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This excerpt taken from the ENSG DEF 14A filed Apr 21, 2009. Principal
Economic Elements of Executive Compensation
Base Salary. We believe it is important to pay
our executives salaries within a competitive market range in
order to attract and retain highly talented executives. Although
historically we have not set executive salaries based upon any
particular benchmarks, we may from time to time generally review
relevant market data to assist us in our compensation decision
process. We have historically validated our compensation
decisions by comparing the compensation of executives at other
public companies in the skilled nursing industry to the
compensation of our executives. Our compensation committee
reviewed the published compensation of the named executive
officers of National Healthcare Corporation, Sun Healthcare
Group, Inc., Kindred Healthcare, Inc. and Skilled Healthcare
Group, Inc.. We believe that the base salaries and the total
compensation of our executives are comparable to the median base
salaries and median total compensation of executives with
similar positions at comparable companies.
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Each of our executives’ base salary is generally determined
based upon job responsibilities, individual experience and the
value the executive provides to our company. The compensation
committee considered each of these factors in determining the
compensation each executive would be paid in 2008. We may elect
to change this practice in future years, and the compensation
committee has employed a compensation consultant to examine the
company’s compensation practices beginning in 2009. The
decision, if any, to materially increase or decrease an
executive’s base salary in subsequent years will likely be
based upon these same factors and others recommended by the
compensation consultants. Our compensation committee makes
decisions regarding base salary at the time the executive is
hired and makes decisions regarding any changes to base salary
on an annual basis.
Annual Cash Bonuses. We establish an executive
incentive program each year, pursuant to which certain
executives may earn annual bonuses based upon our performance.
In the first quarter of each year, our compensation committee
identifies the plan’s participants for the year and
establishes an objective formula by which the amount, if any, of
the plan’s bonus pool will be determined. This formula is
based upon annual income before provision for income taxes. Our
compensation committee established the following formula for the
2008 bonus pool:
In the first quarter of the subsequent year, our compensation
committee subjectively allocates the bonus pool among the
individual executives based upon the recommendations of our
Chief Executive Officer and the compensation committee’s
perceptions of each participating executive’s contribution
to both our clinical and financial performance during the
preceding year, and value to the organization going forward. The
financial measure that our compensation committee considers is
our annual income before provision for income taxes. The
clinical measures that our compensation committee considers
include our success in achieving positive survey results and the
extent of positive patient and resident feedback. Our
compensation committee also reviews and considers feedback from
other employees regarding the executive’s performance. Our
compensation committee exercises discretion in the allocation of
the bonus pool among the individual executives and has, at
times, awarded bonuses that, collectively, were less than the
bonus pool resulting from the predetermined formula. For 2008,
the compensation committee capped the executive bonus pool at
$2.4 million. Based upon the predetermined formula, the
bonus pool for 2008 was $1,716,983. Bonuses for 2008 performance
were allocated to the Named Executive Officers who participated
in the executive incentive program as follows: Christopher
Christensen, $575,189; Alan Norman, $293,346 and Gregory
Stapley, $575,189. Each year, our compensation committee reviews
our financial performance goals and may adjust the bonus pool
formula at its discretion to better align the amount available
for annual executive bonuses with our objectives. Historically,
the compensation committee has increased the amount of annual
income before provision for income taxes that must be achieved
in order to create the same bonus pool as the preceding year in
order to increase the difficulty of receiving the same bonus.
The allocation of this bonus pool to the participating
executives remains discretionary based upon the compensation
committee’s determination of each participating
executive’s contribution to our annual performance and
value to the organization going forward. The 2009 financial
performance goals and bonus pool formula have been established
by the compensation committee consistent with historical
practices.
