DEF 14A of Encompass Health Corp
Filed Apr 1, 2025 · FY20240000785161-25-000013
Proposal 1 – Election of Directors
Proposal 1 – Election of Directors
Director Nominees
Director Nominees The board of directors of Encompass Health consists of 10 members. Based on the recommendation of the Nominating/Corporate Governance Committee, our board proposes that each of the nominees listed below be elected as directors at this annual meeting and serve until our 2026 annual meeting of stockholders. Mr. Carmichael is the independent chairman of the board. 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.
Director Nominees
| Name of Nominee | Age | Current Roles | Date Became Director | | Greg D. Carmichael* | 63 | Chairman of the board; member of Compensation and Human Capital Committee and Nominating/Corporate Governance Committee | 1/1/2020 | | Edward M. Christie III* | 54 | Member of Audit Committee | 11/27/2023 | | Joan E. Herman* | 71 | Member of Compensation and Human Capital Committee and Compliance and Quality of Care Committee | 1/25/2013 | | Leslye G. Katz* | 70 | Member of Audit Committee and Nominating/Corporate Governance Committee (Chair) | 1/25/2013 | | Patricia A. Maryland* | 71 | Member of Compensation and Human Capital Committee (Chair) and Compliance and Quality of Care Committee | 1/1/2020 | | Kevin J. O’Connor* | 57 | Member of Compliance and Quality of Care Committee and Nominating/Corporate Governance Committee | 3/30/2022 | | Christopher R. Reidy* | 68 | Member of Audit Committee (Chair) and Nominating/Corporate Governance Committee | 10/1/2021 | | Nancy M. Schlichting* | 70 | Member of Compensation and Human Capital Committee and Compliance and Quality of Care Committee (Chair) | 12/11/2017 | | Mark J. Tarr | 63 | President and Chief Executive Officer | 12/29/2016 | | Terrance Williams* | 56 | Member of Audit Committee | 1/1/2020 | | * Denotes independent director. | | | |
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 experiences, skills, and qualifications of the nominees. Each nominee’s individual experiences and qualifications are described in more detail in the biographies below.
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 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. |
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. On November 18, 2024, Spirit filed a voluntary petition under Chapter 11 of the federal bankruptcy code in the Southern District of New York. 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. He qualifies as an “audit committee financial expert” within the meaning of SEC regulations. |
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 boards of two Fifth Avenue Private Equity funds. 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. |
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. She qualifies as an “audit committee financial expert” within the meaning of SEC regulations. |
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. |
Director Nominees
| | Kevin J. O’Connor Mr. O’Connor is the Senior Vice President, General Counsel and Corporate Secretary of Lockheed Martin Corporation, a leading global defense technology company. From 2020 through 2024, Mr. O’Connor served as senior vice president and chief legal officer of Carrier Corporation. 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. |
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 of 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. Additionally, he has completed the National Association of Corporate Directors’ Cyber-Risk Oversight Program and holds a CERT Certificate in Cybersecurity Oversight. |
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 leadership performance 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. |
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. |
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. |
Director Nominees
The board of directors unanimously recommends that you vote “FOR” the election of all 10 director nominees.
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 2025 annual meeting. Pursuant to our Bylaws, stockholder nominations for our 2026 annual meeting of stockholders must be received at our principal executive offices on or after January 1, 2026 and not later than January 31, 2026. 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.
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 45. 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 2024, based on market pay trends, the comparison to the peer group compensation elements (taking into account the Company’s relative size at the 78th percentile for total revenues), and the length of time since the base director compensation changed, the board increased the annual cash retainer by $10,000 and the annual equity grant by $15,000. Based on the comparisons to the peer group chair fees and the increased time commitment associated with the roles, the board also increased the non-executive chairman fee and the chairperson fee for the Compliance and Quality of Care Committee by $25,000 and $5,000, respectively. 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 $600,000. In 2024, we provided the following annual compensation to directors who are not employees:
Compensation of Directors
| Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | | Greg D. Carmichael | 213,077 | 165,005 | 7,597 | 385,679 | | John W. Chidsey* | 33,516 | — | 28,295 | 61,811 | | Edward M. Christie III | 106,648 | 165,005 | 1,254 | 272,907 | | Donald L. Correll* | 75,412 | — | 29,507 | 104,919 | | Joan E. Herman | 111,676 | 165,005 | 27,196 | 303,877 | | Leslye G. Katz | 126,648 | 165,005 | 27,196 | 318,849 | | Patricia A. Maryland | 119,945 | 165,005 | 7,597 | 292,547 | | Kevin J. O’Connor | 106,648 | 165,005 | 3,984 | 275,637 | | Christopher R. Reidy | 136,648 | 165,005 | 4,753 | 306,406 | | Nancy M. Schlichting | 119,945 | 165,005 | 11,542 | 296,492 | | Terrance Williams | 111,676 | 165,005 | 7,597 | 284,278 |
Compensation of Directors
_____________________________ * Retired as of the 2024 annual meeting of stockholders. (1)The amounts reflected in this column are the retainer and chairperson fees earned for service as a director for 2024, 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 $165,005 (1,978 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, 2024, each director held the following aggregate RSU awards: Mr. Carmichael - 13,268, Mr. Christie - 2,992, Ms. Herman - 45,022, Ms. Katz - 45,022, Ms. Maryland - 13,268, Mr. O’Connor - 7,415, Mr. Reidy - 8,660, Ms. Schlichting - 19,569, and Mr. Williams - 13,268. 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 2024 as required by the terms of the original grants. Effective as of May 2024, our non-employee directors receive an annual base cash retainer of $110,000 paid quarterly. Also effective as of May 2024, we pay the following chairperson fees to compensate for the enhanced responsibilities and time commitments associated with those positions:
Compensation of Directors
| Chair Position | Fees Earned or Paid in Cash ($) | | Chairman of the Board | 150,000 | | Audit Committee | 30,000 | | Compensation and Human Capital Committee | 20,000 | | Compliance and Quality of Care Committee | 20,000 | | Nominating/Corporate Governance Committee | 20,000 |
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. As of December 31, 2024, Messrs. Christie and Reidy held 1,419 and 3,581 shares, respectively, under the plan. In addition, each non-employee member of the board of directors received a grant of restricted stock units valued at approximately $165,000 in 2024. 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 $550,000 within five years of appointment or election to the board. As of February 13, 2025, 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.
