Evolent Health, Inc.
Shareholder Annual Meeting in a DEF 14A on 04/30/2021   Download
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DEF 14A 1 d154291ddef14a.htm DEF 14A DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

Filed by the Registrant

Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material under § 240.14a-12

EVOLENT HEALTH, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

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Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

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Date Filed:


2021 PROXY STATEMENT

AND

NOTICE OF ANNUAL MEETING

OF STOCKHOLDERS

 

 

LOGO

 

 

Thursday, June 10, 2021

10:00 a.m., Eastern Time


Dear Fellow Stockholders,

On behalf of Evolent’s Board of Directors, I would like to thank all of our stockholders for your continued support.

As we began to witness the rapidly evolving impacts of the COVID-19 pandemic over a year ago, Evolent adapted quickly to minimize operational disruptions and partnered with customers to drive continued quality-of-care improvements and prioritization of the highest risk patients, all while diligently safeguarding the health and wellbeing of our team. We are tremendously proud of our employees’ dedication and resilience during this highly challenging period.

The past year also marks an important chapter of Evolent’s transformation as we firmly advanced each of the strategic priorities shaping our long-term plan: focused, organic growth, sustainable margin expansion, and balance sheet optimization. We also implemented a program of updates related to our governance practices, Board composition, and leadership team that further position Evolent to create sustainable long-term stockholder value.

 

 

Governance Enhancements: The Board continued to evolve our governance practices and directly incorporated feedback from our stockholders into the decision-making process. This year, the Board implemented robust stock ownership guidelines for our executive officers and directors, formally adopted policies to ensure that Evolent considers diverse candidates when conducting both Board and CEO succession planning and adopted a proxy access by-law. At this year’s Annual Meeting, we recommend that stockholders vote in support of amendments to Evolent’s charter to remove our remaining supermajority vote requirements for charter and by-law amendments, and to begin the declassification of the Board.

 

 

Continued Board Refreshment: In late 2020 and early 2021, the Board welcomed new independent directors Kim Keck and Craig Barbarosh. With their addition, Evolent has now added six independent directors since late 2015. Ms. Keck brings an exceptional track record and reputation within the health insurance payer community that will be instrumental as Evolent expands our core offerings in that market. Mr. Barbarosh provides extensive healthcare industry knowledge and nearly 30 years of experience as a proven business leader. Our directors’ areas of expertise are individually and collectively aligned with our strategy, which has enabled the Board to enhance—through highly effective oversight—our team’s efforts to drive Evolent’s next phase of profitable growth.

 

 

Leadership Updates: A thoughtful, deliberate succession planning process led by our Board culminated with Seth Blackley moving into the role of CEO and Frank Williams stepping into the role of Executive Chairman, effective on October 1, 2020. The Board’s degree of exposure to and ability to observe Seth in recent years through the course of Evolent’s ongoing strategic transformation augmented the Board’s observation and conviction that Seth is the right leader for Evolent’s next phase. As Executive Chairman, Frank continues to be a valuable thought partner for our management team and directors. Finally, in conjunction with Bruce Felt’s retirement from the Board in January 2021, I was appointed by our directors to serve as Evolent’s Lead Independent Director. Our entire Board would like to thank Bruce for his tremendous service; he has been an outstanding director.

Consistent, two-way dialogue with our stockholders remains a key priority for our Board and management team—especially as we continue our strategy of building momentum across our business—and stockholder views remain a valuable input to boardroom deliberations at Evolent. This past fall, in the course of our engagement with stockholders, I had the privilege of meeting with many of our investors to discuss and gain their feedback on our strategy, Board, governance and compensation practices, and our approaches to risk oversight and human capital management. We look forward to building on these conversations in 2021 and beyond.

It is an honor to serve as Evolent’s Lead Independent Director and as a member of the Board on your behalf. My letter would not be complete without acknowledging each of our employees and their hard work throughout the course of the past year. I am extremely proud of what we have accomplished, and look forward to building on our momentum as Evolent continues to transform the way healthcare is delivered and experienced in the United States. We appreciate your investment.

Sincerely,

 

LOGO

Cheryl Scott

Lead Independent Director

Evolent Health, Inc.


Dear Fellow Stockholders,

The past year was unprecedented in recent memory. The global COVID-19 pandemic and the movement for racial justice threw into stark relief long-standing issues with our healthcare system—including the need for whole-person health that is affordable and simple. Evolent re-dedicated ourselves to our, core mission, during 2020, delivering our quality and cost improvement solutions to more than nine million individuals across the country. This focus delivered strong results for our members, the communities we serve, our health plan and provider partners, and our stockholders.

We have been focused on our mission of reducing the cost care and improving the quality of care since our inception. Our differentiated products and momentum in this large market led to strong growth performance in 2020. We added eight new partners, including regional and national payers, independent physicians and ACOs. We also significantly expanded with existing partners.

In 2020, we were pleased to contribute to the health of our client’s members. Through our clinical programs, which include complex care, transition care, maternity, and behavioral health, we engaged more than 35,000 high-risk, high-cost patients and evaluated over 60,000 more. We also directly managed over 166,000 active cancer cases across the country.

From a performance perspective, we are pleased that we achieved our key financial objectives for 2020. In 2020, we exceeded the high-end ranges for both our top and bottom-line targets, made strong progress on our cost reduction effort and achieved positive cash flow ahead of schedule. Our consistently strong results across 2020 demonstrate our commitment to execute against our attractive financial model and we carry that momentum into 2021.

In 2020, we grew total revenue by 20.8 percent, from $846.4 million the year prior to $1.0 billion. Adjusted EBITDA1 for the full year was $41.4 million compared to $(11.0) million in 2019. Our strong performance across 2020 was driven by strength in our performance-based arrangements, continued focus on cost control efforts, new partner additions, and cross-sell expansions within our existing partner base.

This growth is propelled by our proven results. For example, as announced by the Centers for Medicare and Medicaid Services in 2020, five Next Generation Accountable Care Organizations (NGACOs) that Evolent supported earned a combined $84 million in savings for Medicare in 20192. This cohort received shared savings payments of more than $66 million and outperformed other ACOs in the program in average savings by approximately 40%. Evolent’s close, collaborative partnership with our partners and approach to managing total cost of care through our proprietary population health technology and clinical capabilities have helped drive these strong results.

Across the organization, we have a strong and diverse leadership team with a wide breath of expertise that helps us to execute on the key objectives of our strategic plan. We are proud that Evolent has established a reputation as a leading destination for the best and brightest in the health care industry. We received more than 130,000 applications for 1,200 filled positions this past year, demonstrating the strong brand we have built for top talent.

As a mission-driven organization, our company culture reflects an atmosphere of respect, honesty and humility. Evolent recently received a perfect 100 score on the Human Rights Campaign Foundation’s Corporate Equality Index for 2020. Across the year, we appointed a Diversity, Equity and Inclusion leader and fostered the development of eight business resource groups, which focus on promoting inclusion, educating on bias and culture and supporting DE&I initiatives. This year we also launched a firmwide inclusion score which debuted at 87%.

Our investment in employee engagement and strong individual and leadership development has allowed us to retain top performers and create a highly motivated workforce. Evolenteers logged more than 42,000 hours of learning and development courses and approximately 15,000 hours of community service in 2020. In response to COVID-19, individuals and teams across the company sewed masks and delivered them to those in need, including over 10,000 masks for children in Chicago communities; volunteered at local food banks; and went above and beyond their normal responsibilities to ensure high-risk members had groceries and medications to stay safe at home. We are proud of our employees living our values and their commitment to drive change during this unprecedented year.

 

(1) 

Non-GAAP measure. See Appendix C for definition and reconciliation to net loss attributable to common shareholders of Evolent Health, Inc., which was $(334.2) million for the year ended December 31, 2020.

 

(2) 

Centers for Medicare and Medicaid Services. Next Generation ACO Model: Performance Year 4 (2019) (XLS). https://innovation.cms.gov/innovation-models/next-generation-aco-model


In closing, we remain focused on our strategic priorities and connected to our mission of changing the health of the nation by changing the way health care is delivered. I would like to deeply thank all Evolenteers for their continued commitment to our partners and the communities we serve. I would also like to thank our partners, communities, and stockholders in what has been an extraordinary year.

Sincerely,

 

LOGO

Seth Blackley

Chief Executive Officer, Co-Founder and Director

Evolent Health, Inc.


  

LOGO

 

EVOLENT HEALTH, INC.

800 N. Glebe Road, Suite 500

Arlington, VA 22203

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

to be held on June 10, 2021

 

LOGO   LOGO   LOGO

Date & Time:

Thursday,

June 10, 2021, 10:00 a.m., Eastern Time

 

Virtual Information:

https://web.lumiagm.com/209916247

password: evolent2021

 

Record Date:

April 15, 2021

Dear Stockholder:

You are invited to attend the 2021 annual meeting of stockholders (the “Annual Meeting”) of Evolent Health, Inc. (the “Company”), a Delaware corporation, which will be held on Thursday, June 10, 2021, at 10:00 a.m., Eastern Time. The Annual Meeting will be held for the following purposes:

 

1.

To approve proposed amendments to the Company’s Second Amended and Restated Certificate of Incorporation to declassify the Board of Directors;

 

2.

To approve proposed amendments to the Company’s Second Amended and Restated Certificate of Incorporation to eliminate supermajority voting requirements

 

3.

To elect four Class III director nominees named in the proxy statement to serve on our Board of Directors;

 

4.

To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021;

 

5.

To approve the compensation of our named executive officers for 2020 on an advisory basis; and

 

6.

To approve the proposed Amended and Restated 2015 Omnibus Incentive Compensation Plan.

In addition, stockholders may be asked to consider and vote upon any other matters that may properly be brought before the Annual Meeting and at any adjournments or postponements thereof.

In light of the coronavirus, or COVID-19, outbreak, for the safety of all of our stakeholders, we have determined that the Annual Meeting will be held in a virtual meeting format only, via the Internet, with no physical in-person meeting. Stockholders will be able to attend, vote and submit questions (for a portion of, the meeting) from any location via the Internet at https://web.lumiagm.com/209916247 . The password for the Annual Meeting is evolent2021. To participate (e.g., submit questions and/or vote), you will need the control number provided on your proxy card, voting instruction form or notice.

Any action may be taken on the foregoing matters at the Annual Meeting on the date specified above, or on any date or dates to which the Annual Meeting may be adjourned, or to which the Annual Meeting may be postponed.

Our Board of Directors has fixed the close of business on April 15, 2021, as the record date for determining the stockholders entitled to notice of, and to vote at, the Annual Meeting and at any adjournments or postponements thereof.

We make proxy materials available to our stockholders on the Internet. You can access proxy materials at http://ir.evolenthealth.com/financial-info/annual-reports-and-proxy-statements/default.aspx. You also may authorize your proxy via the Internet by following the instructions on that website. In order to authorize your proxy via the Internet you must have the stockholder identification number that appears on the enclosed proxy card.

By Order of our Board of Directors,

 

LOGO

Jonathan D. Weinberg

General Counsel and Secretary

Arlington, VA

April 30, 2021

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on June 10, 2021

This proxy statement and our 2020 Annual Report to Stockholders are available at

http://ir.evolenthealth.com/financial-info/annual-reports-and-proxy-statements/default.aspx

You may request and receive a paper or email copy of our proxy materials relating to the Annual Meeting and any future stockholder meetings free of charge by emailing proxymaterials@evolenthealth.com, calling 1-844-246-2928, or visiting http://ir.evolenthealth.com/financial-info/annual-reports-and-proxy-statements/default.aspx


TABLE OF CONTENTS

 

 


  

EVOLENT HEALTH, INC.