Long-Term Incentive Compensation. We believe
that long-term performance is achieved through an ownership
culture. Accordingly, we encourage long-term performance by our
executives and other key personnel
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throughout the organization through the use of stock-based
awards, and to this end, our Board of Directors has in the past
administered our option plans liberally in terms of frequency
and number of stock option grants. We have adopted the 2001
Stock Option, Deferred Stock and Restricted Stock Plan, the 2005
Stock Incentive Plan and the 2007 Omnibus Incentive Plan. These
plans permit the grant of stock options, stock appreciation
rights, restricted stock, restricted stock units, performance
awards, and other stock-based awards. Historically, we have
generally issued stock options. In addition, these stock options
were historically exercisable for shares of restricted stock
prior to the vesting of the stock option; however, we abandoned
that practice with the adoption of the 2007 Omnibus Incentive
Plan, although a number of our option holders still have
unvested and unexercised options under our 2001 and 2005 plans
which may be exercised prior to vesting. Unvested shares of
restricted stock are generally subject to repurchase by us in
the event the employee’s employment is terminated for any
reason prior to the vesting of such shares. Some of the
restricted stock agreements provided for termination of our
repurchase right upon the consummation of our initial public
offering.
Although we do not have formal stock ownership guidelines, in
order to preserve the linkage between the interests of
executives and other key personnel and those of stockholders, we
focus on granting stock options to those executives and others
who do not already have a significant level of stock ownership.
Although historically we have not granted stock options to
Christopher Christensen or Gregory Stapley, because each of them
already has a significant level of stock ownership, we may
decide to do so in the future if we believe it is necessary for
incentive and retention purposes. Our executives who have
significant levels of stock ownership are not permitted to hedge
the economic risk of such ownership. We intend to continue to
provide long-term awards through the grant of stock options,
which will vest based on continued employment, and we may decide
to grant other awards such as stock appreciation rights,
restricted stock, restricted stock units, performance awards,
and other stock-based awards. Early in our history, we made a
very limited number of restricted stock grants, but we have not
done so since 2001 and we do not have any policies for
allocating compensation to different forms of equity awards. We
also do not have any policies for allocating compensation
between long-term and currently paid out compensation or between
cash and non-cash compensation or among different forms of
non-cash compensation. In the future, our decision to allocate
compensation to one form over another may be driven by
considerations regarding their accounting impact.
Except with respect to grants to our directors, the stock
options that we grant generally vest as to 20% of the shares of
common stock underlying the option on each anniversary of the
grant date. In addition, these stock options generally have a
maximum term of ten years. The grant date of our stock options
is generally the date our Board of Directors or compensation
committee meets to approve such stock option grants. Our Board
of Directors historically has approved stock option grants at
regularly scheduled meetings. Our Board of Directors and
compensation committee intend to continue this practice of
approving the majority of stock-based awards at regularly
scheduled meetings on a quarterly basis, unless earlier approval
is required for a new-hire inducement grant, regardless of
whether or not our Board of Directors or compensation committee
knows material non-public information on such date. The exercise
price of our stock options is the fair market value of our
common stock on the date of grant as determined by the closing
price of our common stock on the NSADAQ Global Select Market on
the date of grant. Prior to the exercise of an option, the
holder has no rights as a stockholder with respect to the shares
of common stock underlying the option, including voting rights
and the right to receive dividends or dividend equivalents.
Because of his large equity stake, we have never granted stock
options to our President and Chief Executive Officer,
Christopher Christensen. Mr. Christopher Christensen
historically has made recommendations to our Compensation
Committee and Board of Directors regarding the amount of stock
options and other compensation to grant to our other executives
based upon his assessment of their performance, and may continue
to do so in the future. Our executive officers, however, do not
have any role in determining the timing of our stock option
grants.
Although we do not have any formal policy for determining the
amount of stock options or the timing of our stock option
grants, we have historically granted stock options or restricted
stock to high-performing employees (i) in recognition of
their individual achievements and contributions to our company,
and (ii) in anticipation of their future service and
achievements.
Other Compensation. Our executives are
eligible to receive the same benefits that are available to all
employees. In addition, we pay the premiums to provide life
insurance equal to each executive’s annual salary and
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the premiums to provide accidental death and dismemberment
insurance. For 2008, Christopher Christensen received an
automobile allowance of $15,900.