Overview of Executive Compensation Actions in 2024
| 2024 Executive Compensation Actions Summary | | | | Compensation Component | Actions Related to Plans from Prior Years | Actions Related to 2024 Plans | | Base Salary | Not applicable | •Increased base salaries of Mr. Darby and Mr. Price to $625,000 and $345,000, respectively | | Senior Management Bonus Plan (“SMBP”) | Approved payout of 2023 SMBP awards at 183.6% of target performance | •Modified the Quality/Strategic Objectives Scorecard by increasing the First Year RN Turnover target to 70% of hospitals meeting or exceeding their goal (formerly 60%) and removing Discharge to Skilled Nursing Facility as a metric; weighting of remaining factors were rebalanced | | Long-Term Incentive Plan (“LTIP”) | Approved 2022 PSU award payouts based on performance compared to targets for 2022-23 performance period; awards equaled a weighted average of 127.2% of target opportunity | •Expanded PSU performance period to 3 years (from 2 years) •Increased Mr. Tarr’s target LTIP to $5,425,000 | | Other | Not applicable | •Introduced a limited annual allowance (estimated at approximately $75,000) for Mr. Tarr’s personal use of corporate aircraft |
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 promote individual health, security, and peace of mind |
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% | $5,425,000 | $7,735,000 | | Douglas E. Coltharp | 700,000 | 85% | 1,925,000 | 3,220,000 | | Patrick Darby | 625,000 | 75% | 1,031,250 | 2,125,000 | | Elissa J. Charbonneau | 415,000 | 50% | 456,500 | 1,079,000 | | Andrew L. Price | 345,000 | 50% | 379,500 | 897,000 |
Pay and Performance
| President & Chief Executive Officer (Tarr) | | | | | | | 72.4% Performance Based | | | | | Base Pay | Annual Cash Incentive | Options | PSU | RSA | | 13.6% | 16.3% | 14.0% | 42.1% | 14.0% | | | | 70.1% Long-Term | | |
Pay and Performance
| Average for Coltharp and Darby | | | | | | | 64.2% Performance Based | | | | | Base Pay | Annual Cash Incentive | Options | PSU | RSA | | 24.8% | 19.9% | 11.1% | 33.2% | 11.1% | | | | 55.4% Long-Term | | |
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. | | | |
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 financial planning services, optional executive physical examinations, and a small amount of personal use of corporate aircraft by CEO. | | ✓ | Performance-based long-term incentive awards have three-year performance periods and 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. |
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:
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 |
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.
Assessment of Competitive Compensation Practices
| Survey Sources | | | Mercer Benchmark Database | WTW Executive Compensation Data Bank | | Mercer Integrated Health Networks | Radford Global Compensation Database |
Assessment of Competitive Compensation Practices
For decisions made in February 2024, the Committee modified 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 40% (formerly 33%) and 300% of Encompass Health’s and predominately operating in the continental United States. Increasing the threshold provides greater comparability and anticipates reduced year-over year peer volatility, while providing for a sufficiently-sized peer group.
Assessment of Competitive Compensation Practices
| 2024 Healthcare Peer Group | | | | | | | ⬧ | Acadia Healthcare | ⬧ | Chemed | ⬧ | Pediatrix Medical Group | | ⬧ | Agilon health | ⬧ | Community Health Systems | ⬧ | Quest Diagnostics | | ⬧ | Amedisys | ⬧ | Cross Country Healthcare | ⬧ | R1 RCM | | ⬧ | AMN Healthcare | ⬧ | DaVita | ⬧ | Select Medical Holdings | | ⬧ | Aveanna Healthcare Holdings | ⬧ | Ensign Group | ⬧ | Surgery Partners | | ⬧ | Brookdale Senior Living | ⬧ | ModivCare | | | | ⬧ | Cano Health | ⬧ | Option Care Health | | | | Note: Clover Health and Oak Street Health were removed from the prior year’s group. No new peers were added for 2024. | | | | | |
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 2024 compensation decisions, the Committee reviewed total direct compensation opportunities for our NEOs. Referencing the 50th and 75th percentiles of both the Mercer survey data and the healthcare peer group data, as well as the assessment factors discussed above, the Committee determined the aggregate target TDC for the NEOs was within the 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 78th percentile at the time of the Committee’s review). Each NEO’s 2024 TDC fell between the 50th and the 75th percentiles of the peer group. 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.
ELEMENTS OF EXECUTIVE COMPENSATION
| Base Salary | + | Annual Cash Incentives | + | Long-Term Equity Incentives |
Annual Incentives
Annual Incentives Plan Objectives and Structure The 2024 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 2024, 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. 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 increased the weighting of the First Year RN Turnover metric while removing Discharge to Skilled Nursing Facility metric.
Annual Incentives
| 2024 SMBP Quantitative Objectives | | | | | | | | | Award Range | | | | | | | Not Eligible | Threshold | Target | Maximum | | Objective | | 0% | 50% | 100% | 200% | | Adjusted EBITDA | | < $966,795,000 | $966,795,000 | $1,045,184,000 | > $1,123,573,000 | | Quality/Strategic Objectives Scorecard Sub-Objective | Sub-Weight | % of Hospitals Meeting or Beating Hospital-Specific Goal | | | | | Discharge to Community | 35% | <60% | 60% | 70% | 80% | | Acute Transfer | 15% | <60% | 60% | 70% | 80% | | Patient Satisfaction | 30% | <60% | 60% | 70% | 80% | | First Year RN Turnover | 20% | <60% | 60% | 70% | 80% |
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.
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 |
Annual Incentives
The structure of the 2024 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 2024 SMBP. 1 For purposes of the 2024 SMBP, Adjusted EBITDA on a consolidated basis is the same as the measure described in the 2024 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 2024, the only adjustments for unbudgeted items were to add back (i) the amount of increased noncontrolling interest expense resulting from the contribution of a hospital to a joint venture ($3.2 million), and (ii) the foregone interest income from using cash on hand to fund senior notes redemptions ($1.1 million). 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.