800 N. Glebe Road, Suite 500

Arlington, VA 22203

PROXY STATEMENT

FOR OUR 2021 ANNUAL MEETING

OF STOCKHOLDERS

to be held on June 10, 2021

These proxy materials are being made available in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Evolent Health, Inc., a Delaware corporation, for use at our 2021 annual meeting of stockholders (the “Annual Meeting”) to be held on Thursday, June 10, 2021, at 10:00 a.m., Eastern Time, in a virtual meeting format only, via the Internet at https://web.lumiagm.com/209916247 (password “evolent2021”) or at any postponement or adjournment of the Annual Meeting. There is no physical location for the Annual Meeting. Stockholders will be able to view the Rules of Conduct for the Meeting at http://ir.evolenthealth.com/financial-info/annual-reports-andproxystatements/default.aspx, and submit questions, at https://web.lumiagm.com/209916247 (password “evolent2021”) on the day of the meeting, through the conclusion of the question and answer session that follows.

Distribution of this proxy statement and a proxy card to stockholders is scheduled to begin on or about April 30, 2021, which is also the date by which these materials will be posted. We encourage stockholder participation in the Annual Meeting, which we have designed to promote stockholder engagement. Stockholders will be permitted to ask questions on the ballot items during the meeting, and on other subjects in a question and answer session that will begin at the conclusion of the meeting. You will also be able to listen to the proceedings and cast your vote online.

As permitted by the rules of the Securities and Exchange Commission (the “SEC”), we are making this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 available to our stockholders electronically via the Internet at http://ir.evolenthealth.com/financial-info/annual-reports-and-proxy-statements/default.aspx. On or about April 30, 2021, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (“Internet Notice”), containing instructions on how to access this proxy statement and vote online. If you received an Internet Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you specifically request them pursuant to the instructions provided in the Internet Notice. The Internet Notice instructs you on how to access and review all of the important information contained in this proxy statement.

References in this proxy statement to “we,” “us,” “our,” “ours,” and the “Company” refer to Evolent Health, Inc., unless the context otherwise requires.

 

   

Evolent Health, Inc.

Proxy Statement 2021

    1  


PROXY STATEMENT HIGHLIGHTS

This summary highlights selected information in this proxy statement — please review the entire document before voting.

Annual Meeting Information

 

 

Thursday, June 10, 2021, at 10:00 a.m., Eastern Time.

 

 

Via a live audio-only webcast at https://web.lumiagm.com/209916247(password “evolent2021”). There is no physical location for the Annual Meeting.

 

 

The record date is April 15, 2021.

All of our Annual Meeting materials are available in one place at http://ir.evolenthealth.com/financial-info/annual-reports-and-proxy-statements/default.aspx. There, you can download electronic copies of our Annual Report and proxy statement.

 

Voting Items    Recommendation

Item 1

       
Approve the proposed board declassification charter amendment   

Our Board has determined it is in the best interests of the Company and our stockholders to amend our Restated Certificate of Incorporation to phase out the classified Board

 

LOGO

  

FOR

 

6 - 7

Item 2

       
Approve the proposed charter amendment to remove supermajority voting requirements   

Our Board has determined it is in the best interests of the Company and our stockholders to amend our Restated Certificate of Incorporation to remove supermajority voting requirements for charter and bylaw amendments

 

LOGO

  

FOR

 

8 - 9

Item 3

       
Election of directors   

Our four continuing directors up for election bring a valuable mix of skills and qualifications to our Board of Directors

 

LOGO

  

FOR

 

10 - 16

 

Item 4

       

Ratify the appointment of the Company’s independent registered public accounting firm for 2021

 

   Based on its recent evaluation, our Audit Committee believes that the retention of Deloitte & Touche LLP is in the best interests of the Company and its stockholders  

LOGO

  

FOR

 

17 - 19

Item 5

       

Say on pay - an advisory vote on the approval of the Company’s executive compensation

 

   Our executive compensation program reflects our commitment to paying for performance and reflects feedback received from stockholder outreach  

LOGO

  

FOR

 

56

Item 6

       

Approve the proposed Amended and Restated 2015 Omnibus Incentive Compensation Plan

 

   Our Board has determined it is in the best interests of the Company and our stockholders to increase the number of shares available for future awards, and implement certain other changes  

LOGO

  

FOR

 

59 - 67

 

2  

Evolent Health, Inc.

Proxy Statement 2021

   


2020 Performance Highlights

Below are selected highlights of our financial and operational performance in 2020:

 

Revenue    Lives on Platform1
$1.02 billion    Full Platform: 3.6 million

 

   New Century Health Technology & Services Suite: 6.2 million
Adjusted EBITDA2

$41.4 million

Governance Evolution

We are committed to establishing and maintaining strong corporate governance practices that reflect high standards of ethics and integrity and promote long-term stockholder value. In 2020, the Board continued to evolve our governance practices and directly incorporated feedback from our stockholders into the decision-making process. Feedback from our investors was shared with our full Board and directly informed implementation of several key governance enhancements over the past year:

 

  LOGO

Robust stock ownership guidelines for our executive officers and directors

 

  LOGO

Formal policies to ensure that Evolent considers diverse candidates when conducting Board and CEO succession planning

 

  LOGO

Seeking stockholder approval at this year’s Annual Meeting to remove our remaining supermajority vote requirements for charter and by-law amendments

 

  LOGO

Seeking stockholder approval at this year’s Annual Meeting to declassify the Board, and

 

  LOGO

Market-standard proxy access by-law

2020 Compensation Program Highlights

Our executive compensation program is designed to facilitate high performance and generate results that will create value for our stockholders. We structure compensation to pay for performance, reward our executives with equity in the Company in order to align their interests with the interests of our stockholders and allow our executives to share in our stockholders’ success, which we believe creates a performance culture, maintains morale and attracts, motivates and retains top executive talent.

 

CEO Target Pay    Other NEOs Target Pay
LOGO    LOGO

 

(1) 

As of December 31, 2020.

 

(2) 

Non-GAAP measure, see Appendix C for definition and reconciliation to net loss attributable to common shareholders of Evolent Health, Inc. Net loss attributable to common shareholders of Evolent Health, Inc. was $(334.2) million for the year ended December 31, 2020.

 

   

Evolent Health, Inc.

Proxy Statement 2021

    3  


Target and Realized CEO Compensation (1)

 

LOGO

 

(1) 

The realized compensation levels shown include base salary paid in each year, bonuses paid in respect of each year, and payout of all long-term incentives that vested each year (i.e., the value at the time of vesting of RSUs and options in the first quarter of the year after the year in question).

 

(2) 

In 2019, the Company experienced a declining stock price, that in combination with the 3-year performance LSU grants, greatly impacted the value of our NEOs’ total actual compensation realized as compared to total target compensation. In the second half of 2020, the Company’s stock price began to recover, but the use of 3-year performance LSU grants in 2019 and 3-year and 3.5-year performance LSU grants in 2020 continued to greatly impact the value of our NEOs’ total actual compensation realized as compared to total target compensation. 2020 compensation reflects Mr. Blackley’s compensation, and his first year as CEO.

The primary elements of our fiscal year 2020 executive compensation program are base salary, annual bonuses, equity incentive awards and certain employee benefits. Our Compensation Committee reviews and approves our executive compensation program, and maintains the discretion to adjust awards and amounts paid to our executive officers as it deems appropriate. We believe our named executive officers are compensated in a manner consistent with our strategy, compensation best practices and alignment with stockholders’ interests.

 

4  

Evolent Health, Inc.

Proxy Statement 2021

   


Below is a more detailed summary of best practices that we have implemented with respect to the compensation of our NEOs because we believe they support our compensation philosophy and are in the best interests of our Company and our stockholders.

 

What We Do

LOGO   Strong emphasis on performance-based compensation, with a significant portion of NEO compensation tied to Company performance

 

LOGO   Introduced PSU in 2021 to better align our pay with our performance

 

LOGO   Mix of short-term and long-term incentives

 

LOGO   Aggressive revenue and adjusted EBITDA and other targets for short-term incentive payments generally, with rigorous individual financial and non-financial performance requirements

 

LOGO   Market-aligned change in control and severance agreements for certain executives, with change in control provisions requiring double trigger for acceleration

 

LOGO   Benchmarking against a thoughtfully assembled and representative peer group

 

LOGO   Acceleration of equity in connection with a termination of employment conditioned upon a release of claims and compliance with restrictive covenants

 

LOGO   Compensation decisions for NEOs made by an independent compensation committee advised by independent compensation consultant

 

LOGO   Annual compensation program risk assessment

 

LOGO   Annual say-on-pay vote

 

LOGO   At will employment for NEOs

 

What We Don’t Do

LOGO   No incentives that encourage excessive risk-taking

 

LOGO   No guaranteed incentive awards for executives

 

LOGO   No excise or other tax gross ups on change in control payments

 

LOGO   No perquisites for NEOs other than benefits generally available to our other employees

 

LOGO   No hedging, pledging or short sales of Company stock

 

LOGO   No “single-trigger” change in control acceleration of equity awards

 

LOGO   No dividend equivalent rights on unvested restricted stock units or options

 

 

   

Evolent Health, Inc.

Proxy Statement 2021

    5  


PROPOSAL 1:

AMENDMENTS TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS

Our Second Amended and Restated Certificate of Incorporation (the “Restated Certificate of Incorporation”) currently provides for a classified Board divided into three classes of directors, with each class elected for staggered three-year terms. We instituted this structure at the time of our initial public offering to provide us with stability and continuity and encourage a long-term perspective from our Board.

The Board is proposing these amendments after a review of our corporate governance principles. In evaluating the continuation of the classified Board, we considered arguments in favor of and against declassification. While we believe that the continuity and long-term perspectives associated with a classified Board are important considerations, there are many potential advantages to declassification of the Board, including the ability of stockholders to evaluate directors annually. Annually elected boards are perceived by many institutional stockholders as increasing the accountability of directors to such stockholders. After carefully weighing these considerations, and after seeking and carefully weighing input from our stockholders, the Board approved and determined it is in the best interests of the Company and our stockholders to amend our Restated Certificate of Incorporation to phase out the classified Board so that the Board is fully declassified by the 2023 annual meeting of stockholders (the “Declassification Amendment”). The Board recommends that stockholders approve the Declassification Amendment, which is attached to this Proxy Statement as Appendix A.

The proposed Declassification Amendment will amend Article Five of our Restated Certificate of Incorporation to provide that our classified Board structure will be phased out beginning at the Annual Meeting such that at and after the 2023 annual meeting of stockholders, all directors will be up for election and will serve for a term of one year and until such directors’ successors are duly elected and qualified or until such directors’ earlier death, resignation or removal. Pursuant to the Declassification Amendment, the phase-out of the classified Board commences with this Annual Meeting at which the Class III directors will be up for election and each such director will be elected for a one-year term. At the 2022 annual meeting of stockholders, the Class I and Class III directors will be up for election, and each such director will be elected for a one-year term. Finally, at the 2023 annual meeting of stockholders, all classes of directors will be up for election, and each director elected at the 2023 annual meeting of stockholders (and at all annual meetings thereafter) will be elected for a one-year term and until his or her successor is duly elected and qualified or until such director’s earlier death, resignation or removal.

The Declassification Amendment also provides that directors elected to fill any vacancy on the Board, or to fill newly created director positions resulting from an increase in the number of directors, before the 2023 annual meeting of stockholders would serve the remainder of the term for the class to which they are elected.

Under Delaware law, directors of companies that have a classified Board may be removed only for cause, unless the certificate of incorporation provides otherwise, and directors of companies that do not have a classified board may be removed with or without cause. Article Five of our Restated Certificate of Incorporation provides that a director may be removed from office only with cause and upon the approval of holders of 75% of the total voting power of the outstanding shares of stock entitled to vote generally in the election of directors. The Declassification Amendment will amend such provision to provide that, beginning with the 2023 annual meeting of stockholders (that is, when our Board is no longer classified) a director may be removed from office with or without cause and upon the approval of a majority of the voting power of the outstanding shares of stock entitled to vote in the election of directors.

This description of the proposed Declassification Amendment is only a summary of the proposed amendments to our Restated Certificate of Incorporation and is qualified in its entirety by reference to,

 

6  

Evolent Health, Inc.

Proxy Statement 2021

   


Proposal 1: Amendments to the Company’s Certificate of Incorporation to Declassify the Board of Directors

 

and should be read in conjunction with, the full text of Article Five of our Restated Certificate of Incorporation, as proposed to be amended, a copy of which is attached to this Proxy Statement as Appendix A.

