (“Supplemental Schedule”) included with our 2019 financial results as filed on Form 8-K on February 26, 2020 and attached as Annex A to this Proxy Statement, our 2019 adjusted net income per diluted share excluded the impact of the increase in the reserve established in connection with the civil aspects of the government’s investigation of certain of our behavioral health care facilities, the impact on our provision for income taxes resulting from our adoption of ASU 2016-09 which amended the accounting for employee share-based payment transactions and the impact of the provision for intangible asset impairment to reduce the carrying value of a tradename intangible asset previously recorded in connection with our 2015 acquisition of Foundations Recovery Network, L.L.C.  

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On March 20, 2019, the Compensation Committee approved specific bonus formulae for the determination of annual incentive compensation for our named executive officers pursuant to the Executive Incentive Plan for the year ending December 31, 2019. Pursuant to the terms of the Executive Incentive Plan for 2019, our named executive officers were eligible to receive the applicable portion of their annual cash incentive (which were based on the corporate performance criteria) at various increments ranging from 0% of their bonus target award (based upon the achievement of a Target of adjusted net income per diluted share attributable to UHS of $9.14 or less, and Return on Capital of 8.7% or less) up to 250% of their annual cash incentive target award (based upon the achievement of a Target of adjusted net income per diluted share attributable to UHS of $10.95 or greater and Return on Capital of 10.5% or greater). Although the cash incentive formula for 2019 was unchanged from 2018’s cash incentive formula, the Targets have been adjusted, as necessary, to correlate to the range of our estimated 2019 adjusted net income per diluted share attributable to UHS, as publicly disclosed.

 

On February 27, 2019, we publicly disclosed our 2019 estimated range of adjusted net income per diluted share attributable to UHS of $9.70 to $10.40. The 2019 Target of adjusted net income per diluted share attributable to UHS, which represented the approximate midpoint within the publicly disclosed range of our projected consolidated earnings per diluted share estimate for the year, was $10.05 per diluted share. The 2019 Return on Capital Target was 9.6%. In October of 2019, based upon our actual operating results experienced during the first nine months of 2019, we publicly disclosed a decrease to our previously disclosed estimated range of adjusted net income per diluted share attributable to UHS for 2019 (reduced the upper end of the range to $9.90 per diluted share from $10.40 per diluted share while the lower end of the range was adjusted to $9.60 per diluted share from $9.70 per diluted share); however, our annual incentive performance targets were not impacted by these publicly disclosed revisions. The revised estimated earnings guidance range for the full year of 2019, as publicly disclosed in October of 2019, assumed, among other things, no change during the fourth quarter of 2019 in the market value of shares of certain marketable securities held for investment and classified as available for sale.     

The divisional income targets consist of the projected aggregate pre-tax income for our Acute Care and Behavioral Health Services segments, net of deductions for the allocation of corporate overhead expenses and a charge for the estimated cost of capital. The actual divisional income and the targets generally exclude, among other things, amounts that may be nonrecurring or non-operational in nature or amounts that may be reflected in the current year financial statements that relate to prior years. The divisional income targets may be adjusted to include the impact of acquisitions or divestitures made during the year, if material.

For 2019, to the extent that the actual divisional results exceeded the target, Mr. Pember was entitled to 75% of the following (as applied to his annual base salary) as the portion of his annual bonus that is based upon his divisional income target: (i) 25% if actual results meet the divisional income target; (ii) 50% if actual results exceed the divisional income target by the greater of 5% or $10 million; (iii) 75% if actual results exceed the divisional income target by the greater of 10% or $20 million, and; (iv) 100% if actual results exceed the divisional income target by the greater of 15% or $30 million.

In determining the corporate and divisional performance criteria, various factors are considered, including the projected revenue and earnings growth over the prior year. Since the value received by stockholders is measured, in large part, by an increase in stock price, which is in turn typically influenced by increases in revenues and earnings, our performance criteria are established at reasonably aggressive levels to encourage the attainment of our financial objectives which, if accomplished, may result in an increase to our stock price and increased value to stockholders. As mentioned above, the corporate performance criteria are established annually

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and the Target of adjusted net income per diluted share attributable to UHS directly correlates to our annual earnings guidance that is typically publicly disclosed by us during the first quarter of each year. The divisional performance criteria are also established annually and represent each division’s respective portion of the corporate performance criteria.

