DEF 14A of Encompass Health Corp, Apr 2, 2024

DEF 14A of Encompass Health Corp

Filed Apr 2, 2024 · FY20230000785161-24-000020

Open on EDGAR

  1. TABLE OF CONTENTS

    | | | Page | | Options Exercised and Stock Vested in 2023 | | 59 | | Equity Compensation Plans | | 59 | | | 2004 Amended and Restated Director Incentive Plan | 59 | | | 2008 Equity Incentive Plan | 60 | | | 2016 Omnibus Performance Incentive Plan | 60 | | Deferred Compensation | | 61 | | | Retirement Investment Plans | 61 | | | Nonqualified Deferred Compensation Plan | 61 | | CEO Pay Ratio | | 62 | | Pay vs. Performance | | 62 | | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | | 66 | | Review and Approval of Transactions with Related Persons | | 66 | | Transactions with Related Persons | | 66 | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | | 67 | | EXECUTIVE OFFICERS | | 69 | | GENERAL INFORMATION | | 71 | | APPENDIX A - NOTE REGARDING PRESENTATION OF NON-GAAP FINANCIAL MEASURES | | A-1 |

  2. Proposal 1 – Election of Directors

    Proposal 1 – Election of Directors

  3. Director Nominees

    Director Nominees The board of directors of Encompass Health currently consists of 12 members. At the end of this year’s term, two directors, Messrs. Correll and Chidsey, will be retiring from the Encompass Health board and will not stand for re-election. In conjunction with the retirement of these directors, our board has approved a reduction in the size of the board from 12 to 10 members effective as of the end of this year’s annual meeting of stockholders. Based on the recommendation of the Nominating/Corporate Governance Committee, our board proposes that each of the 10 nominees listed below be elected as directors at this annual meeting and serve until our 2025 annual meeting of stockholders. Following this annual meeting, the elected members of the board will elect a new independent chairman of the board in accordance with the requirement of the Corporate Governance Guidelines. Each director nominee named in this Proposal 1 will be elected if the votes for that nominee exceed the number of votes cast against that nominee. Votes cast with respect to a nominee will exclude abstentions and broker non-votes. If a nominee becomes unable or unwilling to accept the nomination or election, the persons designated as proxies will be entitled to vote for any other person designated as a substitute nominee by our board of directors. We have no reason to believe that any of the following nominees will be unable to serve. Below we have provided information relating to each of the director nominees proposed for election by our board, including a brief description of why he or she was nominated.

  4. Director Nominees

    | Name of Nominee | Age | Current Roles | Date Became Director | | Greg D. Carmichael* | 62 | Member of Compensation and Human Capital Committee (Chair) and Nominating/Corporate Governance Committee | 1/1/2020 | | Edward M. Christie III* | 53 | Member of Audit Committee | 11/27/2023 | | Joan E. Herman* | 70 | Member of Audit Committee and Compliance and Quality of Care Committee (Chair) | 1/25/2013 | | Leslye G. Katz* | 69 | Member of Finance Committee and Nominating/Corporate Governance Committee (Chair) | 1/25/2013 | | Patricia A. Maryland* | 70 | Member of Compensation and Human Capital Committee and Compliance and Quality of Care Committee | 1/1/2020 | | Kevin J. O’Connor* | 56 | Member of Compliance and Quality of Care Committee and Nominating/Corporate Governance Committee | 3/30/2022 | | Christopher R. Reidy* | 67 | Member of Audit Committee (Chair) and Finance Committee | 10/1/2021 | | Nancy M. Schlichting* | 69 | Member of Compensation and Human Capital Committee and Compliance and Quality of Care Committee | 12/11/2017 | | Mark J. Tarr | 62 | President and Chief Executive Officer | 12/29/2016 | | Terrance Williams* | 55 | Member of Audit Committee and Finance Committee (Chair) | 1/1/2020 | | * Denotes independent director. | | | |

  5. Director Nominees

    There are no arrangements or understandings known to us between any of the nominees listed above and any other person pursuant to which that person was or is to be selected as a director or nominee, other than any arrangements or understandings with persons acting solely as directors or officers of Encompass Health. All of the director nominees have public company, senior leadership and strategic planning experience and financial literacy. The following matrix is intended to summarize the other primary experience, skills, and qualifications of the nominees. Each nominee’s individual experiences and qualifications are described in more detail in the biographies below.

  6. Director Nominees

    | | Greg D. Carmichael Mr. Carmichael has served as executive chair of the board of directors of City National Bank, a subsidiary of Royal Bank of Canada, since October 2, 2023. Mr. Carmichael retired as the executive chairman of Fifth Third Bancorp in April 2023. In July 2022, he retired as president and chief executive officer of Fifth Third. He originally joined Fifth Third in 2003 and served in various other executive roles, including chief operating officer and chief information officer. From 2000 to 2003, Mr. Carmichael was vice president and chief information officer for Emerson Electric, a worldwide provider of technology and energy solutions. From 1996 to 2000, he served in the same roles for a subsidiary of Emerson, and from 1986 to 1996, he served in several information technology and leadership roles at General Electric. On March 12, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) appointed Mr. Carmichael as chief executive officer of Signature Bridge Bank, N.A., the successor to Signature Bank, which went into FDIC receivership that same date. Mr. Carmichael has extensive experience in matters of information technology, finance, corporate strategy and senior leadership relevant to large public companies. His extensive experience with IT matters includes cybersecurity oversight as a result of his leadership roles in multiple IT departments. |

  7. Director Nominees

    | | Edward M. Christie III Mr. Christie has served as president and chief executive officer of Spirit Airlines, Inc. since January 2019. In his tenure with Spirit, which began in April 2012, Mr. Christie has held a number of leadership roles and responsibilities, including as Chief Financial Officer. Prior to joining Spirit, he served as Vice President and Chief Financial Officer of Pinnacle Airlines Corp. from July 2011 to March 2012. Prior to that, Mr. Christie was a partner in the management consulting firm of Vista Strategic Group LLC from May 2010 to July 2011. From 2002 to 2010, Mr. Christie served in various positions, including Chief Financial Officer, at Frontier Airlines. Mr. Christie has served on the board of directors of Spirit since January 2018. Mr. Christie has significant experience in finance, strategic and public company leadership, operations, and governmental relations and regulation. |

  8. Director Nominees

    | | Joan E. Herman Ms. Herman has served as the president and chief executive officer of Herman & Associates, LLC, a healthcare and management consulting firm, since 2008. Herman & Associates provides services to healthcare providers, pharmacy benefit managers, managed care organizations, and private equity firms. From 1998 to 2008, she served in a number of senior management positions, including president and chief executive officer for two corporate divisions, at Elevance, Inc. (f/k/a Anthem, Inc. and WellPoint, Inc.), a leading managed healthcare company that offers network-based managed care plans. Prior to joining Elevance, she served in a number of senior positions at Phoenix Life Insurance Company for 16 years, lastly as senior vice president of strategic development. She currently serves as a director and a member of the audit, compensation, and compliance committees of Ionis Pharmaceuticals, Inc., an RNA-targeted drug discovery and development firm. She also serves on the board of Fifth Avenue Private Equity 17 Fund. Ms. Herman has extensive experience leading large complex businesses, including in the healthcare and insurance industries. With Elevance, she gained experience dealing with government reimbursement issues as well as state and federal healthcare and insurance regulators. Additionally, she has completed the National Association of Corporate Directors’ Cyber-Risk Oversight Program, which is designed to enhance cybersecurity literacy and strengthen cyber-risk oversight practices, and holds a CERT Certificate in Cybersecurity Oversight. Her senior involvement and board service with various community and charity organizations evidences her leadership skills and character. |

  9. Director Nominees

    | | Leslye G. Katz From January 2007 to December 2010, Ms. Katz served as senior vice president and chief financial officer of IMS Health, Inc., a provider of information, services, and technology for clients in the pharmaceutical and healthcare industries. Prior to that, she served as vice president and controller for five years. From July 1998 to July 2001, Ms. Katz served as senior vice president and chief financial officer of American Lawyer Media, Inc., a privately held legal media and publishing company. Prior to joining American Lawyer Media, Ms. Katz held a number of financial management positions with The Dun & Bradstreet Corporation, followed by two years as vice president and treasurer of Cognizant Corporation, a spin off from D&B. She currently serves as vice-chair of the board of directors of My Sisters’ Place, a not-for-profit provider of shelter, advocacy, and support services to victims of domestic violence. Ms. Katz has extensive experience in financial management at companies serving the healthcare and pharmaceutical industries, as well as expertise in mergers and acquisitions, treasury, financial planning and analysis, SEC reporting, investor relations, real estate, and procurement. She has further demonstrated her leadership and character in her board service with community charities. |

  10. Director Nominees

    | | Patricia A. Maryland Ms. Maryland has 40 years of healthcare administration experience. In 2019, she retired as an executive vice president for Ascension and president and chief executive officer at Ascension Healthcare, a leading non-profit health system operating more than 2,600 sites of care including 150 hospitals and more than 50 senior living facilities in 20 states and the District of Columbia. Prior to that, Ms. Maryland held other executive and management positions in the Ascension organization for 13 years, including president and chief executive of the St. John Providence Health System and president of the Indianapolis Hospital, St. Vincent’s Health System. Prior to joining Ascension, Ms. Maryland worked in administrative roles with Detroit Medical Center, North Oakland Medical Centers, Cleveland Clinic Foundation and Mercy Hospital. Ms. Maryland also serves as a director on the board of Surgery Partners, Inc., an operator of surgical facilities and provider of ancillary services, and Privia Health Group, Inc., a national physician platform for the healthcare delivery experience. Ms. Maryland has extensive senior management and strategy planning experience with large healthcare provider organizations as described above and as a result brings a wealth of knowledge and understanding of the healthcare industry. She has demonstrated leadership and character through involvement, including board roles, over many years in numerous community and healthcare related non-profit organizations. |

  11. Director Nominees

    | | Kevin J. O’Connor Mr. O’Connor is the Senior Vice President, Chief Legal Officer of Carrier Global Corporation, a leading global provider of healthy, safe and sustainable building and cold chain solutions, where he oversees the company’s legal, governance, compliance and government affairs worldwide. Prior to joining Carrier in 2020, he was Chief Legal Officer of Point72 Asset Management from 2015 through early 2020. Prior to that, he served as Vice President, Global Ethics and Compliance for United Technologies Corporation from 2012 to 2015. Prior to his corporate leadership roles, Mr. O’Connor practiced law for 20 years in both private and public practice, including serving in various roles at the United States Department of Justice, including Associate Attorney General and United States Attorney for the District of Connecticut, and at the United States Securities and Exchange Commission, Division of Enforcement. He previously served on the strategic advisory council of Vencore, Inc., a private defense contractor serving intelligence, defense, and other agencies, and currently serves on the board of trustees for the University of Connecticut. Mr. O’Connor has extensive senior leadership, legal, compliance, and regulatory/risk management experience as described above. He also has healthcare provider experience having served as the chair of the board of directors of Trinity Health of New England, a large integrated health system. |

  12. Director Nominees

    | | Christopher R. Reidy On March 31, 2022, Mr. Reidy retired as Executive Vice President, Strategic Advisor of Becton, Dickinson and Company (“BD”), one of the largest global medical technology companies in the world. Prior to that role, he served as BD’s executive vice president, chief financial officer and chief administrative officer where he managed strategic transactions and oversaw many functions, including finance, information technology and security, business development, and enterprise risk management. Prior to joining BD in 2013, he served in many senior finance and accounting roles, including corporate vice president and chief financial officer for ADP Corporation; vice president, controller & chief accounting officer and division CFO roles at AT&T Corporation; and audit partner at Deloitte & Touche. He currently serves on the board of directors of Embecta Corp., one of the largest pure-play diabetes management companies in the world, where he serves as chair of the technology committee. He also sits on the board of Atlantic Health System and is a member of the executive committee and chair of the finance and investment committee. Mr. Reidy has extensive senior management and administrative experience with a vendor for a wide range healthcare providers as described above and as a result brings a wealth of knowledge and understanding of the healthcare industry. He also has significant experience in finance, accounting, strategic planning, risk management, and information technology and security. He qualifies as an “audit committee financial expert” within the meaning of SEC regulations. He also has extensive cybersecurity oversight experience as a result of his roles at both BD and ADP where the chief information security officers reported directly to him and he was heavily involved in the respective cybersecurity programs. At BD, the information technology department reported to him. |