The affirmative vote of the holders of at least 75% of the voting power of the outstanding shares of our Class A stock entitled to vote with respect to this proposal is required to approve this proposal.

If our stockholders approve the proposed Declassification Amendment, we intend to file a Certificate of Amendment setting forth the Declassification Amendment with the Secretary of State of the State of Delaware during the Annual Meeting, after the certification of the vote on this Proposals 1 and 2 and prior to the closing of the polls on Proposal 3 regarding the election of directors. The Declassification Amendment will become effective upon the filing and effectiveness of the certificate of amendment. In that case, each of the Class III directors who are nominated for election at the Annual Meeting would stand for election under Proposal 3 for a one-year term expiring at the 2022 annual meeting. At the 2022 annual meeting, each of the Class III and Class I directors who are nominated for election would be elected for a one-year term. At the 2023 annual meeting and at annual meetings after 2023, all nominees for director would be elected for a one-year term. This would result in the entire Board being elected annually for one-year terms beginning at the 2023 annual meeting of stockholders.

If our stockholders do not approve this proposed amendment to the Restated Certificate of Incorporation, our Board will remain classified, and the Class III directors will stand for election under Proposal 3 for a three-year term.

The Declassification Amendment does not change the present number of directors or the Board’s authority to change that number and to fill any vacancies or newly created directorships.

The Board also intends to approve conforming amendments to our Bylaws, contingent upon stockholder approval of the Declassification Amendment.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENTS TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS.

 

   

Evolent Health, Inc.

Proxy Statement 2021

    7  


PROPOSAL 2:

AMENDMENTS TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS

Our Restated Certificate of Incorporation currently provides that certain amendments to the Restated Certificate of Incorporation or the Company’s Third Amended and Restated By-Laws (the “Restated By-Laws”) require the affirmative vote of the holders of at least 75% of the voting power of the outstanding shares of the Company’s capital stock entitled to vote with respect thereto. We refer to these provisions listed below as the “Supermajority Voting Requirement.” We instituted the Supermajority Voting Requirement at the time of our initial public offering to protect against self-interested action on the part of large stockholders by requiring broad stockholder support of certain types of governance changes.

The Board is proposing these amendments after a review of our corporate governance principles. In evaluating the continuation of the Supermajority Voting Requirement, we considered arguments in favor of and against the provisions. We recognize that supermajority voting requirements are intended to protect against self-interested action on the part of large stockholders by requiring broad stockholder support of certain types of governance changes. In this regard, the proposed amendments may make it easier for one or more stockholders to effect corporate governance changes in the future. Nevertheless, the Board recognizes that many of our stockholders and others may view supermajority voting provisions as a method to limit the Board’s accountability to stockholders or be a way to limit stockholder participation in the corporate governance of the Company.

After carefully weighing these considerations, and after seeking and carefully weighing input from our stockholders, the Board approved and determined it is in the best interests of the Company and our stockholders to amend our Restated Certificate of Incorporation to remove the Supermajority Voting Requirement contained therein. If approved, future stockholder-approved amendments to the By-Law and Certificate of Incorporation provisions listed above will not be subject to the Supermajority Voting Requirement and will instead require the affirmative vote of a majority of the Company’s outstanding shares of stock entitled to vote generally in the election of directors (the “Supermajority Amendment”). The Board recommends that stockholders approve the Supermajority Amendment, which is attached to this Proxy Statement as Appendix B.

Specifically, Article VII of the Restated Certificate of Incorporation provides that any adoption, alteration, amendment, or repeal of the Restated By-Laws must be approved pursuant to the Supermajority Voting Requirement. In addition, Article VIII of the Restated Certificate of Incorporation provides that the provisions of Article V (board size, classification and tenure, board vacancies and director removal), Sections 6.01 (stockholder action by written consent) and 6.02 (special meetings of stockholders) of Article VI, Articles VII (amendments to by-laws), Article VIII (amendments to certificate of incorporation), Article IX (indemnification and limitation of liability of directors), Article X (opt-out of Section 203 of the DGCL and limitation on certain business combinations) and Article XI (jurisdiction and forum) may not be repealed or amended, and no other provision may be adopted, amended or repealed which would have the effect of modifying or circumventing any such provisions, without approval pursuant to the Supermajority Voting Requirement. This Proposal 2 proposes to amend these provisions by replacing the reference to “75%” with “a majority, as well as remove certain obsolete language.

This description of the Supermajority Amendment is only a summary of the proposed amendments to our Restated Certificate of Incorporation and is qualified in its entirety by reference to, and should be read in conjunction with, the full text of Articles VII and VIII of our Restated Certificate of Incorporation, as proposed to be amended, a copy of which is attached to this Proxy Statement as Appendix B.

 

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Proxy Statement 2021

   


Proposal 2: Amendments to the Company’s Certificate of Incorporation to Eliminate Supermajority Voting Requirements

 

The affirmative vote of the holders of at least 75% of the voting power of the outstanding shares of our Class A stock entitled to vote with respect to this proposal is required to approve this proposal.

If our stockholders approve the proposed Supermajority Amendment, we intend to file a Certificate of Amendment setting forth the Supermajority Amendment and, if approved by stockholders, the Declassification Amendment described in Proposal 1 with the Secretary of State of the State of Delaware during the Annual Meeting, after the certification of the votes on Proposals 1 and 2, and prior to the closing of the polls on Proposal 3 regarding the election of directors. The Supermajority Amendment will become effective upon the filing and effectiveness of the certificate of amendment.

If our stockholders do not approve this proposed amendment to the Restated Certificate of Incorporation, the Supermajority Amendment will not become effective.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENTS TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS.

 

   

Evolent Health, Inc.

Proxy Statement 2021

    9  


PROPOSAL 3:

ELECTION OF DIRECTORS

Our Board currently consists of ten members and is divided into three staggered classes of directors, as nearly equal in number as possible. The members of Class III are due to stand for election at the Annual Meeting.

Proposal 1 requests that our stockholders approve an amendment to our Restated Certificate of Incorporation to phase out the classified Board so that the Board is fully declassified at the 2023 annual meeting of stockholders. If Proposal 1 is approved, we intend to file an amendment to our Restated Certificate of Incorporation to effect the Declassification Amendment with the Secretary of State of the State of Delaware during the Annual Meeting, after the certification of the vote on Proposals 1 and 2 and prior to the closing of the polls on this Proposal 3. The Declassification Amendment will become effective upon such filing and effectiveness. In that case, each Class III director nominee will stand for election under this Proposal 3 for a one-year term expiring at the 2022 annual meeting of stockholders. If Proposal 1 is not approved, our Board will remain classified, and each Class III director nominee will stand for election under this Proposal 3 for a three-year term expiring at the 2024 annual meeting of stockholders.

Upon unanimous recommendation by the Nominating and Governance Committee of the Board, the Board proposes that the following nominees, Craig Barbarosh, Kim Keck, Cheryl Scott and Frank Williams, each a current Class III Director, be elected for new terms as described above and until their successors are duly elected and qualified. Each of the nominees has consented to serve if elected. If any of them becomes unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxy holders will vote for the substitute nominee designated by the Board. There is no limit on the number of terms a director may serve on our Board.

Pursuant to the stockholders agreement we entered with certain stockholders at the time of our initial public offering, for so long as University of Pittsburgh Medical Center (“UPMC”) owns at least 40% of the shares of common stock held by it upon the completion of our initial public offering, UPMC will be entitled to nominate two directors to serve on our Board. When UPMC owns less than 40% but at least 5% of the shares of common stock held by it upon the completion of our initial public offering, UPMC will be entitled to nominate one director to serve on our Board. UPMC owns more than 40% of the shares of our common stock it held upon the completion of our initial public offering as of the date of this proxy statement. Pursuant to these provisions, UPMC has designated Diane Holder and David Farner. In accordance with a Cooperation Agreement entered into on December 21, 2020 (the “Cooperation Agreement”) between us and Engaged Capital, LLC and certain of its affiliates (the “Engaged Group”), the Board appointed Craig Barbarosh as a Class III Director and agreed to nominate Mr. Barbarosh for election to the Board at the Annual Meeting. For additional information on the Cooperation Agreement, see “Corporate Governance—Cooperation Agreement.”

Information Regarding Director Nominees and Directors

Set forth below is biographical information about each of the directors and director nominees. In addition, we have described the experience, qualifications, attributes and skills of each director the Board considered in determining that such director should serve on our Board.

 

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Proposal 3: Election of Directors

 

Director/Nominee Skills Matrix

 

          Barbarosh*   Blackley   D’Amato   Duffy   Farner   Grua   Holder   Keck*   Scott*   Williams*
LOGO   Risk Oversight/Management Experience allows the Board to oversee and understand the most significant risks facing the Company                    
LOGO   Healthcare Industry Experience is critical for understanding and overseeing the Company’s strategy and challenges                    
LOGO   Financial Expertise/Literacy adds value in oversight of our financial reporting and internal controls                      
   LOGO      Executive Experience supports our management team through relevant advice and leadership                        
LOGO   Technology Expertise brings value in overseeing innovative technology developments of our platform, as well as cybersecurity and data privacy                              
LOGO   ESG Expertise allows the Board to assess and consider adopting environmental, social and governance practices and interact effectively with stakeholders                            
LOGO   Government/Regulatory/Public Policy Expertise adds value to the oversight of regulated aspects of our business and general industry developments                                

 

*

Standing for election at the Annual Meeting

 

 

   

Evolent Health, Inc.

Proxy Statement 2021

    11  


PROPOSAL 3: ELECTION OF DIRECTORS

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE FOUR DIRECTOR NOMINEES NAMED ABOVE.

 

Directors Standing for Election

 

Election of Class III Directors  

 

 

LOGO

Independent Director

 

Partner, Katten Muchin Rosenman LLP

 

Director Since

December 2020

 

Other Public Boards

Landec Corporation

Nextgen Healthcare, Inc. Sabra Health Care REIT, Inc.

 

Evolent Board Committees

•  Compensation, Strategy

 

 

Craig Barbarosh, Age 53

 

 

Craig Barbarosh has been a partner at the law firm of Katten Muchin Rosenman since 2012. From 1999 until joining Katten, Mr. Barbarosh was a partner at another international law firm. Mr. Barbarosh currently serves as the Chairman of the Board of Directors for the Landec Corporation and has been an independent director there since October 2019. Mr. Barbarosh is also currently the Vice Chairman of the Board of Directors, Chairman of the Compensation Committee and a member of the Nominating and Governance Committee for Nextgen Healthcare, Inc. since 2009. He is also currently the Chair of the Audit Committee and a member of the Compensation Committee for Sabra Health Care REIT, Inc. He previously served as an independent director on the Boards of Directors of Aratana Therapeutics, Inc., BioPharmX, Inc., and Bazaarvoice, Inc. Mr. Barbarosh also served as the independent board observer for Payless Holdings, LLC and as an independent director for Ruby Tuesday, Inc. He holds his J.D. (with honors) from the University of the Pacific, McGeorge School of Law and earned his B.A. in Business Economics from the University of California at Santa Barbara.

 

 

Qualifications:

We believe that Mr. Barbarosh is qualified to serve on our Board because of his healthcare industry knowledge and experience as a business leader and public company board member.

 

Skills:

 

LOGO LOGO    LOGO    LOGO   

   

 

LOGO

Independent Director

 

President and Chief Executive Officer, Blue Cross Blue Shield Association

 

Director Since

January 2021

 

Other Public Boards

Oak Street Health, Inc.

 

Evolent Board Committees

•  Audit, Nominating and Corporate Governance

 

 

Kim Keck, Age 57

 

 
 

Kim Keck has served as the President and CEO of Blue Cross Blue Shield Association since January 2021 . From June 2016 to December 2020, Ms. Keck previously served as the President and Chief Executive Officer of Blue Cross Blue Shield of Rhode Island. Previously, Ms. Keck held several leadership roles at Aetna from 2001 to 2016, including Senior Vice President from 2010 to 2016. Ms. Keck serves on the Board of Directors of Oak Street Health and the Blue Cross Blue Shield Association. She received a B.A. in Mathematics from Boston College and an MBA in Finance from the University of Connecticut and is a Chartered Financial Analyst.