The actual cash incentives awarded for 2019 (which were based upon corporate performance criteria) were based upon the achievement of 92% of the target, as determined by the Compensation Committee on March 18, 2020, based upon our 2019 actual operating results. During 2019, our adjusted net income per diluted share attributable to UHS was $9.99, as compared to a target of $10.05 per diluted share. This adjusted net income per diluted share attributable to UHS for 2019 was publicly disclosed and reconciled to our reported 2019 net income per diluted share attributable to UHS of $9.13, on the Supplemental Schedule (as discussed above) included with our financial results for the year ended December 31, 2019, as filed on Form 8-K on February 26, 2020. The Return on Capital was 9.5% for 2019, as compared to a target of 9.6%. The Return on Capital is calculated by dividing our annual adjusted net income attributable to UHS by the consolidated average net capital.  

 

For 2019, Mr. Pember’s divisional income target was approximately $59 million. The divisional income target consists of the projected aggregate pre-tax income for our Acute Care Services segment, net of deductions for the allocation of corporate overhead expenses and a charge for the estimated cost of capital. The actual divisional income as calculated, was approximately $61 million. If applicable, the divisional income target or actual divisional income was adjusted for certain amounts that may be nonrecurring or non-operational in nature or amounts that may be reflected in the current year financial statements that relate to prior years. Since the actual divisional income compared favorably to the target ($61 million actual divisional income exceeded the $59 million divisional income target by approximately $2 million or 3%), Mr. Pember was entitled to 25% of the portion of his bonus (75%) that was based upon the achievement of the divisional income target.

 

As indicated above, Mr. Peterson was hired by the Company in September, 2019 and therefore was not eligible for a 2019 annual incentive bonus.

For each of our named executive officers, the following table sets forth the actual 2019 annual incentive bonus awarded as well as the pre-established ranges of potential payouts under our non-equity incentive plan.

 

 

 

2019 Non-Equity Incentive Plan Awards

 

Name

 

Title

Actual

 

 

Minimum

 

Target

 

Maximum

 

Alan B. Miller

 

Chief Executive Officer and

Chairman of the Board

$

1,564,060

 

 

$

85,003

 

$

1,700,065

 

$

4,250,163

 

Marc D. Miller

 

President

$

493,540

 

 

$

26,823

 

$

536,457

 

$

1,341,142

 

Steve G. Filton

 

Executive Vice President

and Chief Financial

Officer

$

304,031

 

 

$

16,523

 

$

330,469

 

$

826,173

 

Marvin G. Pember

 

Executive Vice President

and President-Acute

Care Division

$

209,840

 

 

$

4,336

 

$

216,777

 

$

737,041

 

Matthew J. Peterson (not eligible in 2019)

 

Executive Vice President

and President-Behavioral Health Division

$

0

 

 

$

0

 

$

0

 

$

0

 

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The performance goals related to the Executive Incentive Plan, as outlined above, are generally based upon the achievement of our business plan financial objectives. Performance goals are established at reasonably aggressive levels to encourage and motivate executive performance and attainment of our financial objectives. At the time the Compensation Committee approved the Executive Incentive Plan for fiscal year 2019, we believed that the performance goals were attainable, but not certain. Since the achievement of the corporate performance criteria of 92% of target for each of 2019 and 2018, we believe that our system demonstrates the performance-oriented nature of payouts over time.

For a further description of the cash incentives and other elements of compensation granted to our named executive officers for 2019, 2018 and 2017, please refer to the Summary Compensation Table in this Proxy Statement.

Long-Term Incentives

The Compensation Committee believes that the grant of equity-based, long-term compensation, primarily in the form of stock options and restricted shares, to our named executive officers is appropriate to attract and retain such individuals and to motivate them to enhance stockholder value.

Further, long-term incentive awards reward individuals for their performance and achievement of business goals. The Compensation Committee believes that our best interests will be advanced by enabling our named executive officers, who are responsible for our management, growth and success, to receive compensation in the form of long-term incentive awards that may increase in value in conjunction with an increase in the value of our common stock.