  13. Director Nominees

    | | Nancy M. Schlichting In December 2016, Ms. Schlichting retired as the president and chief executive officer at Henry Ford Health System, Inc., a position she held from June 2003. Prior to that, Ms. Schlichting served as HFHS’s executive vice president and chief operating officer from 1998 to 2003. She also served as president and chief executive officer of HFHS’s Henry Ford Hospital from 2001 to 2003. During her time at HFHS, the company garnered significant national recognition, including the Malcolm Baldrige National Quality Award and the John M. Eisenberg Patient Safety and Quality Award. Prior to joining HFHS in 1998, Ms. Schlichting served as the president of the Eastern Region of Catholic Health Initiatives, president and chief executive officer of Riverside Methodist Hospitals and executive vice president and chief operating officer of Akron City Hospital and Summa Health System. Ms. Schlichting currently serves as a director of Walgreens Boots Alliance, Inc., where she serves on the audit committee and chairs the compensation and leadership performance committee, and Baxter International Inc., where she serves on the quality, compliance and technology committee and chairs the compensation and and leadership performance committee, and Baxter International Inc., where she serves on the quality, compliance and technology committee and chairs the compensation and human capital committee. She recently served on the boards of Hill-Rom Holdings, Inc. and Pear Therapeutics, Inc. Ms. Schlichting has extensive senior management and administrative experience with large healthcare provider organizations as described above and as a result brings a wealth of knowledge and understanding of the healthcare industry. She has demonstrated leadership and character through involvement, including board roles, over many years in numerous community and healthcare related non-profit organizations. |

  14. Director Nominees

    | | Mark J. Tarr Mr. Tarr became our President and Chief Executive Officer on December 29, 2016. Previously, he served as executive vice president of our operations since October 1, 2007, to which the chief operating officer designation was added on February 24, 2011. Mr. Tarr joined us in 1993 and has held various management positions with us, including serving as president of our inpatient division from 2004 to 2007, as senior vice president with responsibility for all inpatient operations in Texas, Louisiana, Arkansas, Oklahoma, and Kansas from 1997 to 2004, as director of operations of our 80-bed rehabilitation hospital in Nashville, Tennessee from 1994 to 1997, and as chief executive officer/administrator of our 70-bed rehabilitation hospital in Vero Beach, Florida from 1992 to 1994. Mr. Tarr serves on the board of directors of Protective Life Corp. Mr. Tarr, as our president and chief executive officer, directs the strategic, financial and operational management of the Company and, in this capacity, provides unique insights into its detailed operations. He also has the benefit of more than 30 years of experience in the operation and management of inpatient rehabilitation hospitals. |

  15. Director Nominees

    | | Terrance Williams On June 26, 2023, Mr. Williams became President and Chief Executive Officer-elect at TruStage Financial Group, Inc., a large provider of insurance, investments, and financial technology solutions. Prior to that, he served as the executive vice president and president of protection products and services at Allstate Corporation, where he had accountability for a portfolio of businesses outside of the core insurance market with nearly $5 billion in revenues and over 3,800 employees globally. Before joining Allstate in January 2020, he served as executive vice president and chief marketing officer for Nationwide Mutual Insurance Company, as well as the president of the Nationwide’s emerging businesses group, which included legacy niche and emerging businesses, innovation teams, and a venture capital fund. During 24 years with Nationwide, he advanced through leadership roles touching almost every aspect of the business, including underwriting, claims, operations, sales and various profit and loss management roles. Mr. Williams has a deep and broad base of marketing, insurance (payor), and regulated-industry experience. He also brings extensive experience in managing every aspect of business from sales, marketing, and operations to enterprise strategy across a large geographic platform. He qualifies as an “audit committee financial expert” within the meaning of SEC regulations. |

  16. Director Nominees

    The board of directors unanimously recommends that you vote “FOR” the election of all 10 director nominees.

  17. Director Nominees Proposed by Stockholders

    Director Nominees Proposed by Stockholders The Nominating/Corporate Governance Committee will consider written proposals from stockholders for director nominees. In considering candidates submitted by stockholders, the Nominating/Corporate Governance Committee will take into consideration the needs of the board of directors and the qualifications of the candidate. In accordance with our Bylaws, any such nominations must be received by the Nominating/Corporate Governance Committee, c/o the corporate secretary, not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event the annual meeting is called for a date that is not within 30 days before or after such anniversary date, a nomination, in order to be timely, must be received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. The Nominating/Corporate Governance Committee received no nominee recommendations from stockholders for the 2024 annual meeting. Pursuant to our Bylaws, stockholder nominations for our 2025 annual meeting of stockholders must be received at our principal executive offices on or after January 2, 2025 and not later than February 1, 2025. All stockholder nominations must be sent by mail or courier service and addressed to Encompass Health Corporation, 9001 Liberty Parkway, Birmingham, Alabama 35242, Attention: Corporate Secretary. Other electronic mail and facsimile delivery are not monitored routinely for stockholder submissions or may change from time to time, so timely delivery cannot be ensured. Stockholder nominations must include the information set forth in Section 3.4 of our Bylaws and be accompanied by a written consent of each proposed nominee to being named as a nominee and to serving as a director if elected. A stockholder providing notice of a nomination must update and supplement the notice so that the information in the notice is true and correct as of the record date(s) for determining the stockholders entitled to receive notice of and to vote at the annual meeting. Any stockholder that intends to submit a nomination for the board of directors should read the entirety of the requirements in Section 3.4 of our Bylaws which can be found in the “Corporate Governance” section of our website at https://investor.encompasshealth.com. Shareholders who intend to solicit proxies in support of director nominees other than our board’s nominees must comply with the additional requirement of Rule 14a-19(b) under the Securities Exchange Act of 1934, as amended. The chairperson of the meeting shall have the power to determine and declare to the meeting whether or not a nomination was made in accordance with the procedures set forth in our Bylaws and, if the chairman determines that a nomination is not in accordance with the procedures set forth in the Bylaws, to declare to the meeting that the defective nomination will be disregarded. Finally, our Bylaws provide for reimbursement of certain reasonable expenses incurred by a stockholder or a group of stockholders in connection with a proxy solicitation campaign for the election of one nominee to the board of directors. This reimbursement right is subject to conditions including the board’s determination that reimbursement is consistent with its fiduciary duties. We will reimburse certain expenses that a nominating stockholder, or group of nominating stockholders, has incurred in connection with nominating a candidate for election to our board if the conditions set out in Section 3.4(c) of our Bylaws are met. If those conditions are met and the proponent’s nominee is elected, we will reimburse the actual costs of printing and mailing the proxy materials and the fees and expenses of one law firm for reviewing the proxy materials and one proxy solicitor for conducting the related proxy solicitation. If those conditions are met and the proponent’s nominee is not elected but receives 40% or more of all votes cast, we will reimburse the proportion of those qualified expenses equal to the proportion of votes that the nominee received in favor of his or her election to the total votes cast. For additional detail including the conditions to which any potential reimbursement is subject, please read Section 3.4(c) of our Bylaws which can be found in the “Corporate Governance” section of our website at https://investor.encompasshealth.com.

  18. Compensation of Directors

    Compensation of Directors Every year, pursuant to its charter, the Compensation and Human Capital Committee evaluates the compensation of our non-employee directors, including the respective chairperson fees, and recommends any changes it deems advisable to the full board of directors, which is responsible for adopting the final form and amount of non-employee director compensation. As part of its annual review, the Compensation and Human Capital Committee receives comparative peer and industry data and recommendations from its independent compensation consultant, Pay Governance. This peer group is the same one used for executive compensation and discussed on page 41. Recognizing there are timing differences in the data and variability year to year, the Compensation and Human Capital Committee and the board attempt to ensure non-employee director compensation, including chairperson fees, is competitive with the corresponding market median compensation levels. In 2023, based on the peer review, the board determined that no change to base director compensation was needed. Additionally, the terms of our 2016 Omnibus Performance Incentive Plan, approved by our stockholders in 2016, establish a maximum value ($300,000) for both the equity awards granted and the cash fees paid to a non-employee director in a given year. The total of both cannot exceed $600,000. In 2023, we provided the following annual compensation to directors who are not employees:

  19. Compensation of Directors

    | Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | | Greg D. Carmichael | 120,000 | 150,040 | 5,965 | 276,005 | | John W. Chidsey | 110,302 | 150,040 | 55,486 | 315,828 | | Edward M. Christie III* | 9,511 | 64,935 | — | 74,446 | | Donald L. Correll | 225,000 | 150,040 | 57,895 | 432,935 | | Joan E. Herman | 115,000 | 150,040 | 24,764 | 289,804 | | Leslye G. Katz | 120,000 | 150,040 | 24,764 | 294,804 | | Patricia A. Maryland | 100,000 | 150,040 | 5,965 | 256,005 | | Kevin J. O’Connor | 100,000 | 150,040 | 2,500 | 252,540 | | Christopher R. Reidy | 119,698 | 150,040 | 3,237 | 272,975 | | Nancy M. Schlichting | 100,000 | 150,040 | 9,750 | 259,790 | | Terrance Williams | 115,000 | 150,040 | 5,965 | 271,005 |

  20. Compensation of Directors

    _____________________________ * Appointed to the board of directors effective November 27, 2023. Accordingly, Mr. Christie received pro rated retainer fees and stock awards. (1)The amounts reflected in this column are the retainer and chairperson fees earned for service as a director for 2023, regardless of when such fees are paid. (2)Each non-employee director received an award of restricted stock units, or RSUs, with a grant date fair value, computed in accordance with Accounting Standards Codification 718, Compensation – Stock Compensation, of $150,040 (2,385 units). These awards are fully vested in that they are not subject to forfeiture; however, no shares underlying a particular award will be issued until after the date the director ends his or her service on the board. As of December 31, 2023, each director held the following aggregate RSU awards: Mr. Carmichael - 11,197, Mr. Chidsey - 94,216, Mr. Christie - 997, Mr. Correll - 98,253, Ms. Herman - 42,712, Ms. Katz - 42,712, Ms. Maryland - 11,197, Mr. O’Connor - 5,387, Mr. Reidy - 6,623, Ms. Schlichting - 17,541, and Mr. Williams - 11,197. There were no other outstanding stock awards. (3)The amounts reflected in this column represent the value of additional RSUs granted as dividend equivalents in connection with the payment of dividends on our common stock during 2023 as required by the terms of the original grants. Our non-employee directors received an annual base cash retainer of $100,000. We also paid the following chairperson fees to compensate for the enhanced responsibilities and time commitments associated with those positions:

  21. Compensation of Directors

    | Chair Position | Fees Earned or Paid in Cash ($) | | Chairman of the Board | 125,000 | | Audit Committee | 30,000 | | Compensation and Human Capital Committee | 20,000 | | Compliance and Quality of Care Committee | 15,000 | | Finance Committee | 15,000 | | Nominating/Corporate Governance Committee | 20,000 |

  22. Compensation of Directors

    Our non-employee directors may elect to defer all or part of their cash fees under our Directors’ Deferred Stock Investment Plan. Elections must be made prior to the beginning of the applicable year. Under the plan, amounts deferred by non-employee directors are promptly invested in our common stock by the plan trustee at the market price at the time of the payment of the fees. Stock held in the deferred accounts is entitled to any dividends paid on our common stock, which dividends are promptly invested in our common stock by the plan trustee at the market price. Fees deferred under the plan and/or the acquired stock are held in a “rabbi trust” by the plan trustee. Accordingly, the plan is treated as unfunded for federal tax purposes. Amounts deferred and any dividends reinvested under the plan are distributed in the form of our common stock upon termination from board service for any reason. Distributions generally will commence within 30 days of leaving the board. As of December 31, 2023, the number of shares held in the plan were: Mr. Chidsey’s 67,506 shares and Mr. Reidy’s 1,917 shares. In addition, each non-employee member of the board of directors receives a grant of restricted stock units valued at approximately $150,000. When dividends are paid on our common stock, the directors receive the equivalent in restricted stock units based on the number of restricted stock units held and the value of the stock. The restricted stock units held by each director will be settled in shares of our common stock following the director’s departure from the board. In furtherance of the goal to align the interests of our management with those of our stockholders, we have equity ownership guidelines for senior management and members of the board of directors. Each non-employee director should own equity equal in value to $500,000 within five years of appointment or election to the board. As of February 14, 2024, all of our non-employee directors with five or more years of service have attained the ownership levels under the guidelines. Mr. Tarr received no additional compensation for serving on the board.

