Vanguard Health Systems (VHS)

Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(e)        On January 26, 2012, the Compensation Committee of the Board of Directors of Vanguard Health Systems, Inc. (the “Company”) adopted certain amendments to the cash bonus plan for the Company’s fiscal year ending June 30, 2012 (the “2012 Incentive Plan”) that was established pursuant to the Vanguard Health Systems, Inc. Annual Incentive Plan. The amendments to the 2012 Incentive Plan affected, among other officers, Michael E. Duggan, a Senior Vice President – Operations of the Company who serves as Market President of the Company’s Detroit, Michigan market and is a named executive officer of the Company.

With respect to Mr. Duggan, the amendments increased the target Adjusted EBITDA and target free cash flow performance goals for The Detroit Medical Center (“DMC”), each of which represents 25% of Mr. Duggan’s target bonus. When the Compensation Committee set the Adjusted EBITDA and free cash flow performance goals for DMC in September 2011, the Company had not owned DMC for an entire year as it was acquired effective January 1, 2011. After owning DMC for additional time and being able to review DMC’s financial performance for a longer period, the Compensation Committee thought the higher performance goals for Adjusted EBITDA and free cash flow were more appropriate.

In addition, the Compensation Committee decided that Mr. Duggan will not receive any bonus related to Adjusted EBITDA and free cash flow if DMC does not meet the target goals for those performance measures. Initially, the 2012 Incentive Plan provided that a threshold award of 20% of the target award relating to Adjusted EBITDA and free cash flow would be payable upon DMC reaching 96% of each of the Adjusted EBITDA and free cash flow goals, with increasing payout levels of 40% to 80% of the target award payable upon DMC reaching 97% to 99% of each of such goals (in each case calculated in evenly graduated increments). Further, the Compensation Committee changed Mr. Duggan’s bonus structure if DMC exceeds its target goals for Adjusted EBITDA and free cash flow. Originally, if DMC exceeded its Adjusted EBITDA and free cash flow targets, then Mr. Duggan was eligible to receive a cash award in addition to his target bonus award equal to 1% of the excess, up to a maximum award of 25% of his base salary related to Adjusted EBITDA and 25% of his base salary related to free cash flow. The Compensation Committee replaced this structure by establishing certain thresholds above the target performance goal (in each case calculated in evenly graduated increments) with increasing payout levels of 110% to 150% of the target award payable upon DMC reaching such goals. 

Finally, the Compensation Committee adjusted the quality and experience goals for DMC, which represent, in the aggregate, up to 25% of Mr. Duggan’s target bonus.  The Compensation Committee removed one of the four quality and safety goals, as DMC only recently installed a clinical analytic system that could measure that goal, and shifted the incentive for that goal to one of the other quality and safety goals for which DMC is able to produce results for the full fiscal year. Also, being the first year in which DMC has measured employee engagement, which is one of the quality and experience goals, the Compensation Committee agreed that DMC could be measured by the improvement in its first year scores rather than by an absolute measure of its employee engagement.

Except for the amendments described in this Form 8-K, Mr. Duggan’s cash bonus plan for the 2012 Incentive Plan remains as established by the Compensation Committee in September 2011.