 

 

 

Qualifications:

We believe that Ms. Keck is qualified to serve on our Board because of her extensive experience in the healthcare industry, particularly within the health insurance payer community.

 

Skills:

 

LOGO LOGO   LOGO   LOGO   LOGO   LOGO   LOGO

 

Skills Key

    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
    Risk Oversight   Healthcare   Finance   Executive   Technology   ESG   Govt/Regulatory

 

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Proxy Statement 2021

   


PROPOSAL 3: ELECTION OF DIRECTORS

 

LOGO

 

Independent Director

 

Main Principal, McClintock Scott Group

 

Director Since

November 2015

 

Other Public Boards

Progyny, Inc.

 

Evolent Board Committees

•  Audit, Compensation, Nominating and Corporate Governance

 

 

Cheryl Scott, Age 71

 

 

Cheryl Scott has served as the Main Principal of the McClintock Scott Group since July 2016. From June 2006 to July 2016, Ms. Scott served as Senior Advisor to the Bill & Melinda Gates Foundation. Before joining the foundation, Ms. Scott served for eight years as President and Chief Executive Officer of Group Health Cooperative. She previously served as that organization’s Executive Vice President and Chief Operating Officer. Ms. Scott currently serves on a variety of private and not-for-profit boards. She serves on the Board of Directors of Progyny, Inc., and was a member of the board of directors of Recreational Equipment Incorporated (REI) from 2005 to 2017. Ms. Scott received her bachelor’s degree in communications and master’s degree in health management from the University of Washington.

 

 

Qualifications:

We believe that Ms. Scott is qualified to serve on our Board because of her extensive career in healthcare, leadership and corporate governance, including as the Chief Executive Officer of Group Health Cooperative.

 

Skills:

 

LOGO LOGO    LOGO    LOGO    LOGO    LOGO

   

LOGO

 

Non-Independent Director

 

Executive Chairman and Former CEO,

Evolent Health, Inc.

 

Director Since

August 2011

 

Other Public Boards

None

 

Evolent Board Committees

None

 

 

Frank Williams, Age 54

 

 

Frank Williams, our co-founder, has served as our Executive Chairman since October 2020, and served as our Chief Executive Officer from August 2011 until becoming Executive Chairman. He served as the Chief Executive Officer of The Advisory Board from 2001 to 2008. Mr. Williams was a member of the board of directors of The Advisory Board, a public company, from 2001 to 2015. Prior to joining The Advisory Board, Mr. Williams served as President of MedAmerica OnCall from March 1999 to early 2001, President of Vivra Orthopedics from 1995 to 1999, and as a management consultant for Bain & Co. from June 1988 to June 1990. Mr. Williams holds a bachelor of arts degree in Political Economies of Industrial Societies from the University of California, Berkeley, and a master of business administration from Harvard Business School.

 

 

Qualifications:

We believe that Mr. Williams is qualified to serve on our Board because of his extensive knowledge and experience in all aspects of our business and his extensive experience in the healthcare and consulting services fields, including as Chief Executive Officer of The Advisory Board.

 

Skills:

 

LOGO LOGO    LOGO    LOGO    LOGO    LOGO

 

Skills Key

    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
    Risk Oversight   Healthcare   Finance   Executive   Technology   ESG   Govt/Regulatory

 

   

Evolent Health, Inc.

Proxy Statement 2021

    13  


PROPOSAL 3: ELECTION OF DIRECTORS

 

Other Directors Not Standing for Election at this Annual Meeting

Directors who will continue to serve after the Annual Meeting are:

 

 

Class I Directors with Terms Expiring at the 2022 Annual Meeting  

 

LOGO

 

Non-Independent Director

 

Chief Executive Officer. Evolent Health, Inc.

 

Director Since

April 2018

 

Other Public Boards

None

 

Evolent Board Committees

None

 

 

Seth Blackley, Age 42

 

 

Seth Blackley, our co-founder, has served as our Chief Executive Officer since October 2020, and served as our President from August 2011 until his promotion. Prior to co-founding the Company, Mr. Blackley was the Executive Director of Corporate Development and Strategic Planning at The Advisory Board from June 2007 to August 2011. From 2014 to 2016, Mr. Blackley served on the board of directors of Advanced Practice Strategies. Mr. Blackley is currently a board member of Access Clinical Partners and Iodine Healthcare. Mr. Blackley began his career as an analyst in the Washington, D.C. office of McKinsey & Company. Mr. Blackley holds a bachelor of arts degree in business from The University of North Carolina at Chapel Hill, and a master of business administration from Harvard Business School.

 

 

Qualifications:

We believe that Mr. Blackley is qualified to serve on our Board because of his extensive experience in finance, strategy and operations, especially in the field of healthcare, and his extensive knowledge in all aspects of our business.

 

Skills:

 

LOGO LOGO    LOGO    LOGO    LOGO    LOGO   

   

LOGO

 

Non-Independent Director

 

EVP and Chief Strategic and Transformation Officer, UPMC

 

Director Since

September 2014

 

Other Public Boards

None

 

Evolent Board Committees

None

 

 

David Farner, Age 57

 

 

David Farner has been with UPMC for more than 30 years, holding various senior leadership positions for the last 25 years, including interim Chief Financial Officer. Since 2010, Mr. Farner has served as Executive Vice President and Chief Strategic and Transformation Officer of UPMC. Prior to UPMC, Mr. Farner worked as an auditor at Arthur Anderson & Company. Mr. Farner holds a bachelor of science in computer information systems from Westminster College.

 

 

 

 

Qualifications:

We believe that Mr. Farner is qualified to serve on our Board because of his extensive career in healthcare and finance, including various roles at UPMC, a large integrated health delivery systems.

 

Skills:

 

LOGO LOGO    LOGO    LOGO

 

Skills Key

    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
    Risk Oversight   Healthcare   Finance   Executive   Technology   ESG   Govt/Regulatory

 

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Proxy Statement 2021

   


PROPOSAL 3: ELECTION OF DIRECTORS

 

LOGO

 

Independent Director

 

Managing Partner, HLM Venture Partners

 

Director Since

January 2020

 

Other Public Boards

None

 

Evolent Board Committees

•  Compensation, Strategy

 

 

Peter Grua, Age 67

 

 

Peter Grua is currently a Managing Partner at HLM Venture Partners (“HLM”), a venture capital investment firm, where his investment activities focus on health services, medical technologies and health care information technologies. Prior to joining HLM, Mr. Grua was a Managing Director at Alex Brown & Sons, an investment banking firm, where he directed research in health care services and managed care. Mr. Grua was previously a director at The Advisory Board Company and Welltower Inc. (formerly Health Care REIT, Inc.), and currently serves as a director at numerous companies including Innovacare Health, Inc., MeQuilibrium, Oceans Healthcare LLC, Ampersand Health, LLC, OnShift, Inc. and Linkwell Health, Inc. Mr. Grua holds a bachelor’s degree from Bowdoin College and a master’s degree in business administration from the Columbia University Graduate School of Business.

 

 

 

Qualifications:

We believe Mr. Grua is qualified to serve on our Board because of his extensive industry experience, including as an investment professional.

 

Skills:

 

LOGO LOGO    LOGO    LOGO

 

 

Class II Directors with Terms Expiring at the 2023 Annual Meeting  

 

LOGO

 

Independent Director

 

Chief Medical Officer,

Vocera Communications, Inc.

 

Director Since

September 2017

 

Other Public Boards

None

 

Evolent Board Committees

•  Compliance and Regulatory Affairs, Nominating and Corporate Governance

 

 

M. Bridget Duffy, MD, Age 62

 

 

M. Bridget Duffy, MD has served as the Chief Medical Officer at Vocera Communications, Inc. since January 2013. Prior to her appointment at Vocera, Dr. Duffy co-founded and served as Chief Executive Officer of ExperiaHealth from November 2010 to December 2012. Dr. Duffy also served as the Chief Experience Officer at the Cleveland Clinic. Dr. Duffy holds a bachelor of science degree from the University of Minnesota and received her doctorate in medicine from the University of Minnesota. She completed her residency in internal medicine at Abbott Northwestern Hospital in Minneapolis, Minnesota.

 

 

 

 

Qualifications:

We believe Dr. Duffy is qualified to serve on our Board because of her extensive experience in healthcare, including as Chief Medical Officer of Vocera.

 

Skills:

 

LOGO LOGO    LOGO    LOGO    LOGO    LOGO

 

Skills Key

    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
    Risk Oversight   Healthcare   Finance   Executive   Technology   ESG   Govt/Regulatory

 

   

Evolent Health, Inc.

Proxy Statement 2021

    15  


PROPOSAL 3: ELECTION OF DIRECTORS

 

LOGO

 

Non-Independent Director

 

EVP, UPMC

 

Director Since

August 2011

 

Other Public Boards

None

 

Evolent Board Committees

•  Compliance and Regulatory Affairs, Strategy

 

 

Diane Holder, Age 71

 

 

Diane Holder has been an Executive Vice President of UPMC since 2007, President of the UPMC Insurance Services Division and President and CEO of UPMC Health Plan since 2004. Ms. Holder holds a bachelor of arts in psychology from the University of Michigan and a master of science in social work from Columbia University.

 

 

 

 

 

 

Qualifications:

We believe that Ms. Holder is qualified to serve on our Board because of her extensive career in healthcare, including as CEO of UPMC Health Plan, part of UPMC, a large integrated health delivery systems.

 

Skills:

 

LOGO LOGO    LOGO    LOGO    LOGO

   

LOGO

 

Independent Director

 

Managing Partner, Sears Road Partners LLC

 

Director Since

April 2016

 

Other Public Boards

None

 

Evolent Board Committees

•  Audit, Strategy

 

 

Michael D’Amato, Age 67

 

  Michael D’Amato has served on our Board since April 2016. Since June 2011, Mr. D’Amato has served as Managing Partner of Sears Road Partners LLC, a private investment company, and since October 2016, Mr. D’Amato has served in various capacities in the finance and strategy functions of Optoro Inc. Prior to joining Sears Road Partners LLC, Mr. D’Amato served as Senior Advisor to Jeff Zients, the Federal Chief Performance Officer and Deputy Director for Management of the Office of Management and Budget from June 2009 to June 2011. From 2004 to 2009, he was a Founding Partner of Portfolio Logic LLC, an investment company focused on small-cap public and private companies, with particular emphasis on healthcare. From 1995 to 2004, he held various executive roles at The Advisory Board, including Chief Financial Officer (1996-1998) and Executive Vice President (1998-2001), and served as a Director from 2001 to 2004. Prior to joining The Advisory Board, Mr. D’Amato held various roles at the management consulting firm Bain & Company, including Senior Partner, where he focused on strategy and organizational development. Mr. D’Amato received a bachelor of science degree from The Massachusetts Institute of Technology and master’s degree in business administration from Harvard Business School.  

Qualifications:

We believe that Mr. D’Amato is qualified to serve on our Board because of his experience in healthcare, finance and consulting, including his roles as Chief Financial Officer and Director of The Advisory Board.

 

Skills:

 

LOGO LOGO    LOGO    LOGO

 

 

Skills Key

    LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO
    Risk Oversight   Healthcare   Finance   Executive   Technology   ESG   Govt/Regulatory

 

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Proxy Statement 2021

   


PROPOSAL 4:

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board has appointed the accounting firm of Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm to audit the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2020 and its internal control over financial reporting as of December 31, 2020.

As we previously disclosed in a Current Report on Form 8-K filed with the SEC on April 10, 2019, the Audit Committee conducted a competitive process to determine the Company’s independent registered public accounting firm to provide audit services as of and for the 2019 fiscal year. Following review of proposals from the independent registered public accounting firms that participated in the process, the Audit Committee notified PricewaterhouseCoopers LLP (“PwC”) on April 8, 2019, that it was dismissed as the Company’s independent registered public accounting firm, effective immediately. On April 8, 2019, the Audit Committee approved the engagement of Deloitte as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements as of and for the year ended December 31, 2019.