  23. Overview of Executive Compensation Actions in 2023

    | 2023 Executive Compensation Actions Summary | | | | Compensation Component | Actions Related to Plans from Prior Years | Actions Related to 2023 Plans | | Base Salary | Not applicable. | •Kept base salaries flat for all NEOs | | Senior Management Bonus Plan (“SMBP”) | Approved payout of 2022 SMBP awards at 95.8% of target performance. | •Added “First Year RN Turnover” as a fifth metric to Quality/Strategic Objectives Scorecard | | Long-Term Incentive Plan (“LTIP”) | Approved 2021 PSU award payouts based on performance compared to targets for 2021-22 performance period; awards equaled a weighted average of 134.4% of target opportunity. | •Added three-year “relative total shareholder return (“rTSR”)” as a +/-25% modifier to both existing performance metrics for SVPs and above (including all NEOs) •Added “Good Leaver” language to all equity awards for all SVPs and above •Awarded supplemental equity awards to Messrs. Coltharp, Darby and Price in connection with board’s succession planning review |

  24. EXECUTIVE COMPENSATION PHILOSOPHY

    | Our Compensation Philosophy | •Provide a competitive rewards program for our senior management that aligns management’s interests with those of our long-term stockholders | | | •Correlate compensation with corporate, regional and business unit outcomes by recognizing performance with appropriate levels and forms of awards | | | •Establish financial and operational goals to sustain strong performance over time | | | •Place 100% of annual cash incentives and a majority of equity incentive awards at risk by directly linking those incentive payments and awards to the Company’s performance | | | •Provide limited executive benefits to members of senior management |

  25. Pay and Performance

    | NEO Target Total Direct Compensation | | | | | | Named Executive Officer | Base Salary | Target Annual Cash Incentive (% of Base) | Target Long-Term Equity Incentive | Target Total Direct Compensation | | Mark J. Tarr | $1,050,000 | 120% | $5,170,000 | $7,480,000 | | Douglas E. Coltharp | 700,000 | 85% | 1,925,000 | 3,220,000 | | Patrick Darby | 550,000 | 75% | 907,500 | 1,870,000 | | Elissa J. Charbonneau | 415,000 | 50% | 456,500 | 1,079,000 | | Andrew L. Price | 335,000 | 50% | 368,500 | 871,000 |

  26. Pay and Performance

    | President & Chief Executive Officer (Tarr) | | | | | | | 72.1% Performance Based | | | | | Base Pay | Annual Cash Incentive | Options | PSU | RSA | | 14.0% | 16.8% | 13.8% | 41.5% | 13.8% | | | | 69.1% Long-Term | | |

  27. Pay and Performance

    | Average for Coltharp and Darby | | | | | | | 64.3% Performance Based | | | | | Base Pay | Annual Cash Incentive | Options | PSU | RSA | | 24.6% | 19.8% | 11.1% | 33.4% | 11.1% | | | | 55.6% Long-Term | | |

  28. Pay and Performance

    | Average for Charbonneau and Price | | | | | | 44.6% Performance Based | | | | Base Pay | Annual Cash Incentive | PSU | RSA | | 38.5% | 19.2% | 25.4% | 16.9% | | | | 42.3% Long-Term | | | Note: Numbers may not sum to 100% due to rounding. | | | |

  29. Other Best Practices

    | ✓ | Annual and long-term incentive plans have capped, maximum award opportunities. | ✓ | Equity ownership guidelines for senior executives require retention of 50% of net shares at the time of exercise/vest until ownership multiple is met. | | ✓ | Annual and long-term incentive plans are designed with multiple measures of performance. | ✓ | Insider trading policy expressly prohibits hedging or pledging of our stock by executives and directors. | | ✓ | Annual incentive plan includes financial, quality of care, and workforce retention metrics in support of a sustainable business model. | ✓ | Supplemental executive benefits or perquisites are substantially limited to a nonqualified 401(k) plan, optional executive physical examinations, and a small amount of personal use of corporate aircraft by CEO. | | ✓ | Performance-based long-term incentive awards include relative Total Shareholder Return modifier. | ✓ | The Committee’s independent consultant, Pay Governance, is retained directly by the Committee and performs no other work for the Company. | | ✓ | Long-term equity awards for senior vice presidents and above provide for continued vesting post-retirement in support of longer range decision making. | ✓ | Independent sessions are scheduled at every regular meeting of our board and the Committee (no members of management are present at these independent sessions). | | ✓ | Compensation recoupment, or “claw-back,” policy applies to all officers, covers misconduct in some cases where a financial restatement has not occurred, and otherwise complies with NYSE claw-back requirements | ✓ | Change-of-control compensation arrangements include a “double trigger” requiring generally both a change in control and termination of employment to receive cash benefits and accelerated vesting of equity and do not provide tax gross-ups. |

  30. Assessment of Competitive Compensation Practices

    Assessment of Competitive Compensation Practices The Committee does not employ a strict formula in determining executive compensation. A number of factors are considered in determining executive base salaries, annual incentive opportunities, and long-term incentive awards, including:

  31. Assessment of Competitive Compensation Practices

    | ✓ | the executive’s responsibilities | ✓ | internal equity within senior management | | ✓ | the executive’s experience | ✓ | succession plans and business continuity | | ✓ | the executive’s performance | ✓ | competitive market data |

  32. Assessment of Competitive Compensation Practices

    To assess our NEOs’ target TDC, the Committee reviews competitive data from two sources: •compensation survey data noted below, and •healthcare peer group data - Pay Governance, at the direction of the Committee, assembles data for a targeted group of healthcare industry peers. The survey data provides a significant sample size, includes information for management positions below senior executives, and includes companies in healthcare and other industries from which we might recruit for executive positions.

  33. Assessment of Competitive Compensation Practices

    | Survey Sources | | | Mercer Benchmark Database | Aon Hewitt Executive | | Mercer Integrated Health Networks | Willis Towers Watson Executive |

  34. Assessment of Competitive Compensation Practices

    For decisions made in February 2023, the Committee used the previously adopted formulaic approach for developing the healthcare peer group by filtering the Russell 3000 index by Global Industry Classification Standard sub-industry codes to include only healthcare services, healthcare facilities, and managed healthcare, with revenues between 33% and 300% of Encompass Health’s and predominately operating in the continental United States.

  35. Assessment of Competitive Compensation Practices

    | 2023 Healthcare Peer Group | | | | | | | ⬧ | Acadia Healthcare | ⬧ | Chemed | ⬧ | Oak Street Health | | ⬧ | Agilon health | ⬧ | Clover Health Investments | ⬧ | Option Care Health | | ⬧ | Amedisys | ⬧ | Community Health Systems | ⬧ | Pediatrix Medical Group | | ⬧ | AMN Healthcare | ⬧ | Cross Country Healthcare | ⬧ | Quest Diagnostics | | ⬧ | Aveanna Healthcare Holdings | ⬧ | DaVita | ⬧ | R1 RCM | | ⬧ | Brookdale Senior Living | ⬧ | Ensign Group | ⬧ | Select Medical Holdings | | ⬧ | Cano Health | ⬧ | ModivCare | ⬧ | Surgery Partners | | Note: LHC Group, Magellan Health, Mednax, Premier, and Universal Health Services were removed from the prior year’s group. Agilon Health, Cross Country Healthcare, Cano Health, Clover Health Investments, Oak Street Health, Pediatrix Medical Group, and R1 RCM were added for 2023. | | | | | |

  36. Assessment of Competitive Compensation Practices

    The Committee reviews competitive data on base salary levels, annual incentives, and long-term incentives for each executive and the NEO group as a whole. In preparation for 2023 compensation decisions, the Committee reviewed total direct compensation opportunities for our NEOs. Referencing the 50th percentile of the Mercer survey data and the healthcare peer group data, as well as the assessment factors discussed above, aggregate target TDC for the NEOs was within a competitive range. It is important to note the Committee, with input from its advisor, recognizes the benchmark data changes from year to year, so the comparison against those benchmarks places emphasis on sustained compensation trends to avoid short-term anomalies. In general, the Committee views compensation 15% above or below the 50th percentile to be within a competitive range given year to year variability in the data and also considers our size relative to the companies in the healthcare peer group and implications for compensation (Encompass Health’s revenues were at the 76th percentile at the time of the Committee’s review). The Committee has considered the appropriate competitive target range to attract and retain the kind of executive talent necessary to successfully achieve our strategic objectives. The Committee’s objective is to establish target performance goals that will result in strong performance by the Company. Executives may achieve higher actual compensation for exceptional performance relative to these target performance goals and below-median levels of compensation for performance that is not as strong as expected.

  37. ELEMENTS OF EXECUTIVE COMPENSATION

    | Base Salary | + | Annual Cash Incentives | + | Long-Term Equity Incentives |

  38. Annual Incentives

    Annual Incentives Plan Objectives and Structure The 2023 Senior Management Bonus Plan, or “SMBP,” was designed to incentivize and reward our NEOs and others for annual performance as measured against predetermined corporate quantitative objectives intended to improve the Company’s performance and promote stockholder value. For 2023, the Committee retained the corporate quantitative objectives of Adjusted EBITDA1 and the Quality/Strategic Objectives Scorecard2. The Quality/Strategic Objectives Scorecard approach provides the flexibility to adjust the non-financial metrics year over year as our business and the healthcare operating environment change. The Home Health and Hospice Quality Scorecard component for Mr. Tarr was removed for 2023 due to the spin off of that business unit in 2022. Achievement of each of the Quality/Strategic Objectives Scorecard metrics is measured by the percentage of hospitals meeting or exceeding their goals. Hospital-specific goals are established for each metric based on prior performance and relative performance to other hospitals. The Committee added First Year RN Turnover as a sub-metric to the Quality/Strategic Objectives Scorecard to incentivize actions to reduce registered nurse turnover, which in turn reduces expenses and improves quality of care.

  39. Annual Incentives

    | 2023 SMBP Quantitative Objectives | | | | | | | | | Award Range | | | | | | | Not Eligible | Threshold | Target | Maximum | | Objective | | 0% | 50% | 100% | 200% | | Adjusted EBITDA | | < $823,411,000 | $823,411,000 | $890,174,000 | > $956,937,000 | | Quality/Strategic Objectives Scorecard Sub-Objective | Sub-Weight | % of Hospitals Meeting or Beating Hospital-Specific Goal | | | | | Discharge to Community | 30% | <60% | 60% | 70% | 80% | | Acute Transfer | 15% | <60% | 60% | 70% | 80% | | Discharge to Skilled Nursing Facility | 15% | <60% | 60% | 70% | 80% | | Patient Satisfaction | 25% | <60% | 60% | 70% | 80% | | First Year RN Turnover | 15% | <50% | 50% | 60% | 70% |

  40. Annual Incentives

    To reward exceptional performance, the NEOs have the opportunity to receive a maximum payout in the event actual results reach a predetermined level for each objective. Conversely, if attained results are less than threshold for a component of the corporate or regional quantitative objectives, then no payout for that component of the quantitative objectives occurs. It is important to note the following: •performance measures can be achieved independently of each other; and •as results increase above the threshold, a corresponding percentage of the target cash incentive will be awarded. In other words, levels listed are on a continuum, and straight-line interpolation is used to determine the payout multiple between two payout levels shown in the table above.

  41. Annual Incentives

    | Base SalaryX | Annual Target Cash Incentive OpportunityX | Sum of the products of (weighting %) X (performance as % of target) for each applicable metric | = | SMBP Payout |

  42. Annual Incentives

    The structure of the 2023 SMBP emphasizes company performance. The Committee, and the board of directors in the case of our President and Chief Executive Officer, has the authority to recognize significant individual achievement or underperformance by modifying a final SMBP award up or down; however, no SMBP payout may exceed 200% of target. There were no modifications to the final awards under the 2023 SMBP. 1 For purposes of the 2023 SMBP, Adjusted EBITDA on a consolidated basis is the same as the measure described in the 2023 Form 10-K, and the results for SMBP purposes may be adjusted further for certain unusual or nonrecurring unbudgeted items. The Committee has established in advance the following five categories of adjustments for these unusual or nonrecurring unbudgeted items: acquisitions and divestitures, capital structure changes, litigation expenses and settlements, material legislative changes, and public health emergencies. The Committee believes these pre-approved categories, along with the application of the same GAAP standards to the calculation of a metric during the life of the award, help the metric to more accurately reflect items within management’s control while also minimizing unintended incentives and disincentives associated with the accounting treatment for or impacts of unbudgeted, discretionary transactions. For 2023, the only adjustment for an unbudgeted item was the financial impact of a hospital lease buyout (capital structure change). Adjusted EBITDA is discussed in more detail, including reconciliations to corresponding GAAP financial measures, in Appendix A to this proxy statement. 2 The Quality/Strategic Objectives Scorecard is a compilation of quality and strategic metrics that track patient satisfaction, patient discharge status, and first year registered nurse (RN) turnover by hospital. Patient Satisfaction results are derived by NRC Health through their Customer Intelligence Platform, a standardized survey of hospital patients. Patient discharge statuses and first year RN turnover are tracked via internal systems. Establishing the Target Cash Incentive Opportunity Under the SMBP, the Committee approves a target cash incentive opportunity for each NEO, based upon a percentage of his or her base salary, “Target Cash Incentive Opportunity as a % of Salary” in the table below. This target cash incentive opportunity is established as a result of the Committee’s “Assessment of Competitive Compensation Practices” described above. The Committee also assigns relative weightings (as a percentage of total cash incentive opportunity) to the objectives as noted below.

