Coventry Health Care, Inc. 2005 Management Incentive Plan (MIP)
Coventry Health Care, Inc. established the 2005 Management Incentive Plan to reward eligible employees for meeting company-wide, business unit, and individual performance goals during the 2005 fiscal year. Eligibility is determined by the CEO, and payouts are based on the achievement of financial targets such as earnings per share, plan contribution, and revenue growth. Incentive payments are made in cash after year-end results are finalized, and the company reserves the right to amend or discontinue the plan at any time. Participation is limited to certain management employees and excludes those in other incentive plans.
Exhibit 10.3
Coventry Health Care, Inc.
2005 Management Incentive Plan (MIP)
Plan Objective
The objective of Coventry Health Cares (CHC) 2005 Management Incentive Plan (MIP) is to reward employees for their contribution to the achievement of companywide, business unit, health plan, and team/individual goals.
Plan YearThe plan year will be consistent with CHCs fiscal year, January 1 through December 31, 2005.
EligibilityThe CEO of CHC will determine employee eligibility prior to the beginning of the plan year and throughout the year as warranted by promotions and/or performance. Participants in CHCs Sales Incentive Plans, Team Incentive Plans and Annual Executive Incentive Plan, are not eligible for the MIP. Participants must be actively employed at the time incentive checks are distributed to receive an incentive payment. MIP payouts may be prorated based on hire date or the promotion date of each participant.
Timing of Incentive PayoutsIncentive payouts will be made as soon as possible after the close of the fiscal year and after CHCs yearend financial results are finalized (approximately February/March 2006).
Target Incentive OpportunityEligible Employee Title | Target Incentive % |
---|---|
Sr. Vice Presidents and Coaches | 50%* |
Vice Presidents | 30%* |
Directors | 15%* |
Managers | 10%* |
*Exceptions made on a casebycase basis with approval from the CHC CEO
Performance CriteriaCriteria for incentive payouts includes the following three factors:
- CHC Financial Results
- Health Plan Financial Results
- Team and Individual Achievements
The performance of CHC will be based on the achievement of its Earnings Per Share goal.
2005 Goal | |
---|---|
Net Earnings Per Share | Budget |
Target incentive pools will be calculated separately for each Health Plan and Corporate. The number of eligible employees, individual incentive targets and each eligible employees base pay will determine each budgeted target incentive pool.
Actual funding of incentive pools is based on the results achieved by each Health Plan and the overall performance of Coventry Health Care, Inc in the case of the Health Plan, and overall performance of Coventry Health Care, Inc. in the case of Corporate.
Health Plan ResultsThe performance of each Health Plan will be based on the achievement of its Plan Contribution and Revenue Growth goals as set forth in the 2004 Budget. The two key goals are weighted as follows:
- Plan Contribution 75%
- Revenue Growth 25%
Each Health Plans incentive pool is funded based on the achievement of its Plan Contribution and Revenue Growth goals. Each Health Plans pool will be modified based on the achievement of CHCs EPS goal. The following chart will be utilized to calculate the final incentive pool for each Health Plan.
Level of Health Plan Goal Achievement | % of Target Pool Available for Payout (1) |
---|---|
= 85% | 0% |
86% to 99% | Committee Discretion |
100% | 100% |
110% | 110% |
120% | 120% |
130% | 130% |
140% | 140% |
150% | 150% |
(1) Straightline interpolation will be used to calculate the incentive pools when performance falls between two levels.
Once each Health Plans incentive pool is calculated, it will be modified by the achievement of CHCs Earnings Per Share goal. The following chart displays the scale that will be used to modify each Health Plans incentive pool.
Level of CHC Goal Achievement | Health Plan Incentive Pool Modifier(2) |
---|---|
97.75% | 0 |
97.75% | .50 |
100% | 1.00 |
110% | 1.20 |
120% | 1.30 |
130% | 1.40 |
140% | 1.50 |
150% | 1.50 |
(2) Straightline interpolation will be used to calculate the pool modifier when performance falls between two levels and, the maximum modification to the Health Plans budgeted target pool is 1.50.
Example Incentive Pool CalculationExample 1: The Health Plan achieves 90% of its Plan Contribution and Revenue Growth goals, which results in the target incentive pool being decreased to 50% of the budgeted target pool, determined at the discretion of the Compensation Committee. CHC achieves 100% of its Earnings Per Share Goal, thus modifying the Health Plans pool by 1.0. The final incentive pool remains 50% of the budgeted target pool.
Example 2: The Health Plan achieves 110% of its Plan Contribution and Revenue Growth goals, which results in the target incentive pool being increased to 110% of the budgeted target pool. CHC achieves 120% of its Earnings Per Share Goal, thus modifying the Health Plans pool by 1.3. The incentive pool equals 143% of the budgeted target pool.
Corporate Incentive Pool FundingThe corporate incentive pool is funded based on the achievement of CHCs EPS goal.
Level of Target CHC Earnings Per Share Goal Achievement | % of Target Pool Available for Payout(1) |
---|---|
97.75% | 0 |
97.75% | 50% |
100% | 100% |
110% | 120% |
120% | 130% |
130% | 140% |
140% | 150% |
150% | 150% |
(1) Straightline interpolation will be used to calculate the incentive pools when performance falls between two levels
Individual Incentive Payout CalculationsIndividual incentive awards will be determined by the following:
1. Individual Target Incentive Opportunity
2. Incentive Pool Funding, and
3. Achievement of established financial goals and individual/team nonfinancial goals.
Individual incentive awards can vary between 0% and 200% of the Individual Target Incentive based on individual performance.
Form of PaymentPayments will be paid in cash.
MiscellaneousCoventry Health Care reserves the right to amend or discontinue this plan at any time and/or add, reduce or limit the number of participants at any time such actions are deemed appropriate and in the best interest of CHC. This document shall not be construed as a contract with the employee and is in no way intended to limit the employment at will status of employees of Coventry Health Care, Inc., or its Health Plans.