AMERIGROUP (AGP)

 

Base Salary Purpose.  The purpose of base salary is to reflect job responsibilities, anticipated future value to the Company and market competitiveness, while providing a stable source of income for our executives.

 

Base Salary Considerations.  The Compensation Committee evaluates and adjusts our NEOs’ salaries annually, generally in February, unless market conditions or other factors require a mid-year evaluation. In determining base salary compensation, we assess the following:

 

 

The process of setting base salary is subjective and does not utilize a formulaic weighting of the foregoing factors. In evaluating overall Company performance, the Committee considers whether or not the Company attained its performance goals during the preceding year. We also consider the level of attainment of an individual’s MJOs during the preceding year. MJOs are generally related to the attainment of specific financial, operational or business initiatives and goals, such as quality standards, operational excellence, market leadership, member and provider satisfaction and the execution of strategic plans and initiatives. MJOs may also include the performance goals available under our 2007 Cash Incentive Plan (the “2007 Cash Incentive Plan”), as described below.

 

In setting base salary compensation, we also consider an executive’s talents, experience and responsibilities, including his or her past and expected future contributions to the Company. We strongly believe in engaging the best talent in critical functions of the Company. Accordingly, we may determine from time to time that it is in the best interests of the Company to establish compensation packages, including base salary, that deviate from the general principle of targeting the median of our peers. Similarly, we may determine to provide compensation outside of the normal cycle to individuals to reward performance or to address retention issues. Finally, we consider applicable market pay information, including the external compensation data of other organizations as discussed above.

 

Consistent with our pay-for-performance philosophy, we generally set base salaries at approximately the median level of our Industry Peer Group, while providing executives the opportunity to earn above-market median compensation from other components of Total Compensation that are more closely tied to performance, such as MJO Bonuses and LTIP Awards, and to stockholder return, such as outperform equity grants. However, we recognize the need to balance the components of Total Compensation appropriately depending on an executive’s position and ability to impact our results. Accordingly, we structure our compensation programs so that a significant portion of our NEOs’ target Total Compensation is “at risk” (in the form of MJO Bonuses, LTIP Awards and outperform equity grants) and more heavily dependent upon our results. By contrast, our compensation programs for our broad-based employee population, which are generally not eligible for MJO Bonuses, LTIP Awards or equity grants, are designed to provide more income stability, and a smaller portion of their Total Compensation is “at risk.” We believe that the design of our compensation program is effective in achieving our pay for performance philosophy by aligning compensation for those executives whose responsibilities and decisions most directly impact our results and performance.

 

Base Salaries for 2008.  The 2008 salaries paid to our NEOs are set forth in the Summary Compensation Table on page 31. In 2008, Messrs. Carlson, Truess, Zoretic and Baldwin received base salary increases from their 2007 salaries at the rate of 6.9%, 10.5%, 40.0%, and 4.3%, respectively. Ms. Whitley-Taylor joined our Company in January 2008 and, as a result, did not receive a salary increase during 2008. The increases for Messrs. Carlson, Truess, Zoretic and Baldwin were a reflection of strong performance by our Company and each of them in 2007. The salary increases were also designed to keep salaries at approximately the median level of our Industry Peer Group. Additionally, a significant portion of the 40.0% increase in Mr. Zoretic’s salary reflects his promotion to Chief Operating Officer of the Company in September 2007.

 

Base Salary Purpose.  The purpose of base salary is to reflect job responsibilities, anticipated future value to the Company and market competitiveness, while providing a stable source of income for our executives.

 

Base Salary Considerations.  Our Compensation Committee evaluates and adjusts our Named Executive Officers’ salaries annually, generally in February, unless market conditions or other factors require a mid-year evaluation. In determining base salary compensation, we assess the following:

 

 

The process of setting base salary is subjective and does not utilize a formulaic weighting of the foregoing factors. In evaluating overall Company performance, the Compensation Committee considers whether or not the Company attained its performance goals during the preceding year. We also consider the level of attainment of an individual’s MJOs during the preceding year. MJOs are generally related to the attainment of specific operational or business initiatives and goals, such as quality standards, operational excellence, market leadership, member and provider satisfaction and the execution of strategic plans and initiatives. MJOs may also include the performance goals available under our 2007 Cash Incentive Plan (the “Cash Incentive Plan”), which are discussed on pages 17 and 18.