As is the case with respect to base salaries, a number of factors are taken into account in calibrating grants of long-term incentive awards, including an individual’s performance in light of his or her position, responsibilities and contribution to our financial performance. In addition, the Compensation Committee takes into account an individual’s potential contribution to our growth and productivity. In determining appropriate long-term incentive grants, there is no other predetermined formula, factors or specified list of criteria that is followed.

 

For a description of the long-term incentive awards granted to our named executive officers for 2019, please read the Summary Compensation Table and the Grants of Plan-Based Awards Table included in this Proxy Statement.

Stock options.    Our Third Amended and Restated 2005 Stock Incentive Plan (the “Stock Incentive Plan”), as amended in 2008, 2011, 2015 and 2017, provides for the issuance of options to purchase shares of our Class B Common Stock at an exercise price equal to the fair market value on the date of grant. The Stock Incentive Plan is intended to provide a flexible vehicle through which we may offer equity based compensation incentives to our named executive officers and other eligible personnel in support of our compensation objectives.

Assuming that the stockholders approve the 2020 Omnibus Stock and Incentive Plan (as described in Proposal No. 2 above) at the Annual Meeting, no additional awards will be granted under the Stock Incentive Plan and the reserve for shares remaining for future issuance will be cancelled at that time. If our stockholders do not approve the 2020 Omnibus Stock and Incentive Plan, the Stock Incentive Plan will remain in effect in its current form.

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Awards under the Stock Incentive Plan may be in the form of options to purchase shares of Class B Common Stock (including options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code and options which do not qualify as “incentive stock options”) and stock appreciation rights (“SARs”). Awards may be granted to our present or future employees, our affiliates and our directors and consultants who are not employees. To date, no SARs have been granted.

Typically, option awards are granted by the Compensation Committee on specific dates that are scheduled in advance, which generally coincide with regularly scheduled meetings of the Compensation Committee and the Board of Directors. There is no separate policy with respect to the timing of option awards to our named executive officers. Typically, option awards are granted to our named executive officers at the same time as option awards are granted to our other employees. In certain circumstances, such as new hires or promotions, option awards are granted separately by the Compensation Committee or our Chief Executive Officer and Chief Financial Officer who are duly authorized by the Compensation Committee.

Subject to the provisions of the Stock Incentive Plan, the Compensation Committee has the responsibility and full power and authority to select the persons to whom awards will be made, to prescribe the terms and conditions of each award and make amendments thereto, to construe, interpret and apply the provisions of the Stock Incentive Plan and of any agreement or other instrument evidencing an award and to make any and all determinations and take any and all other actions as it deems necessary or desirable in order to carry out the terms of the Stock Incentive Plan.

Stock options have such vesting and other terms and conditions as the Compensation Committee, acting in its discretion, may determine. Generally, grants of stock options vest in equal amounts over four years, are scheduled to expire on the fifth anniversary of the date of grant and, unless otherwise determined, employees must be employed by us for such options to vest. We do not have any plan to select option grant dates for our named executive officers in coordination with the release of material non-public information. The exercise price per share of Class B Common Stock covered by an option may not be less than 100% of the fair market value of the underlying Class B Common Stock on the date of grant. For purposes of the Stock Incentive Plan, unless otherwise determined by the Compensation Committee, the fair market value of a share of Class B Common Stock as of any given date is the closing sale price per share reported on a consolidated basis for securities listed on the principal stock exchange or market on which the Class B Common Stock is traded on the date as of which such value is being determined or, if there is no sale on that day, then on the next day on which a sale was reported.   

 

In March of 2019, Mr. Alan Miller made recommendations to our Compensation Committee with respect to stock option awards to our named executive officers (except for himself) and other eligible employees. The number of stock options awarded to each of our named executive officers during March of 2019 were as follows: Alan B. Miller (590,000); Marc D. Miller (100,000); Steve G. Filton (70,000), and; Marvin G. Pember (70,000). In determining the number of options to award to our named executive officers, the Compensation Committee considered Mr. Alan Miller’s recommendations and took into account individual performance in light of a named executive officer’s position, responsibilities and contribution to our financial performance as well as his or her potential contribution to our growth and productivity. In addition, the Compensation Committee also reviewed and considered the compensation data and competitive performance data prepared by Pay Governance LLC in early 2019, including stock-based compensation, and reviewed historical company practices with respect to stock option and long-term incentive awards. ). Additionally, as a newly hired executive officer, on September 18, 2019, Mr. Peterson was awarded 50,000 stock options.