Annual Incentives
| 2024 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% |
Annual Incentives
Assessing and Rewarding 2024 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 2024 Plan results for the quantitative objectives were as follows:
Annual Incentives
| 2024 Adjusted EBITDA Results | | | | | Objective | Target | Result | % of Target Metric Achievement | | Adjusted EBITDA | $1,045,184,000 | $1,107,786,0003 | 179.9% |
Annual Incentives
| 2024 Quality/Strategic Objectives Scorecard Results | | | | | Objective | % of Target Metric Achievement | Weight | Weighted Metric Achievement | | Discharge to Community | 200.0% | 35.0% | 70.00% | | Acute Transfer | 181.0% | 15.0% | 27.15% | | Patient Satisfaction | 156.0% | 30.0% | 46.80% | | First Year RN Turnover | —%* | 20.0% | —% | | Combined | | 100% | 144.0% | | * Below threshold | | | |
Annual Incentives
| 2024 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 | $1,586,718 | $544,320 | $2,131,038 | 169.1% | | Douglas E. Coltharp | 749,284 | 257,040 | 1,006,324 | 169.1% | | Patrick Darby | 590,297 | 202,500 | 792,797 | 169.1% | | Elissa J. Charbonneau | 261,305 | 89,640 | 350,945 | 169.1% | | Andrew L. Price | 217,229 | 74,520 | 291,749 | 169.1% |
Annual Incentives
3 Publicly reported financial results included Adjusted EBITDA of $1,103.7 million for 2024.
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. All of the annual grants vest over three years. Participants must remain employed for three years to receive the entirety of the awards or, in the case of senior vice presidents and above (including our NEOs), have retired and satisfied the “good leaver” requirements described on page 61. For 2024, 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 only change in target award opportunities in 2024 was to Mr. Tarr’s. Our board of directors approved, at the recommendation of the Committee and in recognition of Mr. Tarr’s performance, an increase from $5,170,000 to $5,425,000. The following table summarizes the 2024 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 56 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.
Long-Term Incentives
| 2024 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 | $5,425,000 | 20% | 60% | 20% | | Douglas E. Coltharp | 1,925,000 | 20% | 60% | 20% | | Patrick Darby | 1,031,250 | 20% | 60% | 20% | | Elissa J. Charbonneau | 456,500 | —% | 60% | 40% | | Andrew L. Price | 379,500 | —% | 60% | 40% |
Long-Term Incentives
PSU Awards in 2024 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, PSUs entitle the recipients to receive a predetermined range of shares of common stock upon achievement of specified performance objectives. PSU awards do not provide for voting rights unless and until shares are earned and issued after the measurement period. For the 2024 PSU awards, the number of shares earned will be determined at the end of a three-year performance period. Dividends accrue and are only paid on shares issued after completion of the measurement period. PSUs are earned and vest 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 directly align with our stockholders’ interests. The 2024 PSU awards to senior vice presidents and above (including all NEOs) have a three-year relative total shareholder return (“TSR”) modifier applied to both the EPS and ROIC performance metrics. For this modifier, our 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 2023 PSU Award Results The 2023 PSU awards completed their EPS and ROIC performance period on December 31, 2024. The EPS and ROIC objectives had the following achievement levels:
Long-Term Incentives
| Objective | Target | Result6 | Target Metric Achievement | Weight | Weighted Metric Achievement | | EPS | $6.56 | $8.11 | 194.5% | 60% | 116.7 % | | ROIC | 9.39% | 11.03% | 200.0% | 40% | 80.0 % | | Combined | | | | 100% | 196.7 % |
Long-Term Incentives
The 2023 PSU awards held by our NEOs remain subject to the three-year relative TSR modifier. These achievement levels will be adjusted as described above based on that modifier as of December 31, 2025. 4 For purposes of 2024 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 2023 EPS performance period ended December 31, 2024, those unbudgeted items included divestitures (Eau Claire, WI and Augusta, GA), net debt redemptions, a real estate lease buyout, and CON accelerated amortization, for which the net adjustment to normalize EPS was an increase of $0.05/share. The diluted share count for LTIP purposes includes, as is the case in our 2024 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 2024 PSUs, ROIC is defined as the three-year average net operating profit after taxes (“NOPAT”) divided by the average invested capital as of December 31, 2023, 2024, 2025, and 2026. 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 2023 ROIC performance period ended December 31, 2024, those unbudgeted items included divestitures, net debt redemptions, a real estate lease buyout, common stock repurchases, and CON accelerated amortization, for which the average annual net adjustment to NOPAT was an increase of $3.1 million and the net adjustments to the invested capital amounts at year end 2023 and 2024 were a decrease of $16.9 million and an increase of $227.5 million, respectively. 6 Publicly reported financial results do not otherwise include the normalized EPS or ROIC metrics. Time-Based Restricted Stock Awards in 2024 The Committee believes the portion of the 2024 award value denominated in RSAs provides retention incentives to our executives and facilitates 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 2024 RSA awards vest ratably in equal annual increments over three years from the award date. The recipients of RSA awards have rights to vote and 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 associated restricted shares vest. Stock Option Awards in 2024 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 vested 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. The 2024 options awards vest ratably in equal annual increments over three years from the award date. 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. 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 for management at the February board meeting which is the first scheduled meeting each year and allows time to review and consider our prior year 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. Of note, we customarily issue our fourth quarter earnings release well before the annual stock award grant at the February meeting of the board. 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 that may be included in the Form 10-K. Other than timing the establishment of the strike price for options to follow the release of our next annual or quarterly report, our board of directors and the Committee has not taken material nonpublic information into account in the schedule for granting awards in 2024. Likewise, in 2024, we have not timed the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation.
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 2024 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 relative 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.
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 61. 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 2024 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.
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 |
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 2024 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:
Severance Arrangements
| Stock Options | Restricted Stock | | Outstanding options will only vest if the participant is terminated without cause or leaves for good reason 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 without cause or leaves for good reason 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. | |
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.
Summary Compensation Table
Summary Compensation Table The table below shows the compensation of our named executive officers for services in all capacities in 2024, 2023, and 2022. 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 40. The Company had no employment agreements or other compensation arrangements in effect with its NEOs in 2024.