 

In setting base salary compensation, we also consider an executive’s talents, experience and responsibilities, including his or her past and expected future contributions to the Company. We strongly believe in engaging the best talent in critical functions of the Company. Accordingly, we may determine from time to time that it is in the best interests of the Company to establish compensation packages, including base salary, that deviate from the general principle of targeting the median of our peers. Similarly, we may determine to provide compensation outside of the normal cycle to individuals to address retention issues. Finally, we consider applicable market pay information, including the external compensation data of other organizations as discussed above.

 

Consistent with our pay-for-performance philosophy, we generally set base salaries at approximately the median level of our Industry Peer Group, while providing executives the opportunity to earn above-market median compensation from other components of Total Compensation that are more closely tied to performance, such as MJO Bonuses and LTIP Awards, and to stockholder return, such as equity grants. However, we recognize the need to balance the components of Total Compensation appropriately depending on an executive’s position and ability to impact our results. Accordingly, we structure our compensation programs so that a significant portion of our senior executives’ targeted Total Compensation is “at risk” (in the form of MJO Bonuses, LTIP Awards and outperform equity grants) and more heavily dependent upon our results. By contrast, our compensation programs for our broad-based employee population, which are generally not eligible for MJO Bonuses, LTIP awards or equity grants are designed to provide more income stability, and a smaller portion of most employees’ Total Compensation is “at risk.” We believe that the design of our compensation program is effective in achieving our pay for performance philosophy by aligning compensation for those executives whose roles, responsibilities and decisions most directly impact our results and performance.

 

Base Salaries for 2007.  The 2007 salaries paid to our Named Executive Officers are set forth in the Summary Compensation Table on page 25. In 2007, Messrs. Carlson, McWaters, Truess, Zoretic, Baldwin and Keena received base salary increases in February 2007 of 12.0%, 10.6%, 5.5%, 18.3%, 7.7% and 8.3%, respectively. These increases were a reflection of strong performance by our Company and each Named Executive Officer in 2006. These increases were also designed to keep our Named Executive Officers’ salaries at approximately the

 

Base Salary Purpose.  The purpose of base salary is to reflect job responsibilities, anticipated future value to the Company and market competitiveness, while providing a stable source of income for our executives.

 

Base Salary Considerations.  Our Compensation Committee evaluates and adjusts executive salaries annually, generally in February, unless market conditions or other factors require a mid-year evaluation. In determining base salary compensation, we assess the following:

 

 

The process of setting base salary is subjective and does not utilize a formulaic weighting of the foregoing factors. In evaluating overall Company performance, we consider whether or not the Company attained its performance goals during the preceding year. We also consider the level of attainment of an individual’s MJOs during the preceding year. We generally use the performance goals available under our 2003 Cash Incentive Plan (the “Cash Incentive Plan”) to set MJOs for our executives, which include the following: (i) return on total stockholder equity; (ii) earnings per share of common stock (“EPS”); (iii) income (before or after taxes); (iv) earnings before all or any interest, taxes, depreciation and/or amortization; (v) gross revenue; (vi) return on assets; (vii) market share; (viii) cost reduction; (ix) earnings from continuing operations, levels of expense, cost or liability; and (x) membership goals. From time to time, we also set MJOs with respect to other operational or initiative specific performance goals.

 

In setting base salary compensation, we also consider an executive’s talents, experience and responsibilities, including his or her past and expected future contributions to the Company. We strongly believe in engaging the best talent in critical functions of the Company. Accordingly, we may determine from time to time that it is in the best interests of the Company to establish compensation packages, including base salary, that deviate from the general principle of targeting the median of our peers. Similarly, we may determine to provide compensation outside of the normal cycle to individuals to address retention issues. Finally, we consider applicable market pay information, including the external compensation data of other organizations and peer group comparisons, discussed above.

 

With respect to the base salary of our Chief Executive Officer, Jeffrey L. McWaters, his employment agreement with the Company provides, among other things, for a base annual salary of not less than $425,000, subject to adjustment from time to time by our Board of Directors. Mr. McWaters is our only executive officer with a written employment agreement.

 

Base Salaries for 2006.  The 2006 base salaries for our Named Executive Officers are set forth in the Summary Compensation Table on page 22. In 2006, our Chief Executive Officer and our President & Chief Operating Officer did not receive salary increases due to our financial performance in 2005. Our other Named Executive Officers received base salary increases in February 2006 ranging from 3% to 10%. Consistent with our philosophy of placing a greater emphasis on performance based incentive compensation, we believe that the 2006 salaries of our Named Executive Officers are, on average, at or below the market median level.