This excerpt taken from the ENSG DEF 14A filed Apr 28, 2008. Principal
Economic Elements of Executive Compensation
Base Salary. We believe it is important to pay
our executives salaries within a competitive market range in
order to attract and retain highly talented executives. Although
historically we have not set executive salaries based upon any
particular benchmarks, we may from time to time generally review
relevant market data to assist us in our compensation decision
process. We have historically validated our compensation
decisions by comparing the compensation of executives at other
public companies in the skilled nursing industry to the
compensation of our executives. Our compensation committee
reviewed the published compensation of the named executive
officers of Genesis HealthCare Corporation, Kindred Healthcare,
Inc., Manor Care, Inc., National Healthcare Corporation, Sun
Healthcare Group, Inc. and Skilled Healthcare Group, Inc. We
have again employed this methodology to set compensation and
incentives for our executives for 2008, although we may elect to
change this practice in future years and employ a compensation
consultant for this purpose. We believe that the base salaries
and the total compensation of our executives are approximately
equal to or less than the median base salaries and median total
compensation of executives with similar positions at these
companies. However, although each company had a general counsel,
our review did not identify an officer of any of these companies
whose roles are comparable to those of Gregory K. Stapley, who
serves as our Vice President, General Counsel and Secretary.
Mr. Stapley’s base salary and total compensation
exceed the median base salaries and median total compensation of
the general counsels of these companies. However,
Mr. Stapley directly oversees many aspects of our business
in his role as Vice President, and we believe that he
significantly contributes to our success in areas outside of his
roles as our General Counsel and Secretary. Each of our
executives’ base salary is generally determined based upon
job responsibilities, individual experience and the value the
executive provides to our company. The compensation committee
considered each of these factors in determining the compensation
each executive would be paid in 2007. The decision, if any, to
materially increase or decrease an executive’s base salary
in subsequent years will likely be based upon these same
factors. Our compensation committee makes decisions regarding
base salary at the time the executive is hired and makes
decisions regarding any changes to base salary on an annual
basis.
Annual Cash Bonuses. We establish an executive
incentive program each year, pursuant to which certain
executives may earn annual bonuses based upon our performance.
In the first quarter of each year, our compensation committee
identifies the plan’s participants for the year and
establishes an objective formula by which the amount, if
Table of Contents
any, of the plan’s bonus pool will be determined. This
formula is based upon annual income before provision for income
taxes. Our compensation committee established the following
formula for the 2007 bonus pool:
In the first quarter of the subsequent year, our compensation
committee subjectively allocates the bonus pool among the
individual executives based upon the recommendations of our
Chief Executive Officer and the compensation committee’s
perceptions of each participating executive’s contribution
to both our clinical and financial performance during the
preceding year, and value to the organization going forward. The
financial measure that our compensation committee considers is
our annual income before provision for income taxes. The
clinical measures that our compensation committee considers
include our success in achieving positive survey results and the
extent of positive patient and resident feedback. Our
compensation committee also reviews and considers feedback from
other employees regarding the executive’s performance. Our
compensation committee exercises discretion in the allocation of
the bonus pool among the individual executives and has, at
times, awarded bonuses that, collectively, were less than the
bonus pool resulting from the predetermined formula. For 2007,
the compensation committee capped the executive bonus pool at
$2.2 million. Based upon this predetermined formula the
bonus pool for 2007 was $921,633. Bonuses for 2007 performance
were allocated to the named executive officers who participated
in the executive incentive program as follows: Christopher
Christensen, $310,000; Alan Norman, $169,633; Gregory Stapley,
$310,000; and David Sedgwick, $132,000. In addition, David
Sedgwick was awarded a discretionary bonus of $8,000 outside of
this plan. Each year, our compensation committee reviews our
financial performance goals and may adjust the bonus pool
formula at its discretion to better align the amount available
for annual executive bonuses with our objectives. Historically,
the compensation committee has increased the amount of annual
income before provision for income taxes that must be achieved
in order to create the same bonus pool as the preceding year in
order to increase the difficulty of receiving the same bonus.
The allocation of this bonus pool to the participating
executives remains discretionary based upon the compensation
committee’s determination of each participating
executive’s contribution to our annual performance and
value to the organization going forward. The 2008 financial
performance goals and bonus pool formula have been established
by the compensation committee consistent with historical
practices.