The audit reports of PwC on the Company’s consolidated financial statements as of and for the years ended December 31, 2018 and December 31, 2017, did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the fiscal years ended December 31, 2018 and 2017, and the subsequent interim period through April 8, 2019, there were no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions between us and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to their satisfaction would have caused PwC to make reference in connection with their opinion to the subject matter of the disagreement. Also, during this same period, there were no reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K, except for a material weakness in internal control over financial reporting related to an insufficient complement of resources with an appropriate level of accounting knowledge, experience and training to address accounting for complex, non-routine transactions. This material weakness was remediated as described in Item 4 to our Quarterly Report on Form 10-Q for the period ended June 30, 2018. PwC has discussed this matter with the Audit Committee, and we have authorized PwC to fully respond to any inquiries of the successor independent registered accounting firm concerning this matter.

During the fiscal years ended December 31, 2018 and December 31, 2017, and the subsequent interim period through April 8, 2019, we have not consulted with Deloitte regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and no written or oral advice was provided to us by Deloitte that it concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, or (ii) any matter that was subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K, or other reportable event of the types described in Item 304(a)(1)(v) of Regulation S-K.

Stockholder ratification of the appointment of Deloitte is not required by law, the NYSE or the Company’s organizational documents. However, as a matter of good corporate governance, the Board has elected to submit the appointment of Deloitte to the stockholders for ratification at the Annual Meeting. Even if the appointment is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time if the Audit Committee believes that such a change would be in the best interest of the Company and its stockholders. If stockholders do not ratify the appointment of Deloitte, the Audit Committee will take that fact into consideration, together with such other factors it

 

   

Evolent Health, Inc.

Proxy Statement 2021

    17  


Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm

 

deems relevant, in determining its next selection of an independent registered public accounting firm. Deloitte is considered by our management to be well-qualified. Deloitte has advised us that neither it nor any member thereof has any financial interest, direct or indirect, in the Company or any of our subsidiaries in any capacity.

A representative of Deloitte will be present at the Annual Meeting, will be given the opportunity to make a statement at the Annual Meeting if he or she so desires and will be available to respond to appropriate questions.

A majority of all of the votes cast at the Annual Meeting at which a quorum is present in person (by virtual attendance) or represented by proxy is required for the ratification of the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2021. We will treat abstentions as shares that are present and entitled to vote for purposes of determining the presence or absence of a quorum. Abstentions will have no effect on this proposal. Because the ratification of the appointment of the independent auditor is considered a “routine” matter, there will be no broker non-votes with respect to this proposal.

Fee Disclosure

The following is a summary of the fees billed to us by Deloitte for professional services rendered for the fiscal years ended December 31, 2020 and 2019.

 

     2020     2019  
 

Audit Fees

  $ 2,738,600     $ 2,316,250  
 

Audit-Related Fees

          818,933  
 

Tax Fees

    1,030,830       933,914  
 

All Other Fees

           
 

Total

  $ 3,769,430     $ 4,069,097  

Audit Fees

“Audit Fees” include fees associated with professional services rendered for the audit of the financial statements and services that are normally provided by Deloitte in connection with statutory and regulatory filings or engagements. For example, audit fees include fees for professional services rendered in connection with quarterly and annual reports, the issuance of consents by Deloitte to be named in our registration statements and to the use of their audit report in the registration statements and the issuance of an attestation of management’s report on internal controls over financial reporting.

Audit-Related Fees

“Audit-Related Fees” refers to fees for assurance services in connection with our securities offerings, as well as related services associated with transactions and proposed transactions (including acquisitions and securities offerings) and permissible internal control services for the SOC 2 reports and management assertion.

Tax Fees

“Tax Fees” refers to fees and related expenses for professional services for tax compliance, tax advice and tax planning.

All Other Fees

“All Other Fees” refers to fees and related expenses for products and services other than services described above, including fees to the independent registered public accounting firm or its affiliates for annual subscriptions to online accounting and tax research software applications and data.

 

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Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm

 

Our Audit Committee considered whether the provision by Deloitte and PwC, as applicable, of any services that would be required to be described under “All Other Fees” would have been compatible with maintaining Deloitte’s and PwC’s respective independence from both management and the Company.

Pre-Approval Policies and Procedures of our Audit Committee

Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee is directly responsible for the appointment, compensation, retention, removal and oversight of the independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. Our Audit Committee must pre-approve all audit, non-audit and any other services to be provided by the independent registered public accounting firm. All of the fees billed by Deloitte for the professional services rendered for us for the fiscal years ended December 31, 2019 and 2020, were pre-approved by our Audit Committee.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

   

Evolent Health, Inc.

Proxy Statement 2021

    19  


AUDIT COMMITTEE REPORT

Notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933, as amended, (the “Securities Act”) or the Securities Exchange Act of 1934 (the “Exchange Act”), that might incorporate this proxy statement or future filing with the SEC, in whole or in part, the following report shall not be deemed incorporated by reference into any such filing.

The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Our management is responsible for the preparation, presentation and integrity of our financial statements, the application of accounting and financial reporting principles and our internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing our financial statements, expressing an opinion as to their conformity with accounting principles generally accepted in the United States and auditing management’s assessment of the effectiveness of internal control over financial reporting.

The undersigned members of the Audit Committee of the Board of Directors of Evolent Health, Inc. submit this report in connection with the committee’s review of the financial reports for the fiscal year ended December 31, 2020 as follows:

 

1.

the Audit Committee has reviewed and discussed with management the audited financial statements and internal control over financial reporting of Evolent Health, Inc. for the fiscal year ended December 31, 2020;

 

2.

the Audit Committee has discussed with representatives of Deloitte the matters required to be discussed with them pursuant to Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board; and

 

3.

the Audit Committee has received the written disclosures and the letter from Deloitte required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s communications with the Audit Committee concerning independence, and has discussed with Deloitte its independence.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements of Evolent Health, Inc. be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, for filing with the SEC.

Submitted by the Audit Committee

Michael D’Amato (Chairman)

Kim Keck

Cheryl Scott

 

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Evolent Health, Inc.

Proxy Statement 2021

   


 

CORPORATE GOVERNANCE AND BOARD STRUCTURE

Corporate Governance Highlights

The Board continues to evaluate the Company’s corporate governance policies and practices to ensure that the right mix of directors are represented in our boardroom to best serve our stockholders by ensuring effective oversight of our strategy and management.

 

 

Board Composition

 

  

 

Board Performance

 

• In 2020, adopted formal policy to ensure that Evolent considers diverse candidates for Board and CEO succession

 

• Added six independent directors since late 2015

 

• Further empowered Lead Independent Director role

 

• All NYSE-required Board committees consist solely of independent members

 

• Independent committee chairs

 

• Executive sessions of independent directors at each meeting

 

• Board and committees may engage outside advisers independently of management

 

  

• Oversight of key human capital issues, including diversity and inclusion and executive succession planning

 

• Annual Board, committee and director evaluations

 

• Commitment to continuing director education

 

• Oversight of key risk areas and certain aspects of risk management efforts

 

Policies, Programs and Guidelines

 

  

 

Stockholder Rights

 

• In 2020, adopted robust stock ownership guidelines for executives and directors

 

• Compensation clawback policy

 

• Comprehensive Code of Conduct and Business Ethics

 

• Prohibition on hedging and pledging for any officers or directors

  

• Seeking stockholder approval of Board declassification so directors will be elected annually (See Proposal 1)

 

• Seeking stockholder approval of removal of supermajority vote requirements (See Proposal 2)

 

• In 2020, adopted market standard proxy access by-law

 

• Directors elected by majority voting except in contested elections

 

• No stockholder rights plan or “poison pill”

We are committed to operating our business under strong and accountable corporate governance practices. Our committee charters, code of business conduct and ethics and corporate governance guidelines are available on our website at www.evolenthealth.com. Any stockholder also may request them in print, without charge, by contacting our Secretary at Evolent Health, Inc., 800 N. Glebe Road, Suite 500, Arlington, VA 22203.

Stockholder Engagement

Our Board recognizes the importance of regular, two-way dialogue with our investors. Feedback from Evolent’s stockholders is integral to the Board’s decision-making process and accordingly, in 2020, we contacted stockholders representing approximately 57% of Evolent’s outstanding shares to conduct governance-related engagement. We met with stockholders representing approximately 43% of Evolent’s outstanding shares and Cheryl Scott, who became our Lead Independent Director in early 2021, participated in engagements with stockholders representing approximately 37% of outstanding shares.

During these discussions, our Board and management team gained valuable input from our investors on matters including Evolent’s corporate governance practices, executive compensation program, and

 

   

Evolent Health, Inc.

Proxy Statement 2021

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Corporate Governance and Board Structure

 

approaches to sustainability, risk oversight and human capital management. Feedback from our investors was shared with our full Board and directly informed implementation of several key governance enhancements over the past year:

 

  LOGO

Robust stock ownership guidelines for our executive officers and directors

 

  LOGO

Formal policies to ensure that Evolent considers diverse candidates when conducting Board and CEO succession planning

 

  LOGO

Seeking stockholder approval at this year’s Annual Meeting to remove our remaining supermajority vote requirements for charter and by-law amendments

 

  LOGO

Seeking stockholder approval at this year’s Annual Meeting to declassify the Board, and

 

  LOGO

Market-standard proxy access by-law

Governance-related outreach is incremental to, and often interlaced with, Evolent’s normal-course Investor Relations program in which stockholders typically comprising a large majority of our shares are engaged during road shows and conferences. We value each of the conversations we have with our investors, and recognize the specific value of our discussions centered on corporate governance, especially as we continue enhancing Evolent’s governance practices. We look forward to facilitating ongoing dialogue with our investors in 2021 and beyond.

Board of Directors Meetings and Committees

The Board met fourteen times during 2020. Each incumbent member of the Board attended 75% or more of the meetings of the Board and of the committees on which he or she served that were held during the period for which he or she was a director or committee member, respectively. We do not have a policy on director attendance at our Annual Meeting. None of our directors other than Mr. Williams attended our 2020 annual meeting of stockholders.

Committees of our Board include the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, the Compliance and Regulatory Affairs Committee and the Strategy Committee. The principal functions of each of these committees are briefly described below. The Company’s Audit Committee, Compensation Committee and Nominating and Governance Committee are fully independent under the applicable NYSE listing standards and rules of the SEC. The current charters for each of the Audit Committee, Compensation Committee, Nominating and Governance Committee and Compliance and Regulatory Affairs Committee are available on our website at www.evolenthealth.com.

 

Director

          Audit             Compensation     Nominating and
Corporate
Governance
  Compliance and
Regulatory
Affairs
  Strategy(1)
         

Craig Barbarosh

     x        x
         

Seth Blackley

         
         

Michael D’Amato

  x*          x
         

M. Bridget Duffy, MD

      x*   x  
         

David Farner

         
         

Peter Grua

    x*       x*
         

Diane Holder

        x*    x
         

Kim Keck

   x      x    
         

Cheryl Scott†

   x    x    x    
         

Frank Williams

           
         

Number of 2020 Meetings

   5    5    4   3   N/A

 

x = Current Committee Member

* = Chair

† = Lead Independent Director

(1) 

The Strategy Committee was formed in January 2021.

 

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Evolent Health, Inc.

Proxy Statement 2021

   


Corporate Governance and Board Structure

 

Audit Committee

  

Members:

Michael D’Amato (Chair)

Kim Keck

Cheryl Scott

 

Meetings in 2020: Five

 

The Board has determined that Michael D’Amato and Kim Keck qualify as “audit committee financial experts”, as such term is defined in the rules of the SEC, and that Michael D’Amato, Kim Keck and Cheryl Scott meet the standards of independence required by SEC rules and NYSE listing standards applicable to members of audit committees; the Company’s Audit Committee is fully independent.