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 | 2024 | 1,050,000 | — | 4,856,982 | 1,085,288 | 2,131,038 | 178,621 | 9,301,929 | | President and Chief Executive Officer | 2023 | 1,050,000 | — | 4,453,885 | 951,957 | 2,313,612 | 66,922 | 8,836,376 | | | 2022 | 1,050,000 | — | 4,357,861 | 1,055,281 | 1,180,721 | 92,106 | 7,735,969 | | Douglas E. Coltharp | 2024 | 700,000 | — | 1,723,516 | 385,120 | 1,006,324 | 53,776 | 3,868,736 | | Executive Vice President and Chief Financial Officer | 2023 | 700,000 | — | 3,565,288 | 354,450 | 1,092,539 | 38,093 | 5,750,370 | | | 2022 | 700,000 | — | 1,622,714 | 392,936 | 569,773 | 48,375 | 3,333,798 | | Patrick Darby | 2024 | 625,000 | — | 923,376 | 206,321 | 792,797 | 11,500 | 2,558,994 | | Executive Vice President, General Counsel and Secretary | 2023 | 550,000 | — | 1,681,318 | 167,109 | 757,433 | 11,250 | 3,167,110 | | | 2022 | 550,000 | — | 764,986 | 185,248 | 395,010 | 10,250 | 1,905,494 | | Elissa J. Charbonneau | 2024 | 415,000 | — | 501,762 | — | 350,945 | 23,880 | 1,291,587 | | Chief Medical Officer | 2023 | 415,000 | — | 483,789 | — | 381,012 | 18,411 | 1,298,212 | | | 2022 | 415,000 | — | 481,065 | — | 198,702 | 16,763 | 1,111,530 | | Andrew L. Price | 2024 | 345,000 | — | 417,186 | — | 291,749 | 19,577 | 1,073,512 | | Chief Accounting Officer | 2023 | 335,000 | — | 443,806 | — | 307,564 | 14,862 | 1,101,232 | | | 2022 | 335,000 | — | 388,323 | — | 160,398 | 20,755 | 904,476 |
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 2024 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 50, at the lowest level (0.75x based on a TSR at or below the 75th percentile).
Summary Compensation Table
| Name | Year | Threshold Performance Value ($) | Target Performance Value ($) | Maximum Performance Value ($) | | Mark J. Tarr | 2024 | 1,406,981 | 3,751,948 | 7,503,896 | | | 2023 | 1,286,158 | 3,429,640 | 6,859,281 | | | 2022 | 1,634,207 | 3,268,413 | 6,536,826 | | Douglas E. Coltharp | 2024 | 499,270 | 1,331,386 | 2,662,772 | | | 2023 | 478,912 | 1,277,052 | 2,554,105 | | | 2022 | 608,518 | 1,217,036 | 2,434,072 | | Patrick Darby | 2024 | 267,474 | 713,263 | 1,426,526 | | | 2023 | 225,798 | 602,037 | 1,204,074 | | | 2022 | 286,870 | 573,740 | 1,147,480 | | Elissa J. Charbonneau | 2024 | 118,419 | 315,784 | 631,568 | | | 2023 | 113,612 | 302,853 | 605,706 | | | 2022 | 144,306 | 288,612 | 577,224 | | Andrew L. Price | 2024 | 98,471 | 262,590 | 525,180 | | | 2023 | 104,235 | 277,848 | 555,695 | | | 2022 | 116,497 | 232,994 | 465,988 |
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 2024 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 2024 are described in the table below. Mr. Tarr’s amount also includes $75,050 for personal aircraft usage, $2,500 for an executive physical, and $163 for incidental meal expenses provided at the office.
Summary Compensation Table
| Name | Qualified 401(k) Match ($) | Nonqualified 401(k) Match ($) | | Mark J. Tarr | — | 100,908 | | Douglas E. Coltharp | 9,346 | 44,430 | | Patrick Darby | 11,500 | — | | Elissa J. Charbonneau | 11,500 | 12,380 | | Andrew L. Price | 9,789 | 9,788 |
Summary Compensation Table
For SEC purposes, the cost of personal use of the Company aircraft, if any, is calculated based on the incremental cost to us. To determine the incremental cost, we calculate the variable costs on a per hour basis over the year based on usage which include fuel costs, plus any direct trip expenses such as on-board catering, landing/ramp fees, crew hotel and meal expenses, and other miscellaneous variable costs. The calculation method includes fuel, maintenance, flight planning/weather services, on-board catering, landing/ramp fees, crew expenses and other miscellaneous flight related costs and excludes the costs which do not change based on incremental non-business usage, such as pilots’ salaries, aircraft leasing expenses. The incremental cost is then the hourly variable cost multiplied by the total personal usage hours. Occasionally, our executives are accompanied by guests on the corporate aircraft for personal reasons when there is available space on a flight being made for business reasons. There is no incremental cost associated with that use of the aircraft when the guests do not comprise 50% or more of the passengers, except for a pro rata portion of catering expenses and our portion of employment taxes attributable to the income imputed to that executive for tax purposes.
Grants of Plan-Based Awards During 2024
Grants of Plan-Based Awards During 2024
Grants of Plan-Based Awards During 2024
| | | | | | | | | | All Other Stock Awards: Number of Shares of Stock or Unit(6) (#) | All Other Option Awards: Number of Securities Underlying Options(7) (#) | Exercise or Base Price of Option Awards ($/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 | 2/28/2024 | 2/28/2024 | — | — | — | 16,637 | 44,365 | 88,730 | — | — | — | 3,751,948 | | Stock options | 3/1/2024 | 2/28/2024 | — | — | — | — | — | — | — | 41,524 | 74.20 | 1,085,288 | | RSA | 2/28/2024 | 2/28/2024 | — | — | — | — | — | — | 14,789 | — | — | 1,105,034 | | Douglas E. Coltharp | | | | | | | | | | | | | | Annual Incentive | | | 297,500 | 595,000 | 1,190,000 | — | — | — | — | — | — | — | | PSU | 2/28/2024 | 2/28/2024 | — | — | — | 5,903 | 15,743 | 31,486 | — | — | — | 1,331,386 | | Stock options | 3/1/2024 | 2/28/2024 | — | — | — | — | — | — | — | 14,735 | 74.20 | 385,120 | | RSA | 2/28/2024 | 2/28/2024 | — | — | — | — | — | — | 5,248 | — | — | 392,130 | | Patrick Darby | | | | | | | | | | | | | | Annual Incentive | | | 234,375 | 468,750 | 937,500 | — | — | — | — | — | — | — | | PSU | 2/28/2024 | 2/28/2024 | — | — | — | 3,163 | 8,434 | 16,868 | — | — | — | 713,263 | | Stock options | 3/1/2024 | 2/28/2024 | — | — | — | . | — | — | — | 7,894 | 74.20 | 206,321 | | RSA | 2/28/2024 | 2/28/2024 | — | — | — | — | — | — | 2,812 | — | — | 210,113 | | Elissa J. Charbonneau | | | | | | | | | | | | | | Annual Incentive | | | 103,750 | 207,500 | 415,000 | — | — | — | — | — | — | — | | PSU | 2/28/2024 | 2/28/2024 | — | — | — | 1,400 | 3,734 | 7,468 | — | — | — | 315,784 | | RSA | 2/28/2024 | 2/28/2024 | — | — | — | — | — | — | 2,489 | — | — | 185,978 | | Andrew L. Price | | | | | | | | | | | | | | Annual Incentive | | | 86,250 | 172,500 | 345,000 | — | — | — | — | — | — | — | | PSU | 2/28/2024 | 2/28/2024 | — | — | — | 1,165 | 3,105 | 6,210 | — | — | — | 262,590 | | RSA | 2/28/2024 | 2/28/2024 | — | — | — | — | — | — | 2,069 | — | — | 154,596 |
Grants of Plan-Based Awards During 2024
Footnotes found on next page. (1)The possible payments described in these three columns are cash amounts provided for by our 2024 Senior Management Bonus Plan as discussed under “Annual Incentives” beginning on page 46. Final payments under the 2024 program were calculated and paid in the first quarter of 2025 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 2024” beginning on page 49, these awards vest and shares are earned based upon the level of attainment of performance objectives for the three-year period from January 1, 2024 ending December 31, 2026. 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, 2024 ending December 31, 2026, 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 2024 Achievement of Objectives” on page 48, 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 48. (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 2024 Achievement of Objectives” on page 48, 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. 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.