  43. Annual Incentives

    | 2023 Senior Management Bonus Plan Weightings | | | | | Named Executive Officer | Target Cash Incentive Opportunity as a % of Salary | Consolidated Adjusted EBITDA | Quality/Strategic Objectives Scorecard | | Mark J. Tarr | 120% | 70% | 30% | | Douglas E. Coltharp | 85% | 70% | 30% | | Patrick Darby | 75% | 70% | 30% | | Elissa J. Charbonneau | 50% | 70% | 30% | | Andrew L. Price | 50% | 70% | 30% |

  44. Annual Incentives

    Assessing and Rewarding 2023 Achievement of Objectives After the close of the year, the Committee assesses performance against the quantitative objectives to determine a weighted average result, or the percentage of each NEO’s target incentive that has been achieved, for each objective. Actual 2023 Plan results for the quantitative objectives were as follows:

  45. Annual Incentives

    | 2023 Adjusted EBITDA Results | | | | | Objective | Target | Result | % of Target Metric Achievement | | Adjusted EBITDA | $890,174,000 | $970,709,0003 | 200.0% |

  46. Annual Incentives

    | 2023 Quality/Strategic Objectives Scorecard Results | | | | | Objective | % of Target Metric Achievement | Weight | Weighted Metric Achievement | | Discharge to Community | 200.0% | 30.0% | 60.00% | | Acute Transfer | 86.5% | 15.0% | 12.98% | | Discharge to Skilled Nursing Facility | 200.0% | 15.0% | 30.00% | | Patient Satisfaction | 119.0% | 25.0% | 29.75% | | First Year RN Turnover | 84.5% | 15.0% | 12.68% | | Combined | | 100% | 145.4% |

  47. Annual Incentives

    | 2023 Senior Management Bonus Plan Awards - Calculated Actual | | | | | | Named Executive Officer | Adjusted EBITDA | Quality/Strategic Objectives Scorecard | Total Payout | Result as % of Target | | Mark J. Tarr | $1,764,000 | $549,612 | $2,313,612 | 183.6% | | Douglas E. Coltharp | 833,000 | 259,539 | 1,092,539 | 183.6% | | Patrick Darby | 577,500 | 179,933 | 757,433 | 183.6% | | Elissa J. Charbonneau | 290,500 | 90,512 | 381,012 | 183.6% | | Andrew L. Price | 234,500 | 73,064 | 307,564 | 183.6% |

  48. Annual Incentives

    3 Publicly reported financial results included Adjusted EBITDA of $971.1 million for 2023.

  49. Long-Term Incentives

    Long-Term Incentives Plan Objectives and Structure To further align the interests of management and stockholders, a significant portion of each NEO’s total direct compensation is in the form of long-term equity awards. We believe such awards promote strategic and operational decisions that align the long-term interests of management and the stockholders and help retain executives. In support of our performance-driven total compensation philosophy, earned equity values are driven by stock price and financial and operational performance. For 2023, our equity incentive plan provided participants at all officer levels with the opportunity to earn performance-based restricted stock, or “PSUs,” time-based restricted stock, or “RSAs,” and, for the Chief Executive Officer and the Executive Vice Presidents, stock options. The Committee believes these awards align all levels of management with stockholders and place a significant portion of TDC at risk. RSAs are included to enhance retention incentives. The following table summarizes the 2023 target equity award opportunity levels and forms of equity compensation for each of our NEOs as approved by the Committee and board. These amounts differ from the equity award values reported in the Summary Compensation Table on page 52 due to the utilization of a 20-day average stock price to determine the number of shares granted as opposed to the grant date values used for accounting and reporting purposes.

  50. Long-Term Incentives

    | 2023 Equity Incentive Plan Structure | | | | | | Named Executive Officer | Total Target Equity Award Opportunity | Options as % of the Award | PSUs as a % of the Award | RSAs as a % of the Award | | Mark J. Tarr | $5,170,000 | 20% | 60% | 20% | | Douglas E. Coltharp | 1,925,000 | 20% | 60% | 20% | | Patrick Darby | 907,500 | 20% | 60% | 20% | | Elissa J. Charbonneau | 456,500 | —% | 60% | 40% | | Andrew L. Price | 368,500 | —% | 60% | 40% |

  51. Long-Term Incentives

    PSU Awards in 2023 The Committee determined that performance-based vesting conditions for the majority of restricted stock granted to NEOs are appropriate to further align executives with the interests of stockholders and promote specific performance objectives while facilitating executive stock ownership. Under our equity incentive plan, NEOs may be awarded PSUs, which entitle them to receive a predetermined range of restricted shares upon achievement of specified performance objectives. PSU awards do not provide for voting rights unless and until restricted shares are earned and issued after the measurement period. Dividends accrue when paid on unvested shares that are issued after completion of the applicable PSU measurement period, but the holders of such restricted shares will not receive the cash payments related to these accrued dividends until the restricted shares fully vest. For the 2023 awards, the initial number of restricted shares earned will be determined at the end of a two-year performance period based on the level of achievement of Normalized Earnings Per Share4 (“EPS”) and Return on Invested Capital5 (“ROIC”). The weighting of these metrics are outlined above. The Committee chose these metrics because the Committee believes they are directly aligned with our stockholders’ interests. The 2023 PSU awards to senior vice presidents and above (including all NEOs) have a three-year relative total shareholder return modifier applied to both the EPS and ROIC performance metrics. For this modifier, our total shareholder return (“TSR”) is ranked within a group of companies that are included in both the S&P Health Care Services Select Industry Index and the S&P 1500 Index. If our TSR is at the 75th percentile or above of the TSRs of the companies in that group, the number of shares earned from the achievement of the financial metrics will be multiplied by 1.25, not to exceed the existing 200% of target achievement cap. Conversely, if our TSR is at the 25th percentile or lower of the TSRs of the companies in that group, the number of shares earned from the achievement of the financial metrics will be multiplied by 0.75. If the Company’s TSR is at the 50th percentile, there is no change in the number of shares earned. Other TSRs falling between the 25th and 75th percentiles will result in an interpolated modifier. It is important to note: •Management provides a report to the Committee that sets out the calculations of the actual results and engages an accounting firm to produce a report on the accuracy of the calculations; •if results attained are less than the threshold, then no restricted shares are earned for that performance measure in that performance period; and •as results increase above the threshold, a corresponding percentage of target equity value will be awarded. In other words, levels are on a continuum, and straight-line interpolation is used to determine the payout multiple between two payout levels. Summary of 2022 PSU Award Results The 2022 PSU awards completed their performance period on December 31, 2023. The EPS and ROIC objectives had the following achievement levels:

  52. Long-Term Incentives

    | Objective | Target | Result6 | Target Metric Achievement | Weight | Weighted Metric Achievement | | EPS | $8.76 | $9.09 | 115.1% | 60% | 69.1 % | | ROIC | 9.51% | 9.94% | 145.3% | 40% | 58.1 % | | Combined | | | | 100% | 127.2 % |

  53. Long-Term Incentives

    Participants must remain employed until December 31, 2024, at which time the shares fully vest. 4 For purposes of 2023 PSUs, normalized EPS is calculated on a weighted-average diluted shares outstanding basis by adjusting net income from continuing operations attributable to Encompass Health for the normalization of income tax expense, fair value adjustments to the value of marketable securities, and certain unusual or nonrecurring unbudgeted items. The Committee has established in advance the following five categories for these unusual or nonrecurring unbudgeted items for Committee consideration: acquisitions and divestitures, changes in capital structure, litigation expenses and settlements, material legislative changes, and public health emergencies. The Committee believes these pre-approved categories, along with the application of the same GAAP standards to the calculation of a metric during the life of the award, help the metric to more accurately reflect items within management’s control while also minimizing unintended incentives or disincentives associated with the accounting treatment for unbudgeted, discretionary transactions. For the 2022 EPS performance period ended December 31, 2023, those unbudgeted items included the impacts of: joint venture transactions, the spin off of our home health and hospice business, debt refinancing transactions, a hospital lease buyout, CON accelerated amortization, and changes in the 2023 LTIP grants (“good leaver” and relative TSR modifier). The diluted share count for LTIP purposes includes, as is the case in our 2023 Form 10-K, the shares associated with restricted stock awards, performance share units, restricted stock units, and dilutive stock options but does not include the impact of stock repurchases, if any. The calculation of normalized earnings per share differs from that of basic and diluted earnings per share and adjusted earnings per share used in our earnings releases and publicly available financial guidance. We believe the calculation for compensation purposes for the associated performance period more accurately represents those matters within the control of management compared to that used in communications with the market. 5 For purposes of 2023 PSUs, ROIC is defined as the two-year average net operating profit after taxes (“NOPAT”) divided by the average invested capital as of December 31, 2023, 2024, and 2025. Invested capital is calculated as total assets less deferred tax assets, assets from discontinued operations, current liabilities, long-term operating lease liabilities, noncontrolling interests and redeemable noncontrolling interests plus current portion of long-term debt. NOPAT is defined as income from continuing operations attributable to Encompass Health common shareholders, excluding interest expense, fair value adjustments to the value of marketable securities, and loss on early extinguishment of debt, as adjusted for a normalized income tax expense. Both the numerator and the denominator are adjusted based on applicable items from the five categories for these unusual or nonrecurring unbudgeted items described above. For the 2022 ROIC performance period ended December 31, 2023, those unbudgeted items included the impacts of: joint venture transactions, the spin off of our home health and hospice business, a hospital lease buyout, CON accelerated amortization, and changes in the 2023 LTIP grants (“good leaver” and relative TSR modifier). 6 Publicly reported financial results do not otherwise include the normalized EPS or ROIC metrics. Time-Based Restricted Stock Awards in 2023 The Committee believes the portion of the 2023 award value denominated in RSAs provides retention incentives to our executives and facilitate stock ownership, which further links executives to our stockholders. Under our equity incentive plan, NEOs may be granted RSAs which entitle them to receive a predetermined number of restricted shares upon completion of a specified service period. The recipients of RSA awards have voting rights and rights to receive dividends. Dividends accrue when paid on outstanding shares, but the holders of RSAs will not receive the cash payments related to these accrued dividends until the restricted shares fully vest. For the 2023 RSA award, one-third of the shares awarded vest on the first anniversary of the grant date of the award, one-third of the shares vest on the second anniversary of the grant date of the award, and the final third vest on the third anniversary of the grant date of the award, subject in each case to the recipient’s continued employment on the applicable vesting date. Stock Option Awards in 2023 The Committee believes nonqualified stock options also are an appropriate means to align the interests of our most senior executives with our stockholders since they provide an incentive to grow stock price. Each stock option permits the holder, for a period of ten years, to purchase one share of our common stock at the exercise price, which is the closing market price on the date of issuance. Options generally vest ratably in equal annual increments over three years from the award date. In 2023, the number of options awarded equaled 20% of the total target equity award opportunity approved for the related officer divided by the individual option value determined using the Black-Scholes valuation model. Supplemental Equity Awards The Committee granted additional RSAs to Messrs. Coltharp and Darby to promote retention in connection with the board’s succession planning review. These awards, granted on February 23, 2023, were equal to their annual LTIP award values ($1,925,000 and $908,000, respectively), have a three-year cliff vesting schedule, and exclude the good leaver clause discussed page 57. Mr. Price received a one-time $50,250 increase to his 2023 LTIP award value to recognize his contributions to the strategic review related to the home health and hospice subsidiary and the services he continued to provide post-spin off to that entity under the transition services agreement. Equity Award Timing Our long-standing practice is to have the independent members on our board of directors approve, based on recommendations of the Committee, equity awards at the February board meeting which is the first scheduled meeting each year and allows time to review and consider our prior year’s performance. The number of shares of common stock underlying the PSU, RSA, and stock option awards is determined using the average closing price for our common stock over the 20-day trading period preceding the February board meeting at which the awards are approved. The averaging of prices mitigates the risk of unintended consequences of using a single closing price that may reflect an anomalous price swing on that day. The strike price for the stock option awards is set at the closing price on the second trading day after the filing of our Form 10-K, which is also the date of issuance. This timing for the pricing and issuance of stock options allows for the exercise price to reflect a broad dissemination of our financial results from the prior year and other material nonpublic information commonly included in the Form 10-K. Other than timing the establishment of the strike price for options to follow the release of our Form 10-K, our board of directors and the Committee do not take material nonpublic information into account in the pre-established schedule for granting awards. Of note, we customarily issue our fourth quarter earnings release well before the annual stock award grant at the February meeting of the board.