  

The Audit Committee responsibilities:

 

• Oversees the quality and integrity of our financial statements and accounting practices;

 

• Selects and appoints an independent registered public accounting firm, such appointment to be ratified by stockholders at our Annual Meeting;

 

• Pre-approves all services to be provided to us by our independent registered public accounting firm;

 

• Reviews and evaluates the qualification, performance, fees and independence of our registered public accounting firm;

 

• Reviews with our independent registered public accounting firm and our management the plan and scope of the accounting firm’s proposed annual financial audit and quarterly review, including the procedures to be utilized;

 

• Reviews with our independent registered public accounting firm and our management the accounting firm’s significant findings and recommendations upon the completion of the annual financial audit and quarterly reviews;

 

• Oversees our internal audit function;

 

• Reviews our annual and interim financial statements, the report of our independent registered public accounting firm on our annual financial statements, Management’s Report on Internal Control over Financial Reporting and the disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our periodic reports and other filings with the SEC;

 

• Meets with our independent registered public accounting firm and our management regarding our internal controls, critical accounting policies and practices and other matters;

 

• Discusses earnings releases and reports to rating agencies with our management;

 

• Assists our Board in the oversight of our financial structure, financial condition and capital strategy;

 

• Administers our policy governing related party transactions; and

 

• Oversees our compliance program, response to regulatory actions involving financial, accounting and internal control matters, internal controls and risk assessment policies.

 

   

Evolent Health, Inc.

Proxy Statement 2021

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Corporate Governance and Board Structure

 

Compensation Committee

  

Members:

Peter Grua (Chair)

Craig Barbarosh

Cheryl Scott

 

Meetings in 2020: Five

 

Except as prohibited by law, applicable regulations of the NYSE, our charter or our second amended and restated by-laws, the compensation committee may delegate its responsibilities to subcommittees or individuals.

 

The Board has determined that all members of the Compensation Committee meet the standards of independence required by SEC rules and NYSE listing standards applicable to service on compensation committees; the Company’s Compensation Committee is fully independent.

  

The Compensation Committee responsibilities:

 

• Sets and reviews our general policy regarding executive compensation;

 

• Determines the compensation (including salary, bonus, equity-based grants and any other long-term cash compensation) of our chief executive officer and our other executive officers;

 

• Oversees our disclosure regarding executive compensation;

 

• Administers our executive bonus and equity-based incentive plans;

 

• Reviews and makes recommendations to our Board with respect to non-employee director compensation; and

 

• Assesses the independence of compensation consultants, legal counsel and other advisors to the Compensation Committee and hires, approves the fees and oversees the work of, and terminates the services of such advisors.

Compensation Consultant

The Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has directly engaged Exequity LLP (“Exequity”) as its independent compensation consultant to provide it with objective and expert analyses, advice and information with respect to executive compensation. All executive compensation services provided by Exequity were directed or approved by the Compensation Committee, and Exequity reports directly to the Compensation Committee on this assignment. Exequity attended a portion of each of the Compensation Committee meetings during 2020. The Compensation Committee has concluded that no conflict of interest exists with Exequity with respect to the services it provided to the Compensation Committee during 2020. Exequity did not provide any services to the Company or its management other than services to the Compensation Committee, and we do not currently expect Exequity to provide other services to the Company while serving as the Compensation Committee’s consultant.

In addition to Exequity, members of our human resources, legal and finance departments support the Compensation Committee in its work management by providing data, analysis and recommendations regarding the Company’s executive and director compensation practices and policies and individual pay recommendations.

Compensation Committee Interlocks and Insider Participation

Craig Barbarosh, Michael D’Amato, Peter Grua, Kenneth Samet and Cheryl Scott served on our Compensation Committee during 2020. None of the members of our Compensation Committee has at any time been an officer or employee of the Company. During 2020, none of our executive officers served as a member of the board of directors or a compensation committee of any entity for which a member of our Board or Compensation Committee served as an executive officer.

 

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Evolent Health, Inc.

Proxy Statement 2021

   


Corporate Governance and Board Structure

 

Nominating and Governance Committee

Members:

M. Bridget Duffy, MD (Chair)

Kim Keck

Cheryl Scott

 

Meetings in 2020: Four

 

The Board has determined that M. Bridget Duffy, MD, Kim Keck and Cheryl Scott meet the standards of independence required by SEC rules and NYSE listing standards; the Company’s Nominating and Governance Committee is fully independent.

  

The Nominating and Governance Committee responsibilities:

 

• Oversees our corporate governance practices;

 

• Reviews our charter, by-laws, committee charters, code of ethics and corporate governance guidelines, and provides recommendations to the Board regarding possible changes;

 

• Evaluates the composition, size, leadership structure and governance of our Board and its committees and makes recommendations regarding the appointment of directors to our committees;

 

• Considers stockholder nominees for election to our Board;

 

• Evaluates and recommends candidates for election to our Board;

 

• Oversees the CEO and management succession planning process;

 

• Reviews the Company’s human resources policies and programs;

 

• Leads the self-evaluation process of our Board and oversees the Board succession planning process;

 

• Oversees the Company’s stockholder engagement program; and

 

• Oversees and monitors general governance matters, including communications with stockholders and regulatory developments relating to corporate governance.

 

Compliance and Regulatory Affairs Committee

Members:

Diane Holder (Chair)

M. Bridget Duffy, MD

 

Meetings in 2020: Three

 

  

The Compliance and Regulatory Affairs Committee responsibilities:

 

• Assists our Board in carrying out its responsibilities relating to regulatory compliance and ethics;

 

• Oversees our compliance program;

 

• Reviews and recommends for approval our code of business conduct and ethics and other risk oversight documentation;

 

• Oversees our response to regulatory actions, and data privacy and cybersecurity issues; and

 

• Reviews corrective measures for issues reported by our partners, our employees and our vendors.

 

Strategy Committee

Members:

Peter Grua (Chair)

Craig Barbarosh

Michael D’Amato

Diane Holder

 

Meetings in 2020: N/A

 

   The Strategy Committee was formed in January 2021 and makes recommendations to the Board with respect to value creation initiatives, including through improvements to the Company’s operations, financial performance (including cost reduction) and overall business strategy and direction. See “Corporate Governance — Cooperation Agreement.”

 

   

Evolent Health, Inc.

Proxy Statement 2021

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Corporate Governance and Board Structure

 

Code of Business Conduct and Ethics

Our Board has adopted a code of business conduct and ethics that applies to all of our directors, officers and other employees, including our principal executive officer, principal financial officer and principal accounting officer. Any waiver of the code for directors or executive officers and any amendment of the code may be made only by our Board. We intend to make disclosures of such waivers or amendments required by SEC rules and NYSE listing standards, if any, through publication on our website, www.evolenthealth.com.

Corporate Governance Guidelines

Our Board has adopted corporate governance guidelines that serve as a flexible framework within which our Board and its committees operate. These guidelines cover a number of areas, including the size and composition of the Board, Board membership criteria and director qualifications, director responsibilities, Board agenda, roles of the Chairman of the Board, Chief Executive Officer and presiding director, meetings of independent directors, committee composition, Board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. In 2020, we amended our corporate governance guidelines to, among other important governance enhancements, adopt formal policies to ensure that Evolent considers diverse candidates when conducting Board and CEO succession planning.

Board Leadership Structure

As part of our ongoing commitment to strong and accountable corporate governance practices, the Nominating and Corporate Governance Committee regularly reviews the leadership structure of the Board, taking into account the Company and its needs, market practices, board skills and experiences, investor feedback, and corporate governance perspectives, among other things. The Board believes it is in the best interests of the Company and its stockholders for the Board to have flexibility in determining the Board leadership structure of the Company based on these factors.

In August 2020, as part of the Company’s recent CEO succession planning process, the Board created a new leadership structure, with a new executive chair, a continuing strong lead independent director, a new separate chief executive officer and continuing strong independent committee chairs. After careful consideration, the Board determined that having separate chief executive officer and chair roles, with Mr. Blackley serving as CEO and Mr. Williams serving as Executive Chairman, would be in the best interests of the Company and its stockholders at this time. As CEO, Mr. Blackley is responsible for developing and overseeing the Company’s business strategy as well as managing the day-to-day operations of the Company. With Mr. Williams, one of our co-founders, serving as Executive Chairman, the Company continues to leverage his significant experience and knowledge, and strong working relationships with the independent members of the Board.

Because our Executive Chairman is not independent, in accordance with the Company’s Corporate Governance Guidelines, the independent Board members have selected Cheryl Scott as Lead Independent Director. The Board believes that having a strong lead independent director and strong independent committee chairs, along with an executive chair and a separate chief executive officer, provides an effective balance between strong company leadership and independent oversight. The Board is committed to continuously evaluating this structure to ensure that it promotes effective governance.

As part of our ongoing commitment to strong and accountable corporate governance practices, we enhanced the role and further strengthened the responsibilities of the Lead Independent Director (previously the Presiding Director role). The enhanced duties of the Lead Independent Director currently include:

 

 

presiding at all meetings of the Board at which the Chair is not present, including executive sessions of the Board or meetings of the independent directors;

 

 

serving as liaison between the Chair and management, and the independent directors;

 

 

in consultation with the Chair, approving meeting agendas for the Board;

 

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Proxy Statement 2021

   


Corporate Governance and Board Structure

 

 

approving meeting schedules to ensure that there is sufficient time for discussion of all agenda items;

 

 

calling meetings of the Independent Directors;

 

 

coordinating with the Nominating and Governance and Compensation Committees on the CEO’s performance evaluation;

 

 

overseeing Board discussions about CEO succession planning, including issues related to management development; and

 

 

if stockholders request to engage with the Board to discuss matters related to corporate governance and oversight, ensuring that he or she will be available for appropriate engagements with those stockholders.

Executive Sessions of Non-Management Directors

Our corporate governance guidelines provide that the independent directors serving on the Board should hold an executive session during each Board meeting. The executive sessions are chaired by our Lead Independent Director and facilitate candid discussion of the independent directors’ viewpoints regarding the performance of management and the Company.

Cooperation Agreement

On December 21, 2020, we signed a Cooperation Agreement with our stockholder Engaged Capital, LLC (“Engaged Capital”), after a series of discussions on the composition of the Board and other matters.

Pursuant to the Cooperation Agreement, we appointed Craig Barbarosh to the Board as a Class III director with a term expiring at the Annual Meeting and appointed Mr. Barbarosh to the Compensation Committee of the Board. We also agreed to nominate Mr. Barbarosh for election to the Board at the Annual Meeting. In addition, the Company agreed to establish a Strategy Committee, comprised of four non-executive directors, including Mr. Barbarosh, to make recommendations to the Board with respect to value creation initiatives, including through improvements to the Company’s operations, financial performance (including cost reduction) and overall business strategy and direction.

During the term of the Cooperation Agreement and so long as Engaged Capital continuously beneficially owns at least the lesser of (1) 5.0% of the Company’s then outstanding Class A common stock and (2) 4,288,937 shares of the Company’s Class A common stock (subject to adjustment for stock splits, reclassifications and combinations), Engaged Capital is entitled to recommend a replacement independent director in the event Mr. Barbarosh ceases to be a director of the Company, subject to the approval of the Board, which cannot be unreasonably withheld.

During the term of the Cooperation Agreement, Engaged Capital will vote all of its shares of the Company’s Class A common stock at all annual and special meetings (including the Annual Meeting) as well as in any consent solicitations of the Company’s stockholders (1) in favor of the slate of directors recommended by the Board, against or withhold from voting in favor of the election of any director nominee not approved, recommended and nominated by the Board for election and against any removal of any director of the Board, (2) in favor of the Declassification Amendment and (3) in accordance with the Board’s recommendation for any other matter (unless Institutional Shareholder Services Inc. or Glass Lewis & Co., LLC issues a contrary recommendation).

During the term of the Cooperation Agreement, Engaged Capital will be subject to customary standstill restrictions, including with respect to acquiring beneficial ownership in the aggregate of more than 12.0% of the Company’s Class A common stock, nominating or recommending for nomination any persons for election to the Board (except as expressly permitted by the Cooperation Agreement), submitting any proposal for consideration at any stockholder meeting and soliciting any proxy, consent or other authority to vote from stockholders or conducting any other referendum (including any “withhold,” “vote no” or similar campaign)..