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 54. 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, 2024.
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 | 59,790 | 14,753,943 | 17,963,733 | | Disability or Death | — | — | 20,461,794 | 20,461,794 | | Change in Control Benefits Plan | 10,667,062 | 59,790 | 21,520,556 | 32,247,408 | | Douglas E. Coltharp | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 1,400,000 | 33,468 | 7,245,868 | 8,679,336 | | Disability or Death | — | — | 10,431,020 | 10,431,020 | | Change in Control Benefits Plan | 5,665,545 | 50,201 | 10,864,162 | 16,579,908 | | Patrick Darby | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 1,250,000 | 32,770 | 3,452,355 | 4,735,125 | | Disability or Death | — | — | 5,039,123 | 5,039,123 | | Change in Control Benefits Plan | 4,440,650 | 49,154 | 5,232,912 | 9,722,716 | | Elissa J. Charbonneau | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 415,000 | 150 | 1,275,307 | 1,690,457 | | Disability or Death | — | — | 1,885,510 | 1,885,510 | | Change in Control Benefits Plan | 1,759,121 | 299 | 1,885,510 | 3,644,930 | | Andrew L. Price | | | | | | Executive Severance Plan | | | | | | Without Cause/For Good Reason | 345,000 | 10,116 | 1,076,339 | 1,431,455 | | Disability or Death | — | — | 1,601,441 | 1,601,441 | | Change in Control Benefits Plan | 1,464,976 | 20,231 | 1,601,441 | 3,086,648 |
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 2024 or prior years. The value of the accelerated vesting of equity awards listed in this column has been determined based on the $92.35 closing price of our common stock on the last trading day of 2024. The Committee may, in its discretion, provide that upon a change in control: (x) equity awards be canceled in exchange for a payment in an amount equal to the fair market value of our stock immediately prior to the change in control over the exercise or base price (if any) per share of the award, and (y) each award be canceled without payment therefore if the fair market value of our stock is less than the exercise or purchase price (if any) of the award. At that time, the amounts shown in the preceding table do not include payments and benefits to the extent they are provided on a nondiscriminatory basis to salaried employees generally upon termination of employment. The “Lump Sum Payments” column in the above table includes the estimated payments provided for under the plans described under “Severance Arrangements” beginning on page 54. Additionally, the Executive Severance Plan and the Change in Control Benefits Plan provide that as a condition to receipt of any payment or benefits all participants must enter into a restrictive covenant and release agreement. As of December 31, 2024, Mr. Tarr, Mr. Coltharp and Dr. Charbonneau are the only named executive officers eligible for retirement as defined below. The table below provides the potential equity value accelerated upon retirement for each NEO had he or she been retirement eligible on December 31, 2024. Equity awards granted to SVPs and above beginning in 2023 provide for “good leaver” treatment upon retirement.
Potential Payments upon Termination of Employment
| Named Executive Officer | Accelerated Vesting of Equity Awards Due to Retirement (Assuming Retirement Eligible)($) | | Mark J. Tarr | 21,436,400 | | Douglas E. Coltharp | 9,707,967 | | Patrick Darby | 4,687,547 | | Elissa J. Charbonneau | 1,879,589 | | Andrew L. Price | 1,596,665 |
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.
Outstanding Equity Awards at December 31, 2024(1)
Outstanding Equity Awards at December 31, 2024(1)
Outstanding Equity Awards at December 31, 2024(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 | | | | | | | | | | | 56,306 | — | 35.06 | 2/24/2027 | 74,711 | 6,899,561 | 100,946 | 9,322,363 | | | 62,078 | — | 44.67 | 3/1/2028 | 6,528 | 602,861 | 88,730 | 8,194,215 | | | 69,335 | — | 52.96 | 3/1/2029 | 11,217 | 1,035,890 | — | — | | | 66,670 | — | 63.56 | 3/2/2030 | 14,789 | 1,365,764 | — | — | | | 64,322 | — | 66.76 | 3/2/2031 | — | — | — | — | | | 49,006 | 24,504 | 55.13 | 3/1/2032 | — | — | — | — | | | 16,499 | 32,999 | 56.21 | 3/1/2033 | — | — | — | — | | | — | 41,524 | 74.20 | 3/1/2034 | — | — | — | — | | Douglas E. Coltharp | | | | | | | | | | | 16,075 | — | 29.06 | 2/26/2026 | 27,820 | 2,569,177 | 37,588 | 3,471,252 | | | 55,194 | — | 32.94 | 10/28/2026 | 2,432 | 224,595 | 31,486 | 2,907,732 | | | 29,196 | — | 35.06 | 2/24/2027 | 4,177 | 385,746 | — | — | | | 24,831 | — | 44.67 | 3/1/2028 | 5,248 | 484,653 | — | — | | | 21,101 | — | 52.96 | 3/1/2029 | 31,321 | 2,892,494 | — | — | | | 24,825 | — | 63.56 | 3/2/2030 | — | — | — | — | | | 23,949 | — | 66.76 | 3/2/2031 | — | — | — | — | | | 18,246 | 9,125 | 55.13 | 3/1/2032 | — | — | — | — | | | 6,143 | 12,287 | 56.21 | 3/1/2033 | — | — | — | — | | | — | 14,735 | 74.20 | 3/1/2034 | — | — | — | — | | Patrick Darby | | | | | | | | | | | 14,858 | — | 35.06 | 2/24/2027 | 13,116 | 1,211,263 | 17,720 | 1,636,442 | | | 12,636 | — | 44.67 | 3/1/2028 | 1,147 | 105,925 | 16,868 | 1,557,760 | | | 12,435 | — | 52.96 | 3/1/2029 | 1,970 | 181,930 | — | — | | | 11,702 | — | 63.56 | 3/2/2030 | 2,812 | 259,688 | — | — | | | 11,289 | — | 66.76 | 3/2/2031 | 14,774 | 1,364,379 | — | — | | | 8,601 | 4,301 | 55.13 | 3/1/2032 | — | — | — | — | | | 2,896 | 5,793 | 56.21 | 3/1/2033 | — | — | — | — | | | — | 7,894 | 74.20 | 3/1/2034 | — | — | — | — | | Elissa J. Charbonneau | | | | | | | | | | | — | — | — | | 6,601 | 609,602 | 8,914 | 823,208 | | | — | — | — | | 1,154 | 106,572 | 7,468 | 689,670 | | | — | — | — | | 1,982 | 183,038 | — | — | | | — | — | — | | 2,489 | 229,859 | — | — | | Andrew L. Price | | | | | | | | | | | — | — | — | | 5,329 | 492,134 | 8,178 | 755,238 | | | — | — | — | | 931 | 85,978 | 6,210 | 573,493 | | | — | — | — | | 1,818 | 167,892 | — | — | | | — | — | — | | 2,069 | 191,072 | — | — |