Long-Term Incentive Compensation. We believe
that long-term performance is achieved through an ownership
culture. Accordingly, we encourage long-term performance by our
executives and other key personnel throughout the organization
through the use of stock-based awards and, to this end our Board
of Directors has in the past administered our option plans
liberally in terms of frequency and number of stock option
grants. We have adopted the 2001 Stock Option, Deferred Stock
and Restricted Stock Plan, the 2005 Stock Incentive Plan and the
2007 Omnibus Incentive Plan. These plans permit the grant of
stock options, stock appreciation rights, restricted stock,
restricted stock units, performance awards, and other
stock-based awards. Historically, we have generally issued stock
options. In addition, these stock options were historically
exercisable for shares of restricted stock prior to the vesting
of the stock option; however, we abandoned that practice with
the adoption of the 2007 Omnibus Incentive Plan, although a
number of our option holders still have unvested and unexercised
options under our 2001 and 2005 plans which may be exercised
prior to vesting. Unvested shares of restricted stock are
generally subject to repurchase by us in the event the
employee’s employment is terminated for any reason prior to
the vesting of such shares. Some of the restricted stock
agreements provided for termination of our repurchase right upon
the consummation of the IPO.
Table of Contents
Although we do not have formal stock ownership guidelines, in
order to preserve the linkage between the interests of
executives and other key personnel and those of stockholders, we
focus on granting stock options to those executives and others
who do not already have a significant level of stock ownership.
Although historically we have not granted stock options to
Christopher Christensen or Gregory Stapley, because each of them
already has a significant level of stock ownership, we may
decide to do so in the future if we believe it is necessary for
incentive and retention purposes. Our executives who have
significant levels of stock ownership are not permitted to hedge
the economic risk of such ownership. We intend to continue to
provide long-term awards through the grant of stock options,
which will vest based on continued employment, and we may decide
to grant other awards such as stock appreciation rights,
restricted stock, restricted stock units, performance awards,
and other stock-based awards. Early in our history, we made a
very limited number of restricted stock grants, but we have not
done so since 2001 and we do not have any policies for
allocating compensation to different forms of equity awards. We
also do not have any policies for allocating compensation
between long-term and currently paid out compensation or between
cash and non-cash compensation or among different forms of
non-cash compensation. In the future, our decision to allocate
compensation to one form over another may be driven by
considerations regarding accounting impact.
Except with respect to grants to our directors, the stock
options that we grant generally vest as to 20% of the shares of
common stock underlying the option on each anniversary of the
grant date. In addition, these stock options generally have a
maximum term of ten years. The grant date of our stock options
is generally the date our Board of Directors meets to approve
such stock option grants. Our Board of Directors historically
has approved stock option grants at regularly scheduled
meetings. Our Board of Directors and compensation committee
intend to continue this practice of approving the majority of
stock-based awards at regularly scheduled meetings on a
quarterly basis, unless earlier approval is required for a
new-hire inducement grant, regardless of whether or not our
Board of Directors or compensation committee knows material
non-public information on such date. The exercise price of our
stock options is the fair market value of our common stock on
the date of grant as determined by the closing price of our
common stock on the NASDAQ Global Select Market on the date of
grant. Prior to the exercise of an option, the holder has no
rights as a stockholder with respect to the shares of common
stock underlying the option, including voting rights and the
right to receive dividends or dividend equivalents.
Because of his large equity stake, we have never granted stock
options to our President and Chief Executive Officer,
Christopher Christensen. Mr. Christopher Christensen
historically has made recommendations to our Board of Directors
regarding the amount of stock options and other compensation to
grant to our other executives based upon his assessment of their
performance, and may continue to do so in the future. Our
executive officers, however, do not have any role in determining
the timing of our stock option grants.
Although we do not have any formal policy for determining the
amount of stock options or the timing of our stock option
grants, we have historically granted stock options or restricted
stock to high-performing employees (i) in recognition of
their individual achievements and contributions to our company,
and (ii) in anticipation of their future service and
achievements.
Other Compensation. Our executives are
eligible to receive the same benefits that are available to all
employees. In addition, we pay the premiums to provide life
insurance equal to each executive’s annual salary and the
premiums to provide accidental death and dismemberment
insurance. For 2007, Christopher Christensen received an
automobile allowance of $15,900 and David Sedgwick received an
automobile allowance of $7,200.
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