  54. Executive Compensation Program Changes for 2024

    PSU awards for 2024 have a three-year performance period (a change from the prior two-year period), in alignment with our existing relative TSR modifier, to emphasize the long-term nature of our business strategy and the equity compensation component.

  55. Compensation Recoupment Policy

    Compensation Recoupment Policy In July 2023, our board of directors amended and supplemented our existing compensation recoupment policy, which is an exhibit to our 2023 Form 10-K. The amended policy includes new provisions described below that are specifically applicable to current and former executive officers. The amended policy also delegates administration of the policy to the Compensation and Human Capital Committee. The policy still provides that if it is determined that any fraud, illegal conduct, intentional misconduct, or gross neglect by any officer was a significant contributing factor to our having to restate all or a portion of our financial statements, the Company may: •require reimbursement of any incentive compensation paid to that officer, •cause the cancellation of that officer’s restricted or deferred stock awards and outstanding stock options, and •require reimbursement of any gains realized on the exercise of stock options attributable to incentive awards, if and to the extent (i) the amount of that compensation was calculated based upon the achievement of the financial results that were subsequently reduced due to that restatement and (ii) the amount of the compensation that would have been awarded to that officer had the financial results been properly reported would have been lower than the amount actually awarded. Additionally, if an officer is found to have committed fraud or engaged in intentional misconduct in the performance of his or her duties, as determined by a final, non-appealable judgment of a court of competent jurisdiction, and the Committee determines the action caused substantial harm to the Company, the Committee may, in its sole discretion, utilize the remedies described above. The 2023 amendments require, in the event of a financial restatement, recoupment of any incentive-based compensation paid to current and former executive officers in the prior three fiscal years. The policy defines “financial restatement” to include any required accounting restatement to correct an error in previously issued financial statements that is material to those statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. The required recoupment applies to incentive compensation relating to financial report measures, such as EBITDA, EPS, ROIC and TSR, to the extent that such compensation exceeds the amount of the compensation that would have been awarded to that executive officer had the financial measures been properly reported initially. The Committee may only elect not to seek recoupment in very limited circumstances, including where there is a determination that such recovery would be impracticable and the amounts paid to a third party to assist in enforcing the policy would exceed the amount to be recovered.

  56. Severance Arrangements

    Severance Arrangements It is not our common practice to enter into individual employment agreements with our senior executives. To provide our senior executives with competitive levels of certainty as a retention tool, potential benefits are provided to our senior executives under our change of control and severance plans. The Committee determined the value of benefits were reasonable, appropriate, and competitive with our healthcare provider peer group. As a condition to receipt of any payment or benefits under either plan, participating employees must enter into a restrictive covenant agreement. The duration of the restrictive covenants would be equal to the benefit continuation periods described below for each plan. Payments made under either plan are explicitly subject to the Compensation Recoupment Policy described above. As a matter of policy, payments under either plan do not include “gross ups” for taxes payable on amounts paid. Definitions of “cause,” “retirement,” “change in control,” and “good reason” are provided on page 57. Executive Severance Plan The goal of the Executive Severance Plan is to help retain qualified, senior officers whose employment is subject to termination under circumstances beyond their control. Our NEOs are participants in the plan, which is an exhibit to our 2023 Form 10-K. Under the plan, if a participant’s employment is terminated by the participant for good reason or by Encompass Health other than for cause (as defined in the plan), then the participant is entitled to receive a cash severance payment, health benefits, and the other benefits described below. Voluntary retirement, death, and disability are not payment triggering events. The terms of the plan, including the payment triggering events, were determined by the Committee to be consistent with healthcare industry market data from the Committee’s and management’s consultants. The cash severance payment for participants is the multiple (shown in the table below) of annual base salary in effect at the time of the event plus any accrued, but unused, paid time off, and accrued, but unpaid, salary. This amount is to be paid in a lump sum within 60 days following the participant’s termination date. In addition, except in the event of termination for cause or resignation for lack of good reason, the participants and their dependents continue to be covered by all life, healthcare, medical and dental insurance plans and programs, excluding disability, for a period of time set forth in the following table.

  57. Severance Arrangements

    | Position | Severance as Multiple of Annual Base Salary | Benefit Plan Continuation Period | | Chief Executive Officer | 3x | 36 months | | Executive Vice Presidents | 2x | 24 months | | other executive officers | 1x | 12 months |

  58. Severance Arrangements

    Amounts paid under the plan are in lieu of, and not in addition to, any other severance or termination payments under any other plan or agreement with Encompass Health. As a condition to receipt of any payment under the plan, the participant must waive any entitlement to any other severance or termination payment by us, including any severance or termination payment set forth in any employment arrangement with us. Upon termination of a participant without cause, or his or her resignation for good reason, a prorated portion of any equity award subject to time-based vesting only that is unvested as of the effective date of the termination or resignation will automatically vest. If any restricted stock awards are performance-based, the Committee will determine the extent to which the performance goals for such restricted stock have been met and what awards have been earned. Change in Control Benefits Plan The goal of the Change in Control Benefits Plan is to help retain certain qualified senior officers, maintain a stable work environment, and encourage officers to act in the best interest of stockholders if presented with decisions regarding change in control transactions. Our NEOs and other officers are participants in the plan, which is an exhibit to our 2023 Form 10-K. The terms of the plan, including the definition of a change in control event, were reviewed and determined to be consistent with healthcare industry market data from the Committee’s and management’s consultants. The plan includes a “double trigger” for the vesting of equity in the event of a change in control for all future awards to executives. The plan is reviewed annually for market competitiveness but no material benefit changes have been made since 2014. Under the Change in Control Benefits Plan, participants are divided into tiers as designated by the Committee. The President and Chief Executive Officer and the current Executive Vice Presidents are Tier 1 participants; the Chief Medical Officer and Chief Accounting Officer are Tier 2 participants. Any person named as an Executive Vice President in the future will participate at the Tier 2 level. If a participant’s employment is terminated within 24 months following a change in control or during a potential change in control, either by the participant for good reason (as defined in the plan) or by Encompass Health without cause, then the participant shall receive a lump sum severance payment. Voluntary retirement is not a payment triggering event. For Tier 1 and 2 participants, the lump sum severance is 2.99 times and 2.0 times, respectively, the sum of the highest base salary in the prior three years and the average of actual annual incentives for the prior three years for the participant, plus a prorated annual incentive award for any incomplete performance period. In addition, except in the event of termination for cause or resignation for lack of good reason, the participant and the participant’s dependents continue to be covered by all life, healthcare, medical and dental insurance plans and programs, excluding disability, for a period of 36 months for Tier 1 participants and 24 months for Tier 2 participants. If a change in control occurs as defined in the plan, outstanding equity awards vest as follows:

  59. Severance Arrangements

    | Stock Options | Restricted Stock | | Outstanding options will only vest if the participant is terminated for good reason or without cause within 24 months of a change in control or if not assumed or substituted and, for Tier 1 and 2 participants, all options will remain exercisable for three and two years, respectively. | Restricted stock will only vest if the participant is terminated for good reason or without cause within 24 months of a change in control or if not assumed or substituted. | | Note: For performance-based restricted stock, the Committee will determine the extent to which the performance goals have been met and vesting of the resulting restricted stock will only accelerate as provided above. | |

  60. Severance Arrangements

    The Committee has the authority to cancel an award in exchange for a cash payment in an amount equal to the excess of the fair market value of the same number of shares of the common stock subject to the award immediately prior to the change in control over the aggregate exercise or base price (if any) of the award.

  61. Summary Compensation Table

    Summary Compensation Table The table below shows the compensation of our named executive officers for services in all capacities in 2023, 2022, and 2021. For a discussion of the various elements of compensation and the related compensation decisions and policies, including the amount of salary and bonus in proportion to total compensation and the material terms of awards reported below, see “Compensation Discussion and Analysis” beginning on page 36. The Company had no employment agreements or other compensation arrangements in effect with its NEOs in 2023.

  62. Summary Compensation Table

    | Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($) | | Mark J. Tarr | 2023 | 1,050,000 | — | 4,453,885 | 951,957 | 2,313,612 | 66,922 | 8,836,376 | | President and Chief Executive Officer | 2022 | 1,050,000 | — | 4,357,861 | 1,055,281 | 1,180,721 | 92,106 | 7,735,969 | | | 2021 | 1,050,000 | — | 4,188,878 | 1,026,087 | 1,920,240 | 66,923 | 8,252,128 | | Douglas E. Coltharp | 2023 | 700,000 | — | 3,565,288 | 354,450 | 1,092,539 | 38,093 | 5,750,370 | | Executive Vice President and Chief Financial Officer | 2022 | 700,000 | — | 1,622,714 | 392,936 | 569,773 | 48,375 | 3,333,798 | | | 2021 | 700,000 | — | 1,559,712 | 382,059 | 912,492 | 37,492 | 3,591,755 | | Patrick Darby | 2023 | 550,000 | — | 1,681,318 | 167,109 | 757,433 | 11,250 | 3,167,110 | | Executive Vice President, General Counsel and Secretary | 2022 | 550,000 | — | 764,986 | 185,248 | 395,010 | 10,250 | 1,905,494 | | | 2021 | 550,000 | — | 735,343 | 180,108 | 632,610 | 887 | 2,098,948 | | Elissa J. Charbonneau | 2023 | 415,000 | — | 483,789 | — | 381,012 | 18,411 | 1,298,212 | | Chief Medical Officer | 2022 | 415,000 | — | 481,065 | — | 198,702 | 16,763 | 1,111,530 | | | 2021 | 375,000 | — | 417,846 | — | 287,550 | 13,910 | 1,094,306 | | Andrew L. Price | 2023 | 335,000 | — | 443,806 | — | 307,564 | 14,862 | 1,101,232 | | Chief Accounting Officer | 2022 | 335,000 | — | 388,323 | — | 160,398 | 20,755 | 904,476 | | | — | — | — | — | — | — | — | — |

  63. Summary Compensation Table

    _____________________________ (1)The stock awards for each year consist of performance-based restricted stock, or “PSUs,” and time-based restricted stock, or “RSAs,” as part of the long-term incentive plan for the given year. The amounts shown in this column are the grant date fair values computed in accordance with Accounting Standards Codification Topic 718, Compensation - Stock Compensation (“ASC 718”), assuming the most probable outcome of the performance conditions as of the grant dates (i.e., target performance). All of the values in this column are consistent with the estimate of aggregate compensation expense to be recognized over the applicable vesting period, excluding any adjustment for forfeitures. The assumptions used in the valuations are discussed in Note 14, Share-Based Payments, to the consolidated financial statements in our 2023 Form 10-K. The values of the PSU awards at the varying performance levels for our current NEOs are set forth in the table below. The threshold number also assumes relative TSR modifier, explained on page 46, at the lowest level (.75x based on a TSR at or below the 75th percentile).

  64. Summary Compensation Table

    | Name | Year | Threshold Performance Value ($) | Target Performance Value ($) | Maximum Performance Value ($) | | Mark J. Tarr | 2023 | 1,286,158 | 3,429,640 | 6,859,281 | | | 2022 | 1,634,207 | 3,268,413 | 6,536,826 | | | 2021 | 1,570,830 | 3,141,659 | 6,283,318 | | Douglas E. Coltharp | 2023 | 478,912 | 1,277,052 | 2,554,105 | | | 2022 | 608,518 | 1,217,036 | 2,434,072 | | | 2021 | 584,902 | 1,169,804 | 2,339,608 | | Patrick Darby | 2023 | 225,798 | 602,037 | 1,204,074 | | | 2022 | 286,870 | 573,740 | 1,147,480 | | | 2021 | 275,754 | 551,508 | 1,103,016 | | Elissa J. Charbonneau | 2023 | 113,612 | 302,853 | 605,706 | | | 2022 | 144,306 | 288,612 | 577,224 | | | 2021 | 125,354 | 250,708 | 501,416 | | Andrew L. Price | 2023 | 104,235 | 277,848 | 555,695 | | | 2022 | 116,497 | 232,994 | 465,988 |

  65. Summary Compensation Table

    (2)The values of option awards listed in this column are the grant date fair values computed in accordance with ASC 718 as of the grant date. All of the values in this column are consistent with the estimate of aggregate compensation expense to be recognized over the three-year vesting period, excluding any adjustment for forfeitures. The assumptions used in the valuations are discussed in Note 14, Share-Based Payments, to the consolidated financial statements in our 2023 Form 10-K. (3)The amounts shown in this column are bonuses earned under our senior management bonus plan in the corresponding year but paid in the first quarter of the following year. (4)The items reported in this column for 2023 are described as set forth below.