The Cooperation Agreement will terminate on the earliest to occur of (1) 30 days before the director nomination notice deadline for the 2022 annual meeting of the Company’s stockholders, (2) 30 days prior to the first anniversary of the director nomination notice deadline for the 2021 Annual Meeting and (3) the closing of an extraordinary transaction.

 

   

Evolent Health, Inc.

Proxy Statement 2021

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Corporate Governance and Board Structure

 

Corporate and Social Responsibility

We are committed to corporate and social responsibility, and work collaboratively with our stakeholders to promote environmentally sustainable and socially responsible business practices. Our Board oversees our corporate and social responsibility programs, and is committed to supporting our efforts to operate as a good corporate citizen.

Pandemic Response

Our mission-driven, service-oriented culture helped us navigate the challenges of the COVID-19 pandemic. From the beginning of the pandemic, we were committed to the health and safety of our employees and their families. We implemented 100% work from home across our employee population, instituted work from home office set-up support, created additional mental health offerings, and launched a number of holistic wellness initiatives that include yoga, cooking sessions, meditation and wellness challenges.

Taking Care of Our People

Attention to the wellbeing of our employees is not a new phenomenon for us. We aim to attract and retain the highest caliber of health care talent, and strive to cultivate a culture where employees are valued, celebrated and connected to our important mission. Part of that culture is structuring our compensation to annually incent and reward exceptional performance at all levels in the organization. Ensuring that our employees are compensated fairly and have the appropriate incentives in place to meet and exceed their potential is an integral part of our approach to human capital management.

We also believe that the continued development of our talent is important in continuing to maintain growth as a company as well as the growth of our individual talent. Training programs are available to all employees through our company portal that is managed by our learning and development team, and includes a portal where employees can find on-demand learning opportunities in addition to live training sessions.

Diversity, Equity and Inclusion

We believe that Evolent is a stronger company with diverse employees and encourage hiring and retention practices that focus on top performing talent regardless of gender, national origin, ethnicity or other protected class. In 2020, we organized additional training for leadership in diversity, equity and inclusion throughout the organization and the appointment of a Head of Diversity, Equity, and Inclusion to focus on diversity.

We are proud of our progress in cultivating a diverse and supportive workplace. In 2020, representation of female and minority leaders in the company increased by two points each, at managing director and above levels. As of December 31, 2020:

 

LOGO

46%

of Evolent’s managing directors

and above levels were women

 

LOGO

28%

of Evolent’s managing directors

and above levels were minorities

and we will continue to push for both inclusion and transparency. Evolent received a 100% score on the Human Rights Campaign’s Corporate Equality Index, which rates employers on their support and inclusion of LGBTQ+ employees. We also were named to the Parity.org Best Companies for Women to Advance List 2020 for creating a fair and equitable work environment for women.

Community Engagement

Evolent has fostered a mission-driven, service-oriented culture through embracing opportunities for our employees to give back to the community in which they live and work. Our leadership team has emphasized the importance of building a culture driven by our mission and our core values. Despite COVID, in 2020, Evolent employees logged approximately 15,000 hours of community service and donated to over 30 local charities during our Season of Giving program.

 

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Proxy Statement 2021

   


Corporate Governance and Board Structure

 

Board’s Role in Risk Oversight

 

Our Board plays an active role in overseeing management of our risks. The committees of our Board assist our full Board in risk oversight by addressing specific matters within the purview of each committee.     

Our Audit Committee focuses on financial compliance (i.e., accounting and financial reporting), as well as internal controls and any audit steps taken in light of material control deficiencies. Our Audit Committee discusses our major financial and other risk exposures and the steps that management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.

 

    
    

Our Compensation Committee focuses primarily on risks relating to executive compensation plans and policies.

 

    
    

Our Nominating and Governance Committee focuses on reputational and corporate governance risks relating to our company including the independence of our Board.

 

    
    

Our Compliance and Regulatory Affairs Committee focuses on our regulatory compliance and corporate ethics, as well as risks with respect of cybersecurity and privacy.

 

    

While each of these committees is responsible for evaluating certain risks and overseeing the management of such risks, our full Board remains regularly informed regarding such risks through committee reports and otherwise. In addition, our Board and these committees receive regular reports from our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, General Counsel and other members of senior management regarding areas of significant risk to us, including operational, strategic, legal and regulatory, financial and reputational risks. We believe the leadership structure of our Board supports and promotes effective risk management and oversight.

 

In response to the COVID-19 pandemic, the Company formed an Emergency Preparedness Team, led by the General Counsel and Chief Compliance Officer that focuses on maintaining our workforce in a manner that does not disrupt service delivery or operations. This team also assesses financial and operational impacts of the pandemic on the Company. These findings are reported on a quarterly basis to the Compliance & Regulatory Affairs Committee and the full Board.

 

Director Independence

Our corporate governance guidelines provide that our Board shall consist of such number of directors who are independent as is required and determined in accordance with applicable laws and regulations and requirements of the NYSE and SEC rules. The Board has determined affirmatively, based upon its review of all relevant facts and circumstances and after considering all applicable relationships of which the Board had knowledge, between or among the directors and the Company or our management (some of such relationships are described in the section of this proxy statement entitled “Certain Relationships and Related Party Transactions”), that each of the following directors and director nominees has no direct or indirect material relationship with us and is independent under the listing standards of the NYSE and SEC rules: Craig Barbarosh, Michael D’Amato, M. Bridget Duffy, MD, Peter Grua, Kim Keck and Cheryl Scott.

Communications with the Board

Stockholders and other interested parties who wish to communicate with our Board, our Lead Independent Director Cheryl Scott, our independent or non-management directors as a group, any of the committees or any of the individual non-employee directors may do so by sending a letter to the intended recipient, in the care of our Secretary, at Evolent Health, Inc., 800 N. Glebe Road, Suite 500, Arlington, VA 22203. Such correspondence will be relayed to the appropriate director or directors as appropriate. Stockholders may communicate with Mr. Williams and Mr. Blackley, the Board’s employee-directors, by sending a letter addressed to the intended recipient at Evolent Health, Inc., 800 N. Glebe Road, Suite 500, Arlington, VA 22203.

Identification of Director Candidates

On an annual basis, our Board conducts a formal board self-evaluation led by our Nominating and Governance Committee to determine targeted focus areas. Our Board continually assesses and evaluates

 

   

Evolent Health, Inc.

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its composition, taking into account, among other things, the experience, skills, background and diversity of its members. The Nominating and Governance Committee evaluates director candidates in accordance with the director membership criteria described in our corporate governance guidelines and our policy statement regarding director nominations. In addition, we are committed to including in any pool of director candidates for consideration highly qualified candidates who would bring gender, racial, and/or ethnic diversity to the Board if chosen. In addition to satisfying relevant independence standards and the requirements of Section 8 of the Clayton Act, the following are the minimum qualifications that candidates for the Board must possess:

 

 

Minimum of 21 years of age at the time they commence their term and will not be eligible for nomination or re-nomination to the Board if they are older than age 75;

 

 

Demonstrated reputation for integrity, judgment, acumen, and high professional and personal ethics;

 

 

Financial literacy and significant experience at the policy-making level in business, government or the non-profit sector;

 

 

Time and ability to make a constructive contribution to the Board, and a clear commitment to fulfilling fiduciary duties and serving the interests of all the Company’s stockholders; and

 

 

An expectation of regularly attending meetings, staying informed about the Company and its businesses, participating in the discussions of the Board and its committees, complying with applicable Company policies, and taking an interest in the Company’s businesses and providing advice and counsel to the Chairman and Chief Executive Officer.

The Nominating and Governance Committee reviews a candidate’s qualifications to serve as a member of our Board based on the skills and characteristics of the individual as well as the overall composition of our Board in light of the Company’s current and expected structure and business needs, regulatory requirements, the diversity of viewpoints represented on the Board and committee membership requirements. The Nominating and Governance Committee evaluates a candidate’s professional skills and background, experience at the policy-making level in the business, government or non-profit sectors or as a director of a widely-held public corporation, financial literacy, age, independence and past performance (in the case of incumbent candidates), along with qualities expected of all directors, including integrity, judgment, acumen, high professional and personal ethics, familiarity with our business and the time and ability to make a constructive contribution to our Board. The Nominating and Governance Committee believes it would be desirable for new candidates to contribute to the variety of viewpoints on the Board, which may be enhanced by a mix of different professional and personal backgrounds and experiences. The Nominating and Governance Committee will consider director candidates recommended by stockholders. The Nominating and Governance Committee considers and reviews all candidates in the same manner regardless of the source of the recommendation. Our third amended and restated by-laws provide that any stockholder of record entitled to vote for the election of directors at the applicable meeting of stockholders may nominate persons for election to our Board, if such stockholder complies with the applicable notice procedures, which are discussed under the heading “Other matters-Stockholder Proposals” in this proxy statement.

Corporate Governance Policies Related to Compensation and Equity

Please refer to the “Compensation Discussion and Analysis-Corporate Governance Policies” section of this proxy statement for discussion of our policies with respect to prohibiting derivative trading, hedging and pledging, clawback of compensation, stock ownership guidelines and the tax deductibility of compensation.

 

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COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

This Compensation Discussion and Analysis (“CD&A”) focuses on the Company’s 2020 compensation programs, actions and outputs relative to the Company’s 2020 performance. These compensation decisions reflect the Compensation Committee’s application of the Company’s compensation philosophy, plan objectives and performance standards against financial and individual executive performance through the end of 2020. The Company experienced significant volatility to the stock price through 2020, due in part to macro-economic factors and global concerns about the COVID-19 pandemic. As described further in this CD&A, the Company’s executive compensation programs align realized compensation outcomes with the Company’s stock price performance. For 2021, the Company introduced a performance share unit program to better align long-term compensation with cumulative Adjusted EBITDA and absolute total shareholder return goals over a three-year period.

Named Executive Officers (“NEOs”)

This Compensation Discussion and Analysis describes the compensation of our NEOs named in the Summary Compensation Table for 2020:

Frank Williams

Executive Chairman

Seth Blackley

Chief Executive Officer

John Johnson

Chief Financial Officer

Steve Tutewohl

Chief Operating Officer

Jonathan Weinberg

General Counsel

Aammaad Shams

Principal Accounting Officer and Corporate Controller

2020 Highlights

Below are highlights of our performance in 2020, including revenue and Adjusted EBITDA, which were the financial performance metrics used for the Company’s 2020 Annual Executive Bonus Plan (the “2020 Bonus Plan”):

 

Revenue

    

Lives on Platform1

    

Adjusted EBITDA2

$1.02 billion

    

Full Platform: 3.6 million

    

$41.4 million

    

New Century Health Technology & Services Suite: 6.2 million

    

 

2020 Quarterly Adjusted EBITDA2
Q1   

 

  Q2   

 

  Q3   

 

  Q4
$3.6 million        $9.0 million        $12.7 million        $16.1 million

 

(1) 

As of December 31, 2020.

 

(2) 

Non-GAAP measure, see Appendix C for definition and reconciliation to net loss attributable to common shareholders of Evolent Health, Inc. Net loss attributable to common shareholders of Evolent Health, Inc. was $(334.2) million for the year ended December 31, 2020 and $(78.8) million, $(203.5) million, $(37.3) million and $(14.6) million for the three months ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020, respectively.

 

   

Evolent Health, Inc.

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Compensation Discussion and Analysis

 

Year in Review

In the face of a global pandemic, we exceeded our financial targets on the top and bottom lines in 2020. Additionally, we achieved positive cash flow during the year and initiated the divestment of our health plan assets, allowing us to retire our Senior Term Loan early in 2021. We believe these financial achievements are the result of focused execution on our strategic plan, including (1) driving strong organic growth in our core solutions; (2) expanding Adjusted EBITDA margins through cost discipline and performance for our partners; and (3) streamlined capital allocation. In 2020, we were pleased to contribute to the health of our clients’ members. Through our clinical programs, which include complex care, transition care, maternity, and behavioral health, we engaged more than 35,000 high-risk, high-cost patients and evaluated over 60,000 more. We also directly managed over 166,000 active cancer cases across the country.

Additional operational and clinical achievements across 2020 include:

 

 

Added eight new partner organizations, including several regional and national payers, ACOs and independent provider groups.