Outstanding Equity Awards at December 31, 2024(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 2022-2023 performance period, and the second, third, and fourth amounts represent the annual grants of time-based restricted stock in February 2022, 2023, and 2024, 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 2024, $92.35, 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 performance period beginning January 1 of the year in which the grant is made. The determination of the final number of shares earned under each PSU award will be made following the close of a three-year period. The first amount for each officer in this column represents the number of shares calculated based on performance over the 2023-2024 performance period as officially determined by the board of directors in February 2025, which share count shall be subject to a three-year total shareholder return multiplier as of December 31, 2025. The second amount for each officer in this column represents the number of shares to be earned assuming achievement of maximum performance during the 2024-2026 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 2024, $92.35, by the number of shares set forth in the preceding column.
Options Exercised and Stock Vested in 2024
Options Exercised and Stock Vested in 2024 The following table sets forth information concerning the exercise of options and the vesting of shares for our named executive officers in 2024.
Options Exercised and Stock Vested in 2024
| | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting | Value Realized on Vesting ($) | | Mark J. Tarr | 44,976 | 2,306,414 | 78,723 | 5,399,285 | | Douglas E. Coltharp | 12,260 | 619,244 | 29,315 | 2,010,600 | | Patrick Darby | 14,543 | 798,056 | 13,822 | 947,990 | | Elissa J. Charbonneau | * | * | 7,864 | 549,892 | | Andrew L. Price | * | * | 6,953 | 485,784 | | * No stock option exercises in 2024. | | | | |
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 2024 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 2024. 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, following termination of service or the occurrence of a specified date. Matching and discretionary contributions are distributed following 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, 2024 with respect to the NQ Plan.
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 | 336,361 | 100,908 | 592,036(5) | — | 6,462,009 | | Douglas E. Coltharp | 268,881 | 44,430 | 401,454(6) | — | 3,762,410 | | Patrick Darby | — | — | — | — | — | | Elissa J. Charbonneau | 79,601 | 12,380 | 50,168(7) | — | 409,143 | | Andrew L. Price | 97,591 | 9,788 | 154,768(8) | — | 1,618,137 |
Nonqualified Deferred Compensation Plan
(1)All amounts in this column are included in the 2024 amounts represented as “Salary” and “Non-Equity Incentive Plan Compensation,” except $231,361 for Mr. Tarr, $163,881 for Mr. Coltharp, $38,101 for Dr. Charbonneau, and $76,891 for Mr. Price included in the 2023 amounts, in the Summary Compensation Table. (2)All amounts in this column are included in the 2024 amounts represented as “All Other Compensation” except $69,408 for Mr. Tarr, $26,661 for Mr. Coltharp, $5,715 for Dr. Charbonneau, and $4,613 for Mr. Price included in the 2023 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 2024, 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: $2,004,049 for Mr. Tarr, $1,093,337 for Mr. Coltharp, $98,070 for Dr. Charbonneau, and $673,091 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, Vanguard Tot Intl Stk Idx Adm, 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, Vanguard Instl Index Instl PL, Dodge & Cox Income X, and Vanguard Emrg Mkt Stk Idx Inst.
CEO Pay Ratio
CEO Pay Ratio Mr. Tarr’s 2024 Summary Compensation Table (“SCT”) Total Compensation was $9,301,929. We used the 2024 Form W-2 Box 1 “Wages, Tips and Other Compensation” for employees to determine our median employee as of December 31, 2024. We annualized pay amounts for those who started employment with us during 2024. Our median employee’s 2024 SCT Total Compensation was $45,540. The ratio of CEO pay to median worker pay is 204:1. The composition of our workforce greatly impacts this ratio. Approximately 39% 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.
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 five 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 56.