  66. Summary Compensation Table

    | Name | Qualified 401(k) Match ($) | Nonqualified 401(k) Match ($) | | Mark J. Tarr | — | 66,922 | | Douglas E. Coltharp | 9,096 | 28,997 | | Patrick Darby | 11,250 | — | | Elissa J. Charbonneau | 9,206 | 9,205 | | Andrew L. Price | 7,431 | 7,431 |

  67. Summary Compensation Table

    For SEC purposes, the cost of personal use of the Company aircraft, if any, is calculated based on the incremental cost to us. To determine the incremental cost, we calculate the variable costs based on usage which include fuel costs on a per hour basis, plus any direct trip expenses such as on-board catering, landing/ramp fees, crew hotel and meal expenses, and other miscellaneous variable costs. Since Company-owned aircraft were only used for a primary business purpose in 2023, the calculation method excludes the costs which do not change based on incremental non-business usage, such as pilots’ salaries, aircraft leasing expenses and the cost of maintenance not related specifically to trips. Occasionally, our executives are accompanied by guests on the corporate aircraft for personal reasons when there is available space on a flight being made for business reasons. There is no incremental cost associated with that use of the aircraft when the guests do not comprise 50% or more of the passengers, except for a pro rata portion of catering expenses and our portion of employment taxes attributable to the income imputed to that executive for tax purposes.

  68. Grants of Plan-Based Awards During 2023

    Grants of Plan-Based Awards During 2023

  69. Grants of Plan-Based Awards During 2023

    | | | | | | | | | | All Other Stock Awards: Number of Shares of Stock or Unit(6) (#) | All Other Option Awards: Number of Securities Underlying Options(7) (#) | Exercise or Base Price of Option Awards ($/SH) | Grant Date Fair Value of Stock and Option Awards ($) | | | | Date of Board Approval of Grant | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | | | | | | Name | Grant Date | | Threshold(3) ($) | Target(4) ($) | Maximum(5) ($) | Threshold (#) | Target (#) | Maximum (#) | | | | | | Mark J. Tarr | | | | | | | | | | | | | | Annual Incentive | | | 630,000 | 1,260,000 | 2,520,000 | — | — | — | — | — | — | — | | PSU | 2/23/2023 | 2/23/2023 | — | — | — | 18,928 | 50,473 | 100,946 | — | — | — | 3,429,640 | | Stock options | 3/1/2023 | 2/23/2023 | — | — | — | — | — | — | — | 49,498 | 56.21 | 951,957 | | RSA | 2/23/2023 | 2/23/2023 | — | — | — | — | — | — | 16,824 | — | — | 1,024,245 | | Douglas E. Coltharp | | | | | | | | | | | | | | Annual Incentive | | | 297,500 | 595,000 | 1,190,000 | — | — | — | — | — | — | — | | PSU | 2/23/2023 | 2/23/2023 | — | — | — | 7,048 | 18,794 | 37,588 | — | — | — | 1,277,052 | | Stock options | 3/1/2023 | 2/23/2023 | — | — | — | — | — | — | — | 18,430 | 56.21 | 354,450 | | RSA | 2/23/2023 | 2/23/2023 | — | — | — | — | — | — | 37,586 | — | — | 2,288,236 | | Patrick Darby | | | | | | | | | | | | | | Annual Incentive | | | 206,250 | 412,500 | 825,000 | — | — | — | — | — | — | — | | PSU | 2/23/2023 | 2/23/2023 | — | — | — | 3,323 | 8,860 | 17,720 | — | — | — | 602,037 | | Stock options | 3/1/2023 | 2/23/2023 | — | — | — | . | — | — | — | 8,689 | 56.21 | 167,109 | | RSA | 2/23/2023 | 2/23/2023 | — | — | — | — | — | — | 17,728 | — | — | 1,079,281 | | Elissa J. Charbonneau | | | | | | | | | | | | | | Annual Incentive | | | 103,750 | 207,500 | 415,000 | — | — | — | — | — | — | — | | PSU | 2/23/2023 | 2/23/2023 | — | — | — | 1,672 | 4,457 | 8,914 | — | — | — | 302,853 | | RSA | 2/23/2023 | 2/23/2023 | — | — | — | — | — | — | 2,972 | — | — | 180,935 | | Andrew L. Price | | | | | | | | | | | | | | Annual Incentive | | | 83,750 | 167,500 | 335,000 | — | — | — | — | — | — | — | | PSU | 2/23/2023 | 2/23/2023 | — | — | — | 1,534 | 4,089 | 8,178 | — | — | — | 277,848 | | RSA | 2/23/2023 | 2/23/2023 | — | — | — | — | — | — | 2,726 | — | — | 165,959 |

  70. Grants of Plan-Based Awards During 2023

    Footnotes found on next page. (1)The possible payments described in these three columns are cash amounts provided for by our 2023 Senior Management Bonus Plan as discussed under “Annual Incentives” beginning on page 42. Final payments under the 2023 program were calculated and paid in the first quarter of 2024 and are reflected in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.” (2)Awards which are designated as “PSU” are performance share units. As described in “PSU Awards in 2023” beginning on page 45, these awards vest and shares are earned based upon the level of attainment of performance objectives for the two-year period from January 1, 2023 ending December 31, 2024 and a one-year time-vesting requirement ending December 31, 2025. Additionally, the shares earned are subject to a modifier ranging from 0.75x to 1.25x based on our relative total shareholder return over the three-year period from January 1, 2023 ending December 31, 2025, but the resulting share count cannot exceed the maximum reported here. Each of the threshold, target and maximum share numbers reported in these three columns assume the performance objectives are each achieved at that respective level. The threshold number further assumes relative TSR modifier at the lowest level. Upon a change in control, the Compensation and Human Capital Committee will determine the extent to which the performance goals for PSUs have been met and what awards have been earned or if the goals should be modified on account of the change in control. The PSUs, and resulting restricted stock, accrue ordinary dividends during the service period, to the extent paid on our common stock, but the holders will not receive the cash payments related to these accrued dividends until the restricted stock resulting from performance attainment vests. The Compensation and Human Capital Committee will determine whether the restricted stock will be entitled to any extraordinary dividends, if any are declared and paid. (3)The threshold amounts in this column assume: (i) the Company reached only threshold achievement on each of the quantitative objectives and (ii) the Compensation and Human Capital Committee, or board in the case of the CEO, exercised no discretion based on performance, resulting in payment of the minimum quantitative portion of the bonus. Then, following the procedures discussed under “Assessing and Rewarding 2023 Achievement of Objectives” on page 44, we would multiply the target amount by 50% (the threshold payout multiple) to arrive at the amount payable for threshold achievement of the quantitative objectives. (4)The target payment amounts in this column assume: (i) the Company achieved exactly 100% of each of the quantitative objectives and (ii) the Compensation and Human Capital Committee, or board in the case of the CEO, exercised no discretion based on performance. The target amount payable for each NEO is his or her base salary multiplied by the target cash incentive opportunity percentage set out in the table under “Establishing the Target Cash Incentive Opportunity” on page 44. (5)The maximum payment amounts in this column assume the Company achieved at or above the maximum achievement level of each of the quantitative objectives, at which level no discretion can be applied to increase the payment. Thus, following the procedures discussed under “Assessing and Rewarding 2023 Achievement of Objectives” on page 44, we would multiply the target amount by 200% (the maximum payout multiple) to arrive at the amount payable for maximum achievement. (6)Awards which are designated as “RSA” are time-based restricted stock awards. The number of shares of restricted stock set forth will vest in three equal annual installments beginning on the first anniversary of the grant, provided that the officer is still employed, except in the case of the supplemental grants. In February 2023, Messrs. Coltharp and Darby received supplemental grants of 31,321 and 14,774 shares, respectively, to promote retention in support of succession planning. The supplemental grants provide for three-year cliff vesting. A change in control of the Company will also cause these awards to immediately vest. This restricted stock accrues ordinary dividends to the extent paid on our common stock, but the holders will not receive the cash payments related to these accrued dividends until the restricted stock vests. The Compensation and Human Capital Committee will determine whether the restricted stock will be entitled to any extraordinary dividends, if any are declared and paid. (7)All stock option grants will vest, subject to the officer’s continued employment, in three equal annual installments beginning on the first anniversary of grant. A change in control of the Company will also cause options to immediately vest.

  71. Potential Payments upon Termination of Employment

    Potential Payments upon Termination of Employment The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and arrangements to which the named executive officers currently employed with us would be entitled upon termination of employment by us without “cause” or by the executive for “good reason” or “retirement,” as those terms are defined below. There are no payments or benefits due in the event of a termination of employment by us for cause. As previously discussed, our Change in Control Benefits Plan does not provide cash benefits unless there is an associated termination of employment. Due to the numerous factors involved in estimating these amounts, the actual value of benefits and amounts to be paid can only be determined upon termination of employment. In the event an NEO breaches or violates the restrictive covenants contained in the awards under our 2008 Equity Incentive Plan, 2016 Omnibus Performance Incentive Plan, Executive Severance Plan, or the Changes in Control Benefits Plan certain of the amounts described below may be subject to forfeiture and/or repayment. For additional discussion of the material terms and conditions, including payment triggers, see “Severance Arrangements” beginning on page 50. An executive cannot receive termination benefits under more than one of the plans or arrangements identified below. Retirement benefits are governed by the terms of the awards under our 2008 Equity Incentive and 2016 Omnibus Performance Incentive Plans. The following table assumes the listed triggering events occurred on December 31, 2023.

  72. Potential Payments upon Termination of Employment

    | Name/Triggering Event | Lump Sum Payments ($)(1) | Continuation of Insurance Benefits ($) | Accelerated Vesting of Equity Awards ($)(2) | Total Termination Benefits ($) | | Mark J. Tarr | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 3,150,000 | 57,036 | 9,495,087 | 12,702,123 | | Disability or Death | — | — | 14,214,849 | 14,214,849 | | Change in Control Benefits Plan | 9,673,956 | 57,036 | 14,811,452 | 24,542,444 | | Douglas E. Coltharp | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 1,400,000 | 31,736 | 4,116,236 | 5,547,972 | | Disability or Death | — | — | 7,383,014 | 7,383,014 | | Change in Control Benefits Plan | 5,196,578 | 47,604 | 7,605,161 | 12,849,343 | | Patrick Darby | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 1,100,000 | 31,038 | 1,940,850 | 3,071,888 | | Disability or Death | — | — | 3,481,340 | 3,481,340 | | Change in Control Benefits Plan | 3,796,140 | 46,557 | 3,586,066 | 7,428,763 | | Elissa J. Charbonneau | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 415,000 | 150 | 857,771 | 1,272,921 | | Disability or Death | — | — | 1,377,501 | 1,377,501 | | Change in Control Benefits Plan | 1,647,680 | 299 | 1,377,501 | 3,025,480 | | Andrew L. Price | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 335,000 | 9,560 | 742,223 | 1,086,783 | | Disability or Death | — | — | 1,199,626 | 1,199,626 | | Change in Control Benefits Plan | 1,356,248 | 19,120 | 1,199,626 | 2,574,994 |

  73. Potential Payments upon Termination of Employment

    _____________________________ (1)The Company automatically reduces payments under the Change in Control Benefits Plan to the extent necessary to prevent such payments being subject to “golden parachute” excise tax under Section 280G and Section 4999 of the Internal Revenue Code, but only to the extent the after-tax benefit of the reduced payments exceeds the after-tax benefit if such reduction were not made (“best payment method”). The lump sum payments shown may be subject to reduction under this best payment method. (2)The amounts reported in this column reflect outstanding equity awards, the grant date values of which along with accrued dividends and dividend equivalents have been reported as compensation in 2023 or prior years. The value of the accelerated vesting of equity awards listed in this column has been determined based on the $66.72 closing price of our common stock on the last trading day of 2023. The Committee may, in its discretion, provide that upon a change in control: (x) equity awards be canceled in exchange for a payment in an amount equal to the fair market value of our stock immediately prior to the change in control over the exercise or base price (if any) per share of the award, and (y) each award be canceled without payment therefore if the fair market value of our stock is less than the exercise or purchase price (if any) of the award. At that time, the amounts shown in the preceding table do not include payments and benefits to the extent they are provided on a nondiscriminatory basis to salaried employees generally upon termination of employment. The “Lump Sum Payments” column in the above table includes the estimated payments provided for under the plans described under “Severance Arrangements” beginning on page 50. Additionally, the Executive Severance Plan and the Change in Control Benefits Plan provide that as a condition to receipt of any payment or benefits all participants must enter into a restrictive covenant and release agreement. As of December 31, 2023, Messrs. Tarr and Coltharp are the only named executive officers eligible for retirement as defined below. The table below provides the potential equity value accelerated upon retirement for Messrs. Tarr and Coltharp and each other NEO had he or she been retirement eligible on December 31, 2023. Equity awards granted to SVPs and above beginning in 2023 provide for “good leaver” treatment upon retirement.