 

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Restricted Stock Awards.    The Amended and Restated 2010 Employees’ Restricted Stock Purchase Plan (the “Restricted Stock Plan”), which is administered by the Compensation Committee, provides for the grant of shares of our Class B Common Stock to eligible personnel for a purchase price equal to par value. Shares of our Class B Common Stock may be granted under the Restricted Stock Plan to any of our employees or consultants. Historically, our restricted grants have had a scheduled vesting period ranging from one to five years.

 

Assuming that the stockholders approve the 2020 Omnibus Stock and Incentive Plan (as described in Proposal No. 2 above) at the Annual Meeting, no additional awards will be granted under the Restricted Stock Plan and the reserve for shares remaining for future issuance will be cancelled at that time. If our stockholders do not approve the 2020 Omnibus Stock and Incentive Plan, the Restricted Stock Plan will remain in effect in its current form.

 

Vesting conditions on shares issued under the Restricted Stock Plan may consist of continuing employment for a specified period of time following the purchase date. Alternatively, or in addition, vesting may be tied to the satisfaction of specific performance objectives established by the Compensation Committee based upon any one or more of the business criteria used in determining the bonuses for our named executive officers, as mentioned above. We have the right to repurchase the shares for the same purchase price (par value) if specified vesting conditions are not met.

The Compensation Committee believes restricted stock awards, at times, can be effective in achieving our compensation objectives because it provides employees with a strong retention incentive and aligns the value of the award with our stock price performance. Additionally, cash dividends are paid on all outstanding awards of restricted stock as an additional element of compensation and to provide employees incentives to sustain or increase our performance. We do not have any plan to select restricted stock award grant dates for our named executive officers in coordination with the release of material non-public information. Mr. Alan Miller was entitled to an annual grant of restricted stock having a minimum value of $1.0 million during 2019 pursuant to his employment agreement with the Company, as amended in November, 2018.  

Cash Awards.    Mr. Alan Miller was entitled to a minimum annual cash award of $1 million during 2019 pursuant to his employment agreement with the Company, as amended in November, 2018.

 

Deferred Compensation    

Our Deferred Compensation Plan, which is subject to the applicable provisions of Internal Revenue Code Section 409A, provides that eligible employees may elect to defer a portion of their base salary and bonus award into deferred compensation accounts that accrue earnings based upon the selection of available investment options. Under the Deferred Compensation Plan, an employee is deemed eligible if their base compensation for 2019 was $125,000 or higher and they are performing duties in a qualified position. The base compensation threshold is adjusted from time-to-time for cost-of-living increases. Pursuant to the terms of the Deferred Compensation Plan, the minimum annual amount that can be deferred is $2,000. No more than 50% of an employee’s base salary or 95% of an employee’s annual bonus may be deferred under the Deferred Compensation Plan in any calendar year. Employees may allocate a portion of their deferred compensation to be distributed in a lump sum or installments to begin at retirement or a scheduled distribution date. The available investment options consist of certain mutual funds which include: (i) conservative (e.g. money markets or bonds); (ii) moderately conservative (e.g. balanced funds), and; (iii) aggressive (e.g. domestic and international equity).

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Our obligation to make payments of amounts credited to participants’ deferred compensation accounts is a general unsecured obligation. In addition, under the Deferred Compensation Plan, we may make discretionary contributions on behalf of an eligible employee. Since inception of the Deferred Compensation Plan, we have not made any discretionary contributions on behalf of employees. Three of our named executive officers deferred a portion of their base salary and/or bonus paid during 2019 to the Deferred Compensation Plan. The Compensation Committee believes that, by offering an alternative savings vehicle for our named executive officers, the Deferred Compensation Plan supports our objectives to attract, retain and motivate talented personnel.

For a further description of the Deferred Compensation Plan, please refer to the Nonqualified Deferred Compensation table and the narrative discussion included in this Proxy Statement.