Pay vs. Performance Table
Pay vs. Performance Table
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) | | | 2024 | 9,301,929 | 17,929,351 | 2,198,207 | 3,975,243 | 178.46 | 126.92 | 596.6 | 1,103.7 | | 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 |
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: •2023-2024: 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 for the PEO and Non-PEOs respectively:
Pay vs. Performance Table
| Reconciliation of SCT Total Compensation to CAP for PEO | | | | | | | | | | 2024 | 2023 | 2022 | 2021 | 2020 | | | SCT Total Compensation | 9,301,929 | 8,836,376 | 7,735,969 | 8,252,128 | 6,925,127 | | DEDUCTIONS | | | | | | | | | Grant Date Fair Value of Stock Awards Reported in SCT | (4,856,982) | (4,453,885) | (4,357,861) | (4,188,878) | (3,893,034) | | | Grant Date Fair Value of Option Awards Reported in SCT | (1,085,288) | (951,957) | (1,055,281) | (1,026,087) | (857,191) | | ADDITIONS | | | | | | | | | Year-end Fair Value for Awards Granted during Year | 8,416,920 | 8,375,441 | 6,212,964 | 5,162,931 | 5,056,742 | | | Inc (Dec) in Fair Value during Year for Prior Years’ Unvested Awards | 5,477,125 | 2,331,154 | 695,380 | (2,065,946) | 681,373 | | | Inc (Dec) in Fair Value from Year-end to Vesting/Cancellation during Year | 508,981 | (199,895) | 514,852 | (111,958) | 351,589 | | | Dividends Paid on Awards Vesting during Year | 166,666 | 128,658 | 127,476 | 203,692 | 182,339 | | | CAP | 17,929,351 | 14,065,892 | 9,873,499 | 6,225,882 | 8,446,945 |
Pay vs. Performance Table
| Reconciliation of SCT Total Compensation to CAP for Average Non-PEO NEOs | | | | | | | | | | 2024 | 2023 | 2022 | 2021 | 2020 | | | SCT Total Compensation | 2,198,207 | 2,829,231 | 1,926,245 | 2,318,768 | 2,268,718 | | DEDUCTIONS | | | | | | | | | Grant Date Fair Value of Stock Awards Reported in SCT | (891,460) | (1,543,550) | (967,531) | (950,358) | (1,007,046) | | | Grant Date Fair Value of Option Awards Reported in SCT | (147,860) | (130,390) | (192,180) | (212,314) | (221,715) | | ADDITIONS | | | | | | | | | Year-end Fair Value for Awards Granted during Year | 1,460,479 | 2,263,913 | 864,201 | 971,657 | 1,308,042 | | | Inc (Dec) in Fair Value during Year for Prior Years’ Unvested Awards | 1,244,251 | 406,946 | (364,445) | (784,965) | 220,905 | | | Inc (Dec) in Fair Value from Year-end to Vesting/Cancellation during Year | 81,547 | (25,915) | 84,648 | (25,964) | 81,947 | | | Dividends Paid on Awards Vesting during Year | 30,079 | 23,449 | 12,258 | 33,733 | 46,202 | | | CAP | 3,975,243 | 3,823,684 | 1,363,196 | 1,350,557 | 2,697,053 |
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 47.
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 2024. Each item is a separate metric within one of our incentive compensation plans, as further described on pages 46-50.
Narrative Disclosure to the Pay vs. Performance Table
| Most Important Performance Measures | | Adjusted EBITDA | | Normalized Earnings Per Share (“EPS”) | | Return on Invested Capital (“ROIC”) |
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 over a five-year period. The TSR amounts in the graph assume the investment of $100 on December 31, 2019 and the reinvestment of any dividends paid. Both TSRs were positive, although our five-year TSR exceeded 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 but a positive correlation is beginning to present itself.
ARTICLE 3 DEFINITIONS
ARTICLE 3 DEFINITIONS 3.1. Definitions. When a word or phrase appears in the Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Section 1.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings: (a) “Award” means any grant or award of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Dividend Equivalents, Other Stock-Based Award, Cash Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan. (b) “Award Agreement” means an agreement, contract, other instrument or document or other evidence approved by the Committee evidencing an Award. An Award Agreement may be in an electronic medium, may be solely evidenced by a notation on the Company’s books and records, and need not be signed by a representative of the Company or a Participant. An Award Agreement may be in the form of individual award agreements or certificates or a document describing the terms and provisions of an Award or series of Awards under the Plan. (c) “Board” means the Board of Directors of the Company. (d) "Cash Award" means any grant or award that confers the right to receive cash with the amount of such cash subject to achievement of one or more specified Performance Goals and subject to such other restrictions and conditions as may be established by the Committee. (e) “Cause” means a conviction or no contest plea to a felony or moral turpitude crime or an act of dishonesty, moral turpitude, an intentional, negligent, or grossly negligent act detrimental to the best interests of the Company or a Subsidiary, failure to perform assigned duties, poor performance of assigned duties, breach of fiduciary duties to the Company, or violations of Company policies or code of conduct as in effect and amended from time to time, all as determined by the Committee; provided that, if a Participant is a participant in an executive severance plan adopted by the Company or in an individual employment agreement, then “Cause” for purposes of the Plan shall have the meaning set forth in such executive severance plan or agreement, as applicable. (f) “Change in Control” means any of the following events: (i) the acquisition (other than from the Company) by any person, entity or “group” (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act, but excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) 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 entitled to vote generally in the election of Directors; or (ii) during any period of up to twenty-four (24) consecutive months, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by the Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease to constitute at least a majority of the Board; or (iii) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution; or (iv) the consummation of a merger or consolidation of the Company with or into another person or the merger of another person with or into the Company, or the sale of all or substantially all the assets of the Company (determined on a consolidated basis) to another person, other than a transaction following which (A) in the case of a merger or consolidation transaction, holders of securities that represented 100% of the combined voting power entitled to vote generally in the election of directors of the Company immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the combined voting power entitled to vote generally in the election of directors of the surviving person in such transaction immediately after such transaction and (B) in the case of a sale of assets, each transferee is owned by holders of securities that represented at least a majority of the combined voting power entitled to vote generally in the election of directors of the Company immediately prior to such sale. (g) “Code” means the Internal Revenue Code of 1986, as amended from time to time. (h) “Committee” means the Compensation and Human Capital Committee of the Board, or any successor thereto. (i) “Company” means Encompass Health Corporation, a Delaware corporation, or any successor corporation. (j) “Disability” means, except as otherwise provided in an Award Agreement, a physical or mental condition which is expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months and which renders the Participant incapable of performing the work for which the Participant is employed or similar work, as evidenced by eligibility for and actual receipt of benefits payable under a group disability plan or policy maintained by the Company or any of its Subsidiaries that is by its terms applicable to the Participant. (k) “Dividend Equivalent” means a right granted to a Participant under Article 11. (l) “Effective Date” has the meaning assigned such term in Section 2.1. (m) “Fair Market Value” means (i) as of any given date, the closing price at which the shares of stock were traded (or if no transactions were reported on such date on the next preceding date on which transactions were reported) on the New York Stock Exchange (the “Closing Price”) on such date, or, if different, the principal exchange or automated quotation system on which such stock is traded, (ii) should the Committee elect, the average selling price or volume-weighted average price (“VWAP”) on a given trading day or the VWAP over a series of pre-established trading days preceding or following such given date, or (iii) in the event of an Option exercise by net settlement, the Closing Price on the trading date immediately preceding the date of exercise. If the shares are neither listed on the NYSE or another public exchange nor quoted on an inter-dealer quotation system or if the term is being applied to property other than stock, the amount determined by the Committee in its sole discretion to be the fair market value thereof. (n) “Full Value Award” means an Award other than in the form of an Option or SAR which is settled by the issuance of stock. (o) “Good Reason” shall mean, when used with reference to any Participant, any of the following actions or failures to act, but in each case only if it occurs while such Participant is employed by the Company and then only if it is not consented to by such Participant in writing: (i) assignment of a position that is of a lesser rank than held by the Participant prior to the assignment and that results in a material adverse change in such Participant’s reporting position, duties or responsibilities or title or elected or appointed offices as in effect immediately prior to the effective date of such change;