  74. Potential Payments upon Termination of Employment

    | Named Executive Officer | Accelerated Vesting of Equity Awards Due to Retirement (Assuming Retirement Eligible)($) | | Mark J. Tarr | 12,926,536 | | Douglas E. Coltharp | 6,903,232 | | Patrick Darby | 2,543,240 | | Elissa J. Charbonneau | 1,199,229 | | Andrew L. Price | 1,055,459 |

  75. Definitions

    Definitions “Cause” means, in general terms: (i)evidence of fraud or similar offenses affecting the Company; (ii)indictment for, conviction of, or plea of guilty or no contest to, any felony; (iii)suspension or debarment from participation in any federal or state health care program; (iv)an admission of liability, or finding, of a violation of any securities laws, excluding any that are noncriminal; (v)a formal indication that the person is a target or the subject of any investigation or proceeding for a violation of any securities laws in connection with his employment by the Company, excluding any that are noncriminal; and (vi)breach of any material provision of any employment agreement or other duties. “Change in Control” means, in general terms: (i)the acquisition of 30% or more of either the then-outstanding shares of common stock or the combined voting power of the Company’s then-outstanding voting securities; or (ii)the individuals who currently constitute the board of directors, or the “Incumbent Board,” cease for any reason to constitute at least a majority of the board (any person becoming a director in the future whose election, or nomination for election, was approved by a vote of at least a majority of the directors then constituting the Incumbent Board shall be considered as though such person were a member of the Incumbent Board); or (iii)a consummation of a reorganization, merger, consolidation or share exchange, where persons who were the stockholders of the Company immediately prior to such reorganization, merger, consolidation or share exchange do not own at least 50% of the combined voting power; or (iv)a liquidation or dissolution of the Company or the sale of all or substantially all of its assets. “Good leaver” means retirement eligible executives who provide at least six-months notice of retirement will receive the entirety of any unvested awards, rather than the pro rata vesting otherwise provided, in accordance with the original vesting schedule. Once notice is provided, no new awards may be made and this preferred treatment will not apply to awards made within three months of the notice. “Good Reason” means, in general terms: (i)an assignment of a position that is of a lesser rank and that results in a material adverse change in reporting position, duties or responsibilities or title or elected or appointed offices as in effect immediately prior to the change, or in the case of a Change in Control ceasing to be an executive officer of a company with registered securities; (ii)a material reduction in compensation from that in effect immediately prior to the Change in Control; or (iii)any change in benefit level under a benefit plan if such change in status occurs during the period beginning 6 months prior to a Change in Control and ending 24 months after it; or (iv)any change of more than 50 miles in the location of the principal place of employment. “Retirement” means the voluntary termination of employment after attaining (a) age 65 or (b) in the event that person has been employed for 10 or more years on the date of termination, age 60.

  76. Outstanding Equity Awards at December 31, 2023(1)

    Outstanding Equity Awards at December 31, 2023(1)

  77. Outstanding Equity Awards at December 31, 2023(1)

    | | Option Awards(2) | | | | Stock Awards | | | | | | Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date(3) | Number of Shares or Units of Stock That Have Not Vested (#)(4) | Market Value of Shares or Units of Stock That Have Not Vested ($)(5) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(6) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(7) | | | Exercisable | Unexercisable | | | | | | | | Mark J. Tarr | | | | | | | | | | | 19,460 | — | 35.83 | 3/3/2025 | 61,503 | 4,103,480 | 74,711 | 4,984,718 | | | 25,516 | — | 29.06 | 2/26/2026 | 5,086 | 339,338 | 100,946 | 6,735,117 | | | 56,306 | — | 35.06 | 2/24/2027 | 13,055 | 871,030 | — | — | | | 62,078 | — | 44.67 | 3/1/2028 | 16,824 | 1,122,497 | — | — | | | 69,335 | — | 52.96 | 3/1/2029 | — | — | — | — | | | 66,670 | — | 63.56 | 3/2/2030 | — | — | — | — | | | 42,882 | 21,440 | 66.76 | 3/2/2031 | — | — | — | — | | | 24,503 | 49,007 | 55.13 | 3/1/2032 | — | — | — | — | | | — | 49,498 | 56.21 | 3/1/2033 | — | — | — | — | | Douglas E. Coltharp | | | | | | | | | | | 12,260 | — | 35.83 | 3/3/2025 | 22,902 | 1,528,021 | 27,820 | 1,856,150 | | | 16,075 | — | 29.06 | 2/26/2026 | 1,894 | 126,368 | 37,588 | 2,507,871 | | | 55,194 | — | 32.94 | 10/28/2026 | 4,863 | 324,459 | — | — | | | 29,196 | — | 35.06 | 2/24/2027 | 6,265 | 418,001 | — | — | | | 24,831 | — | 44.67 | 3/1/2028 | 31,321 | 2,089,737 | — | — | | | 21,101 | — | 52.96 | 3/1/2029 | — | — | — | — | | | 24,825 | — | 63.56 | 3/2/2030 | — | — | — | — | | | 15,966 | 7,983 | 66.76 | 3/2/2031 | — | — | — | — | | | 9,122 | 18,249 | 55.13 | 3/1/2032 | — | — | — | — | | | | 18,430 | 56.21 | 3/1/2033 | — | — | — | — | | Patrick Darby | | | | | | | | | | | 14,543 | — | 29.06 | 2/26/2026 | 10,799 | 720,509 | 13,116 | 875,100 | | | 14,858 | — | 35.06 | 2/24/2027 | 893 | 59,581 | 17,720 | 1,182,278 | | | 12,636 | — | 44.67 | 3/1/2028 | 2,293 | 152,989 | — | — | | | 12,435 | — | 52.96 | 3/1/2029 | 2,954 | 197,091 | — | — | | | 11,702 | — | 63.56 | 3/2/2030 | 14,774 | 985,721 | — | — | | | 7,526 | 3,763 | 66.76 | 3/2/2031 | — | — | — | — | | | 4,300 | 8,602 | 55.13 | 3/1/2032 | — | — | — | — | | | — | 8,689 | 56.21 | 3/1/2033 | — | — | — | — | | Elissa J. Charbonneau | | | | | | | | | | | — | — | — | | 4,909 | 327,528 | 6,601 | 440,419 | | | — | — | — | | 812 | 54,177 | 8,914 | 594,742 | | | — | — | — | | 2,307 | 153,923 | — | — | | | — | — | — | | 2,972 | 198,292 | — | — | | Andrew L. Price | | | | | | | | | | | — | — | — | | 4,388 | 292,767 | 5,329 | 355,551 | | | — | — | — | | 726 | 48,439 | 8,178 | 545,636 | | | — | — | — | | 1,862 | 124,233 | — | — | | | — | — | — | | 2,726 | 181,879 | — | — |

  78. Outstanding Equity Awards at December 31, 2023(1)

    (1)For awards granted prior to July 1, 2022, all share amounts and exercise prices have been adjusted to reflect the spin off of our home health and hospice business on that date. (2)All options shown above vest in three equal annual installments beginning on the first anniversary of the grant date, except for those options granted to Mr. Coltharp on October 28, 2016 as a special retention grant. The special grant vested in its entirety on the third anniversary of the grant date. (3)The expiration date of each option occurs 10 years after the grant date of each option. (4)The first amount shown in this column is restricted stock awards resulting from the attainment of the related PSU awards’ performance objectives during the 2021-2022 performance period, and the second, third, and fourth amounts represent the annual grants of time-based restricted stock in February 2021, 2022, and 2023, respectively, each of which vest in three equal annual installments beginning on the first anniversary of the grant date. The fifth amounts for Messrs. Coltharp and Darby represent supplemental retention grants in February 2023 that fully vest on the third anniversary of the grant date. (5)The market value reported was calculated by multiplying the closing price of our common stock on the last trading day of 2023, $66.72, by the number of shares set forth in the preceding column. (6)The PSU awards shown in this column are contingent upon the level of attainment of performance goals for the two-year period from January 1 of the year in which the grant is made. The determination of whether and to what extent the PSU awards are achieved will be made following the close of the two-year period. The first amount for each officer in this column represents the actual number of shares earned over the 2022-2023 performance period as officially determined by the board of directors in February 2024, which shares shall be restricted through December 31, 2024. The second amount for each officer in this column represents the number of shares to be earned assuming achievement of maximum performance during the 2023-2024 performance period on the normalized earnings per share and return on invested capital objectives. The actual number of restricted shares earned at the end of that performance period may be lower. (7)The market value reported was calculated by multiplying the closing price of our common stock on the last trading day of 2023, $66.72, by the number of shares set forth in the preceding column.

  79. Options Exercised and Stock Vested in 2023

    Options Exercised and Stock Vested in 2023 The following table sets forth information concerning the exercise of options and the vesting of shares for our named executive officers in 2023.

  80. Options Exercised and Stock Vested in 2023

    | | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting | Value Realized on Vesting ($) | | Mark J. Tarr | 25,330 | 1,127,433 | 54,561 | 3,282,493 | | Douglas E. Coltharp | 34,518 | 1,340,948 | 20,318 | 1,222,367 | | Patrick Darby | * | * | 9,581 | 576,410 | | Elissa J. Charbonneau | * | * | 5,774 | 348,454 | | Andrew L. Price | * | * | 5,059 | 305,317 | | * No stock option exercises in 2023. | | | | |

  81. Nonqualified Deferred Compensation Plan

    Nonqualified Deferred Compensation Plan We adopted a nonqualified deferred compensation plan, the Encompass Health Corporation Nonqualified Retirement Plan, or the “NQ Plan,” in order to allow deferrals above what is limited by the IRS. Our named executive officers were eligible in 2023 to participate in the NQ Plan, the provisions of which follow the 401(k) Plan. Participants may request, on a daily basis, to have amounts credited to their NQ Plan accounts track the rate of return based on one or more benchmark mutual funds, which are substantially the same funds as those offered under our 401(k) Plan. Our eligible employees may elect to defer from 1% to 100% of compensation (W-2 compensation excluding certain reimbursements, stock awards, and perquisites) to the NQ Plan. We will make an employer matching contribution to the NQ Plan equal to 50% of the participant’s deferral contributions, up to 6% of such participant’s total compensation, less any employer matching contributions made on the participant’s behalf to the 401(k) Plan. In addition, we may elect to make a discretionary contribution to the NQ Plan with respect to any participant. We did not elect to make any discretionary contributions to the NQ Plan for 2023. All deferral contributions made to the NQ Plan are fully vested when made and are credited to a separate bookkeeping account on behalf of each participant. Employer matching contributions vest once the participant has completed three years of service. Deferral contributions will generally be distributed, as directed by the participant, upon either a termination of service or the occurrence of a specified date. Matching and discretionary contributions are distributed upon termination of service. Distributions may also be elected by a participant in the event of an unforeseen emergency in which case participation in the NQ Plan will be suspended. Distributions will be made in cash in the form of a lump sum payment or annual installments over a two to fifteen year period, as elected by the participant. Any amounts that are payable from the NQ Plan upon a termination of employment are subject to the six month delay applicable to specified employees under section 409A of the Code. The following table sets forth information as of December 31, 2023 with respect to the NQ Plan.