Retirement Benefits    

Our retirement benefits consist of our Executive Retirement Income Plan, Supplemental Executive Retirement Income Plan and a 401(k) plan. These plans are designed in combination to provide an appropriate level of replacement income upon retirement. The Compensation Committee believes that these retirement benefits provide a balanced and competitive retirement program and support our objectives to attract, retain and motivate talented personnel.

Supplemental Executive Retirement Income Plan (“SERIP”).   In July 2018, the Board of Directors adopted the SERIP.  Pursuant to the terms of this plan, a select group of management or other highly compensated employees may be designated as plan participants. Our SERIP, which is subject to the applicable provisions of Internal Revenue Code Section 409A, provides eligible employees with annual employer contributions which are entirely at the Company’s discretion. Generally, each annual contribution vests on the earlier of: (i) the 5th anniversary of the date of funding to the participant’s account, or; (ii) the participant attaining the qualified age of retirement (either age 62 or 65, as stipulated in the SERIP).  The SERIP also provides for discretionary alternative vesting schedules for certain supplemental discretionary contributions made on an individual basis.  Upon attaining the plan’s qualified age of retirement, distributions are paid in 10 annual installments to the participant.  Distributions due to events other than retirement are paid in a lump sum.  Our obligation to fund payments to participants’ accounts pursuant to the SERIP is a general unsecured obligation. Four of our named executive officers are participants in the SERIP.  

In 2018, upon commencement of the SERIP, certain participants of the ERIP, who had not yet approached their qualified age of retirement, were given the option to remain in the ERIP or convert their participation into the SERIP. ERIP participants that elected to convert to the SERIP have been provided with an unfunded, lump sum conversion balance that was credited to the participant’s SERIP account. The unfunded ERIP conversion balances transferred to the SERIP, which were computed based upon the participant’s 2017 salary and will remain permanently unchanged after conversion, are payable over 60 monthly installments, if the participant attains their qualified age of retirement, as previously stipulated in the ERIP. If the participant does not attain their qualified age of retirement, the ERIP conversion balance is forfeited unless the Board of Directors, in its full discretion, determined otherwise. For ERIP participants who elected to convert to the SERIP, their participation in the ERIP was terminated upon conversion and no future benefits will be earned pursuant to the ERIP. SERIP participants who converted from the ERIP are entitled to future benefits pursuant to the terms of the SERIP.

Executive Retirement Income Plan (“ERIP”).    In October 1993, the Board of Directors adopted the ERIP, which was subsequently closed to new participants effective January 1, 2015. Pursuant to the terms of the ERIP, certain management or other highly compensated employees, who had been previously designated as plan

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participants by our Board of Directors prior to December 31, 2014, and who had completed at least 10 years of active employment with us, may receive retirement income benefits.

Subject to certain conditions, the monthly benefit is payable to a participant who retires after he or she reaches age 62 (applicable to participants added to the ERIP before 2008) or age 65 (applicable to participants added to the ERIP after January 1, 2008). The benefit is equal to 3% of the employee’s average monthly base salary over the three years preceding retirement multiplied by the number of qualified years (not to exceed 10) of the participant’s employment with us. Payment of the benefit will be made in 60 monthly installments following the participant’s retirement date. If a participant’s employment with us is terminated prior to their qualified age of retirement, no ERIP benefits will be payable unless the Board of Directors, in its full discretion, determines otherwise. In 2018, certain participants were transferred to the SERIP and were provided with an unfunded, lump sum conversion balance pursuant to the SERIP, as discussed above. One of our named executive officers remains a participant in the ERIP.

For a further description of the SERIP and ERIP, please refer to the Pension Benefits included in this Proxy Statement.

401(k) Plan.    We maintain a 401(k) plan for all employees, including our named executive officers, as an additional source of retirement income. Pursuant to the 401(k) plan, in 2019, we made matching contributions (subject to highly compensated employee limits set by the Internal Revenue Code) to the 401(k) plan of approximately $56 million. All of the named executive officers participated in the 401(k) plan in 2019. Accordingly, we made matching contributions equal to $8,400 to the 401(k) plan for each of the participating named executives with the exception of Mr. Peterson who received a matching contribution of $5,464..

Benefits

Our named executive offic