ARTICLE 3 DEFINITIONS
(ii) a material reduction in such Participant’s total compensation from that in effect immediately prior to the Change in Control. For purposes of this clause (ii), “total compensation” shall mean the sum of base salary, target bonus opportunity and the opportunity to receive compensation in the form of equity in the Company. Notwithstanding the foregoing, a reduction will not be deemed to have occurred hereunder on account of (A) any change to a plan term other than ultimate target bonus opportunity or equity opportunity, (B) the actual payout of any bonus amount or equity amount, (C) any reduction resulting from changes in the market value of securities or other instruments paid or payable to the Participant, or (D) any reduction in the total compensation of a group of similarly situated Participants that includes such Participant; or (iii) any change in a Participant’s status as a participant under any Change in Control compensation plan of the Company if such change in status occurs during the period beginning six (6) months prior to a Change in Control and ending twenty-four (24) months after a Change in Control; or (iv) any change of more than fifty (50) miles in the location of the principal place of employment of such Participant immediately prior to the effective date of such change. For purposes of this definition, none of the actions described in clauses (i) through (iv) above shall constitute “Good Reason” if taken for Cause. Additionally, none of the actions described in clauses (i) through (iv) above shall constitute “Good Reason” with respect to any Participant if remedied by the Company within thirty (30) days after receipt of written notice thereof given by such Participant (or, if the matter is not capable of remedy within thirty (30) days, then within a reasonable period of time following such thirty (30) day period, provided that the Company has commenced such remedy within said thirty (30) day period); provided that “Good Reason” shall cease to exist for any action described in clauses (i) through (iv) above on the sixtieth (60th) day following the later of the occurrence of such action or the Participant’s knowledge thereof, unless such Participant has given the Company written notice thereof prior to such date. (p) “Grant Date” means the date specified by the Committee on which a grant of an Award shall become effective, which shall not be earlier than the date on which the Committee takes action with respect thereto. (q) “Incentive Stock Option” means an Option that meets the requirements of Section 422 of the Code or any successor provision thereto. (r) “Non-Employee Director” means a director of the Company who is not an employee of the Company or an affiliate. (s) “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option. (t) “Option” means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option under the Plan shall be a Non-Qualified Stock Option or an Incentive Stock Option. (u) “Other Stock-Based Award” means a right, granted to a Participant under Article 13, which relates to or is valued by reference to Stock or other Awards relating to Stock. (v) “Parent” means a corporation which owns or beneficially owns a majority of the outstanding voting stock or voting power of the Company. (w) “Participant” means a person who, as an employee, officer or director of the Company or any Subsidiary, has been granted an Award under the Plan. (x) “Performance Objectives” means the performance goals or objectives, if any, established pursuant to the Plan for Participants who have been granted Awards under the Plan. Performance Objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or the Subsidiary, division, region, department or function within the Company or Subsidiary in which the Participant is employed. Performance Objectives may be specified in absolute terms, in percentages, or in terms of growth from period to period or growth rates over time, as well as measured relative to an established or specially-created index of Company competitors or peers. Performance Objectives need not be based upon an increase or positive result under a business or operating criterion and could include, for example, the maintenance of the status quo or the limitation of economic losses (measured, in each case, by reference to a specific business or operating criterion). Performance Objectives may be based on any one or more performance criterion or matter related to the business or operations of the Company that the Committee believes may affect performance. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events, circumstances or accounting entries that are unusual, nonrecurring or unrelated to the performance of the Participant or otherwise beyond the control of management render the Performance Objectives unsuitable (including, but not limited to, asset write-downs or impairment charges, litigation or claim judgments or settlements, changes in tax laws, material legislation changes, acquisitions and divestures, accounting principles or other laws or provisions affecting reported results, unusual or infrequently occurring items as described in Accounting Standards Codification Topic 225-20 or Accounting Standards Update (ASU) 2015-01 (or any successor pronouncement thereto) and/or management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year, foreign exchange gains and losses, or any other identifiable event of a nonrecurring or extraordinary nature, such as a pandemic or comparable public health emergency), the Committee may modify or adjust such Performance Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable. The calculation of the performance result for any metric may also be subject to adjustment for such pre-established items or events if the Committee deems appropriate and equitable. (y) “Performance Share” means a bookkeeping entry that records the equivalent of one share of Stock awarded pursuant to Article 9. (z) “Performance Unit” means a bookkeeping entry that records a unit equivalent to $1.00 awarded pursuant to Article 9. (aa) “Plan” has the meaning assigned such term in Section 1.1. (bb) “Plan Year” means the twelve-month period beginning January 1 and ending December 31. (cc) “Restricted Stock” means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture. (dd) “Restricted Stock Unit” or “RSU” means a bookkeeping entry that records a unit equivalent to one share of Stock awarded pursuant to Article 12. (ee) “Retirement” means, except as otherwise provided in an Award Agreement or an individual employment or other agreement with the Participant, the voluntary termination of employment by a Participant after attaining (a) age 65 or (b) in the event that the Participant has been employed by the Company for ten (10) or more years on the date of such termination, age 60. (ff) “Specified Employee” means a specified employee as defined in Code Section 409A or authoritative guidance thereunder. (gg) “Stock” means the $.01 par value Common Stock of the Company, and such other securities of the Company as may be substituted for Stock pursuant to Article 16.
ARTICLE 3 DEFINITIONS
(hh) “Stock Appreciation Right” or “SAR” means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a share of Stock as of the date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article 8. (ii) “Subsidiary” means a corporation or other entity in which the Company has a direct or indirect ownership or other equity interest. (jj) “1933 Act” means the Securities Act of 1933, as amended from time to time. (kk) “1934 Act” means the Securities Exchange Act of 1934, as amended from time to time.