  82. Nonqualified Deferred Compensation Plan

    | Name | Executive Contributions in Last Fiscal Year ($)(1) | Registrant Contributions in Last Fiscal Year ($)(2) | Aggregate Earnings/(Losses) in Last Fiscal Year ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year-End ($)(4) | | Mark J. Tarr | 223,072 | 66,922 | 591,501(5) | — | 5,432,703 | | Douglas E. Coltharp | 190,466 | 28,997 | 320,531(6) | — | 3,047,645 | | Patrick Darby | — | — | — | — | — | | Elissa J. Charbonneau | 61,370 | 9,205 | 39,452(7) | — | 266,994 | | Andrew L. Price | 100,299 | 7,431 | 150,571(8) | — | 1,355,990 |

  83. Nonqualified Deferred Compensation Plan

    (1)All amounts in this column are included in the 2023 amounts represented as “Salary” and “Non-Equity Incentive Plan Compensation,” except $118,072 for Mr. Tarr, $85,466 for Mr. Coltharp, $19,870 for Ms. Charbonneau, and $80,199 for Mr. Price included in the 2022 amounts, in the Summary Compensation Table. (2)All amounts in this column are included in the 2023 amounts represented as “All Other Compensation” except $35,422 for Mr. Tarr, $11,228 for Mr. Coltharp, $2,981 for Ms. Charbonneau, and $2,406 for Mr. Price included in the 2022 amounts, in the Summary Compensation Table. (3)No amounts in this column are included or are required to be included in the Summary Compensation Table. (4)Other than the amounts reported in this table for 2023, the balances in this column were previously reported as “Salary,” “Non-Equity Incentive Plan Compensation” and “All Other Compensation” in our Summary Compensation Tables in previous years, except for the following amounts which represent the aggregate earnings, all of which are non-preferential and not required to be reported in the Summary Compensation Table: $1,412,013 for Mr. Tarr, $691,883 for Mr. Coltharp, $47,902 for Ms. Charbonneau, $518,323 for Mr. Price. (5)Represents earnings and (losses) from amounts invested in the following mutual funds: Vanguard Midcap Index Instl, Mainstay Winslow Lgcap Grth R1, Vanguard Wellington Admiral Shares, Vanguard Total Bond Market Index Inst, Vanguard Sm Cap Index Instl, Vanguard Equity Income Admiral, Vanguard Fed Money Market Fund, EuroPacific Growth R6, Vanguard Instl Index Instl PL, Vanguard Tot Intl Stk Idx Adm, and Dodge & Cox Income X. (6)Represents earnings and (losses) from amounts invested in the following mutual funds: Vanguard Wellington Admiral Shares, Vanguard Total Bond Market Index Inst, Vanguard Infl Protected Secs In, Vanguard Equity Income Admiral, Vanguard Fed Money Market Fund, Vanguard Mid Cap Growth Index Adm, Vanguard Instl Index Instl PL, and Dodge & Cox Income X. (7)Represents earnings and (losses) from amounts invested in the following mutual funds: Mainstay Winslow Large Cap Growth R1, Vanguard Wellington Admiral Shares, Vanguard Sm Cap Index Inst, Vanguard Equity Income Admiral, Vanguard Mid Cap Growth Index Adm, EuroPacific Growth R6, and Vanguard Instl Index Instl PL. (8)Represents earnings and (losses) from amounts invested in the following mutual funds: Vanguard Mid Cap Index Instl, Mainstay Winslow Large Cap Grth R1, Vanguard Wellington Admiral Shares, Vanguard Total Bond Market Index Inst, Vanguard Infl Protected Secs In, Vanguard Small Cap Index Instl, Vanguard Equity Income Admiral, Vanguard Fed Money Market Fund, Vanguard Mid Cap Growth Index Adm, EuroPacific Growth R6, Amcent Emerging Markets R6, Vanguard Instl Index Instl PL, Dodge & Cox Income X, and Vanguard Emrg Mkt Stk Idx Inst.

  84. CEO Pay Ratio

    CEO Pay Ratio Mr. Tarr’s 2023 Summary Compensation Table (“SCT”) Total Compensation was $8,836,376. We used the 2023 Form W-2 Box 1 “Wages, Tips and Other Compensation” for employees to determine our median employee as of December 31, 2023. We annualized pay amounts for those who started employment with us during 2023. Our median employee’s 2023 SCT Total Compensation was $41,969. The ratio of CEO pay to median worker pay is 211:1. The composition of our workforce greatly impacts this ratio. Approximately 38% of our workforce consists of employees working less than full-time, which is a common employment arrangement in the healthcare services sector. Flexible staffing arrangements that fit employees’ needs allow us to attract and retain well-qualified employees.

  85. Pay vs. Performance

    Pay vs. Performance This section is the Pay versus Performance disclosure required by the Securities and Exchange Commission. The tabular disclosure below includes the SEC-defined “Compensation Actually Paid,” or CAP, for our principal executive officer and the average CAP for our other NEOs for each of the most recent three fiscal years. Because of changes in the value of unvested equity awards, the CAP does not represent amounts actually paid to or earned or recognized by those individuals. The disclosure also presents information regarding shareholder return and financial performance metrics. Amounts referencing the Summary Compensation Table, or SCT, can be found on page 52.

  86. Pay vs. Performance Table

    Pay vs. Performance Table

  87. Pay vs. Performance Table

    | Year | SCT Total for PEO(1) | CAP for PEO(2) | Average SCT Total for Non-PEO NEOs(1) | Average CAP for Non-PEO NEOs(2) | Value of Initial Fixed $100 Investment Based on: | | Net Income(5) | Adjusted EBITDA(6) | | | | | | | Total Shareholder Return(3) | Peer Group Total Shareholder Return(4) | | | | | | | | | | | (in millions) | | | 2023 | 8,836,376 | 14,065,892 | 2,829,231 | 3,823,684 | 128.23 | 124.34 | 463.0 | 971.1 | | 2022 | 7,735,969 | 9,873,499 | 1,926,245 | 1,363,196 | 113.86 | 118.22 | 365.9 | 819.3 | | 2021 | 8,252,128 | 6,225,882 | 2,318,768 | 1,350,557 | 97.26 | 147.19 | 517.2 | 816.4 | | 2020 | 6,925,127 | 8,446,945 | 2,268,718 | 2,697,053 | 121.42 | 133.81 | 368.8 | 697.1 |

  88. Pay vs. Performance Table

    _____________________________ (1) Mr. Tarr, President and Chief Executive Officer, is the principal executive officer, or PEO, for each year represented. The other named executive officers represented in the Non-PEO average amounts above are: •2023: Messrs. Coltharp, Darby, and Price, and Ms. Charbonneau •2022: Messrs. Coltharp, Darby, and Price, and Mses. Jacobsmeyer and Charbonneau •2021: Messrs. Coltharp and Darby, and Mses. Jacobsmeyer, Charbonneau, and Anthony •2020: Messrs. Coltharp and Darby, and Mses. Jacobsmeyer and Anthony Ms. Jacobsmeyer ceased serving as an officer of the company upon the spin off of its home health and hospice business on July 1, 2022, and all of her unvested equity awards were cancelled at that time in return for equity awards in the newly public company. Ms. Anthony resigned effective June 18, 2021, and all of her unvested equity awards were cancelled at that time. (2) To calculate CAP, the following amounts were deducted from and added to the SCT total compensation:

  89. Pay vs. Performance Table

    | Reconciliation of Summary Compensation Table (“SCT”) Total to Compensation Actually Paid (“CAP”) | | | | | | | | | | | | | 2023 | | 2022 | | 2021 | | 2020 | | | | | PEO | Average Non-PEO NEOs | PEO | Average Non-PEO NEOs | PEO | Average Non-PEO NEOs | PEO | Average Non-PEO NEOs | | | SCT Total Compensation | 8,836,376 | 2,829,231 | 7,735,969 | 1,926,245 | 8,252,128 | 2,318,768 | 6,925,127 | 2,268,718 | | Deductions | Grant Date Fair Value of Stock Awards Reported in SCT | (4,453,885) | (1,543,550) | (4,357,861) | (967,531) | (4,188,878) | (950,358) | (3,893,034) | (1,007,046) | | | Grant Date Fair Value of Option Awards Reported in SCT | (951,957) | (130,390) | (1,055,281) | (192,180) | (1,026,087) | (212,314) | (857,191) | (221,715) | | Additions | Year-end Fair Value for Awards Granted during Year | 8,375,441 | 2,263,913 | 6,212,964 | 864,201 | 5,162,931 | 971,657 | 5,056,742 | 1,308,042 | | | Increase (Decrease) in Fair Value during Year for Prior Year Unvested Awards | 2,331,154 | 406,946 | 695,380 | (364,445) | (2,065,946) | (784,965) | 681,373 | 220,905 | | | Increase (Decrease) in Fair Value from Year-end to Vesting/Cancellation during Year | (199,895) | (25,915) | 514,852 | 84,648 | (111,958) | (25,964) | 351,589 | 81,947 | | | Dividends Paid on Awards Vesting during Year | 128,658 | 23,449 | 127,476 | 12,258 | 203,692 | 33,733 | 182,339 | 46,202 | | | CAP | 14,065,892 | 3,823,684 | 9,873,499 | 1,363,196 | 6,225,882 | 1,350,557 | 8,446,945 | 2,697,053 |

  90. Pay vs. Performance Table

    (3) Cumulative Total Shareholder Return (“TSR”) represents stock price appreciation plus dividends paid (assuming reinvestment) during the measurement period beginning as of market close December 31, 2019 through December 31 of the year noted. The TSR amounts in the table reflect the appreciation on the assumed investment of $100 on December 31, 2019 and the reinvestment of any dividends paid. The TSR reflects the effect of the spin off of our home health and hospice business on July 1, 2022, which was structured as a pro rata distribution of one share of newco common stock for every two shares of Encompass Health common stock. The TSR calculation assumes the reinvestment on July 1, 2022 of the value of the newco stock distributed, which for each share of Encompass Health stock was assumed to be the cash equivalent of half of the opening trading price of newco stock on that date. (4) The peer group represented here is the S&P Health Care Services Selected Industry Index which is the peer group represented in Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, of our Annual Report on Form 10-K. The cumulative TSR for the peer group reflects weighting of each constituent company’s TSR by its stock market capitalization. (5) The Net Income amounts reported here are the net and comprehensive income amounts reflected in the Company’s audited consolidated financial statements for the applicable years, which amounts include income/loss from discontinued operations and income attributable to noncontrolling interests. Accordingly, the decline in Net Income from 2021 to 2022 reflects the spin off of our home health and hospice business completed on July 1, 2022. (6) Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States of America (“GAAP”). A reconciliation of Adjusted EBITDA to net cash provided by operating activities, which is the most comparable GAAP financial measure, is shown in Appendix A to this proxy statement. Adjusted EBITDA shown above does not include income/loss from discontinued operations and income attributable to noncontrolling interests. Adjusted EBITDA, as used as a metric in our annual cash incentive plan, is further adjusted for certain unusual or nonrecurring unbudgeted items as described on page 43.

  91. Narrative Disclosure to the Pay vs. Performance Table

    Narrative Disclosure to the Pay vs. Performance Table The three items listed below represent the most important financial measures used to link executive compensation to company performance for 2023. Each item is a separate metric within one of our incentive compensation plans, as further described on pages 43-46.

  92. Narrative Disclosure to the Pay vs. Performance Table

    | Most Important Performance Measures | | Adjusted EBITDA | | Normalized Earnings Per Share (“EPS”) | | Return on Invested Capital (“ROIC”) |

  93. Narrative Disclosure to the Pay vs. Performance Table

    The following graphs provide visual representations of the relationship between both the CAP of our PEO and the average CAP of our non-PEO NEOs and our (i) TSR, (ii) net income and (iii) company-selected metric, Adjusted EBITDA, as well as depicting the relationship between our own TSR and a peer group TSR. The graph below illustrates the positive correlation between CAP and the TSR of our common stock. The TSR amounts in the graph assume the investment of $100 on December 31, 2019 and the reinvestment of any dividends paid. This positive correlation is to be expected due to the fact that equity awards constitute a significant percentage of our NEOs’ total overall compensation packages. This relationship can be seen for both our CEO and our other NEOs as a group. The chart below compares the TSR for our common stock to the TSR of the S&P Health Care Services Selected Industry Index. The TSR amounts in the graph assume the investment of $100 on December 31, 2019 and the reinvestment of any dividends paid. Our four-year TSR is similar to, but slightly higher than, that of the index, but the two TSR performances do not exhibit a positive correlation each year in the period. The graph below compares “Compensation Actually Paid” to our Net Income. The CAP for our NEOs does not appear to correlate to our net income. Net income is not a metric included, or otherwise a consideration, in our executive compensation program. Net income includes income from discontinued operations and income attributable to noncontrolling interests. Accordingly, the decline in Net Income from 2021 to 2022 reflects the spin off of our home health and hospice business completed on July 1, 2022. The graph below compares CAP to our Adjusted EBITDA. Adjusted EBITDA is our company selected measure as required to be identified by the SEC. Adjusted EBITDA is the most heavily weighted metric in our annual incentive plan, the Senior Management Bonus Plan. In addition, we believe our investors use Adjusted EBITDA as a key measure to evaluate our company, which in turn drives our stock price. We believe the impacts of, and challenges related to, the COVID-19 pandemic during the period represented make it difficult to draw conclusions from the comparison for the short period of time reflected.