 

 

Completed the sale of assets of Passport Health Plan.

 

 

Strengthened our commitment to industry leading technology with enhancements to our core technology platform and clinical analytics capability with four new Identifi® releases, and expanded our technology and services suite for oncology and cardiology.

 

 

Earned NCQA Accreditation in Utilization Management for New Century Health.

Compensation Program “Best Practices”

Our compensation programs are designed to focus our leaders on the key areas that drive the business forward and align with the short-term and long-term interests of our stockholders. The Compensation Committee considers many factors when determining our executive’s compensation plans, including financial results, progress on strategic priorities, market trends and stockholder feedback. In the last year, the Compensation Committee made a number of adjustments to our executive compensation program to align with evolving competitive and governance practices, address feedback from our stockholders, and strengthen the link of pay to performance. Changes made in 2020 and 2021 include:

 

 

Continued adjusting our peer group in response to our company’s growth;

 

 

Implemented stock ownership guidelines for our senior executives; and

 

 

Implemented a clawback policy.

 

 

For 2021, the Company introduced a new performance share unit program. Under this program, shares can be earned based on cumulative Adjusted EBITDA and absolute total shareholder return goals over a three-year period.

 

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Compensation Discussion and Analysis

 

Below is a more detailed summary of best practices that we have implemented with respect to the compensation of our NEOs because we believe they support our compensation philosophy and are in the best interests of our Company and our stockholders.

 

What We Do

LOGO   Strong emphasis on performance-based compensation, with a significant portion of NEO compensation tied to Company performance

 

LOGO   Introduced PSU in 2021

 

LOGO   Mix of short-term and long-term incentives

 

LOGO   Aggressive revenue and adjusted EBITDA and other targets for short-term incentive payments generally, with rigorous individual financial and non-financial performance requirements

 

LOGO   Market-aligned change in control and severance agreements for certain executives, with change in control provisions requiring double trigger for acceleration

 

LOGO   Benchmarking against a thoughtfully assembled and representative peer group

 

LOGO   Acceleration of equity in connection with a termination of employment conditioned upon a release of claims and compliance with restrictive covenants

 

LOGO   Compensation decisions for NEOs made by an independent compensation committee advised by independent compensation consultant

 

LOGO   Annual compensation program risk assessment

 

LOGO   Annual say-on-pay vote

 

LOGO   At will employment for NEOs

 

What We Don’t Do

LOGO   No incentives that encourage excessive risk-taking

 

LOGO   No guaranteed incentive awards for executives

 

LOGO   No excise or other tax gross ups on change in control payments

 

LOGO   No perquisites for NEOs other than benefits generally available to our other employees

 

LOGO   No hedging, pledging or short sales of Company stock

 

LOGO   No “single-trigger” change in control acceleration of equity awards

 

LOGO   No dividend equivalent rights on unvested restricted stock units or options

 

   

Evolent Health, Inc.

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Compensation Discussion and Analysis

 

Our 2020 Executive Compensation Program and Practices

The Compensation Committee believes that our executive compensation program is appropriately designed to advance stockholder interests through effective performance-based incentives with retention features. The primary components and associated purposes of our compensation program are as follows:

 

Category

    Core Component      Objective/Features
        

Salary

    Base Salary      Ongoing cash compensation based on the executive officer’s role and responsibilities, individual job performance and experience. We use base salary to provide the security of a competitive fixed cash payment for services rendered.
        

Short-Term Cash Incentives

    Annual Cash Incentives      For 2020, short-term incentive payments were determined taking into account financial and operational/strategic goals, and an individual leadership assessment.
        

Long-Term Equity Incentives

    Restricted Stock Units      Restricted stock units are used to provide a retentive element to our compensation program while still tying the value of the award to the performance of our stock. All restricted stock units granted as part of our long-term incentive plan vest in equal installments on each of the first four anniversaries of the grant date. The vesting schedule helps to ensure that executives are continuously tied to share price performance and thinking long-term.
        
    Leveraged Stock Units      In 2020, we awarded Messrs. Williams and Blackley long-term performance-based Leveraged Stock Units (“LSU”) based on stock appreciation over a three-year period and will pay out at target, upon attainment of at least 50% cumulative stock price growth over the three-year period from the date of grant. In addition, in June 2020, we awarded Mr. Blackley additional LSUs with a performance period of 3.5 years in connection with his promotion to the CEO role. These awards further align our executives’ interests with those of our long-term stockholders and incentivize enhancing stockholder return.
        

Other

    Miscellaneous      We provide other benefits that are competitive and consistent with the market. We offer general health and welfare benefits. Retirement benefits are generally limited to participation in a tax-qualified 401(k) plan, which includes a one-time discretionary Company match at the end of the calendar year. In 2020, we adopted a market-aligned change in control and severance plan for certain executives, with change in control provisions requiring double triggers for acceleration.

Under our executive compensation program, performance-based incentive compensation comprises a substantial portion of target compensation, and our executive officers have a larger percentage of target compensation at-risk than is fixed relative to total compensation (85.8% for our CEO and 74.3% for our other NEOs combined). The Compensation Committee considers each component of compensation collectively with other components when establishing the various forms, components, and levels of compensation for our executive officers. In determining the appropriate mix of compensation elements for each executive officer, our compensation program seeks to provide a balance between the various components by rewarding performance through annual performance-based cash incentive compensation that encourages achieving and exceeding annual goals designed to advance our long-term growth strategy and also through long-term equity incentive compensation to align our executive officers’ interests with those of our stockholders.

 

 

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Compensation Discussion and Analysis

 

CEO Target Pay    Other NEOs Target Pay

LOGO

  

LOGO

Our pay-for-performance philosophy is further illustrated by comparing target total direct compensation to “realized” compensation for our CEO, after taking into account actual performance.

Target and Realized CEO Compensation (1)

 

LOGO

 

(1) 

The realized compensation levels shown include base salary paid in each year, bonuses paid in respect of each year, and payout of all long-term incentives that vested each year (i.e., the value at the time of vesting of RSUs and options in the first quarter of the year after the year in question).

 

(2) 

In 2019, the Company experienced a declining stock price, that in combination with the 3-year performance LSU grants, greatly impacted the value of our NEOs’ total actual compensation realized as compared to total target compensation. In the second half of 2020, the Company’s stock price began to recover, but the use of 3-year performance LSU grants in 2019 and 3-year and 3.5-year performance LSU grants in 2020 continued to greatly impact the value of our NEOs’ total actual compensation realized as compared to total target compensation. 2020 compensation reflects Mr. Blackley’s compensation, and his first year as CEO.

Objectives of our Executive Compensation Program

Our compensation philosophy for executive officers aims to provide incentives to achieve both short- and long-term business objectives, align the interests of both our executive officers and stockholders, and ensure that we can hire and retain talented individuals in a competitive marketplace.

Key objectives of our executive compensation program are as follows:

 

 

Attract and retain highly qualified and impactful executives.

 

 

Motivate executives to enhance our overall business performance and profitability through the successful execution of the Company’s focused short- and long-term business strategies.

 

 

Align the long-term interests of our executives and stockholders through the ownership of Company stock by executives and by rewarding stockholder value creation.

 

 

Deliver an externally competitive and transparent total compensation structure.

 

 

Reflect our pay-for-performance philosophy.

 

 

Ensure that compensation opportunities are competitive, and rewards are based on business outcomes.

 

   

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Compensation Discussion and Analysis

 

Role of the Compensation Committee and the CEO

The Board has delegated to the Compensation Committee the responsibility of overseeing the administration of the Company’s compensation plans and the preparation of all reports and documents required by the rules and regulations of the SEC. The Compensation Committee annually reviews and approves the corporate goals and objectives upon which the executive compensation program is based. The Compensation Committee evaluates the CEO’s performance in light of these goals and objectives. Furthermore, the Compensation Committee reviews and makes recommendations to the Board with respect to any incentive compensation plans, including equity-based plans, to be adopted or submitted to the Company’s stockholders for approval.

The Compensation Committee meets at least quarterly throughout the year and may meet more often, as required to address ongoing events. In 2020, the Compensation Committee met five times. Meeting agendas are determined by the Chair of the Compensation Committee with the assistance of our CEO. Our CEO attended all five Compensation Committee meetings, and representatives from the Compensation Committee’s independent compensation consultant, Exequity, attended all five meetings. At the Compensation Committee meetings, our CEO made recommendations to the Compensation Committee regarding the annual base salary, annual cash incentive compensation and equity compensation of our NEOs (other than our CEO and Executive Chairman).

Compensation Setting Process

The Compensation Committee makes compensation determinations for our CEO and Executive Chairman after consideration of individual and Company performance for the year, along with an examination of external market data of our industry peer group, based on the surveys described below under “Use of Peer Companies.”

The Compensation Committee makes compensation determinations for our NEOs (other than our CEO and Executive Chairman) based on recommendations made by our CEO, taking into account each NEO’s individual performance (with an assessment of the individual’s accomplishments provided by our CEO) and Company performance, along with an examination of external market data, based on the surveys described below under “Use of Peer Companies.”

Role of the Independent Compensation Consultant

The Compensation Committee retained Exequity as its independent compensation consultant. The Compensation Committee assessed the independence of Exequity and whether its work raised any conflict of interest, taking into consideration the independence factors set forth in applicable SEC and New York Stock Exchange rules, and determined that Exequity is independent. Exequity took guidance from and reported directly to the Compensation Committee. Exequity advised the Compensation Committee on current and future trends and issues in executive compensation and on the competitiveness of the compensation structure and levels of our NEOs during 2020. At the request of the Compensation Committee, Exequity performed the following services, among others, to inform the Compensation Committee’s decisions regarding executive compensation for 2020:

 

 

Developed a peer group to provide context for the range of appropriate compensation for NEOs and compensation program designs;

 

 

Conducted a market review and analysis for our NEOs to determine whether their targeted total direct compensation opportunities were competitive with positions of a similar scope in similarly sized companies in similar industries;

 

 

Assisted in the development of incentive design;

 

 

Kept the Compensation Committee aware of executive and director compensation trends and developments;

 

 

Conducted a market review and analysis on stock ownership guidelines for executives and directors, and severance practices for certain officers; and

 

 

Attended Compensation Committee meetings, as requested, to discuss these items.

 

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Compensation Discussion and Analysis

 

All services performed for us by Exequity during 2020 were related to executive and non-employee director compensation.

Use of Peer Companies

To begin the compensation review process relating to 2020, the Compensation Committee reviewed the Company’s peer group to determine if revisions were needed based on changes affecting either the Company or any of the peer group companies. Our process focused on reviewing companies within related industries to develop a peer group that balances industry focus and revenue size, among other considerations. This list was further refined based on business scope and the competitive market for talent.

Based on key metrics for the current peer group and guidance from Exequity, the Compensation Committee adjusted the peer group to better align the company to the peer group median. In so doing, the Committee removed athenahealth, Inc. as it was acquired by Veritas Capital, Inc. in February 2019. The committee added BioTelemetry, Inc. and CorVel Corporation. All of the peer companies are publicly traded and demonstrate appropriate revenue size and industry focus or a level of complexity and business model similar to that of ours. At the time of the committee’s review in September 2019, our market capitalization was at the peer group zero percentile, and our revenues approximated the peer group 43rd percentile, based on trailing twelve-month financial information available as of August 31, 2019. The peer group consists of the following companies:

 

Allscripts Healthcare Solutions, Inc.

 

Medidata Solutions, Inc.

BioTelemetry Inc.

 

Navigant Consulting, Inc.

CorVel Corporation

 

NextGen Healthcare, Inc.

HealthEquity, Inc.

 

Omnicell, Inc.

HMS Holdings Corp.

 

Premier, Inc.

Huron Consulting Group, Inc.

 

R1 RCM Inc.

Inovalon Holdings, Inc.

 

Tivity Health, Inc.

LHC Group, Inc.

 

Veeva Systems Inc.

 

     Revenue
(TTM as of
8/31/19,
in millions)
    Revenue
(FY 2019,
in millions)
    Revenue
(FY 2020,
in millions)
   

Market
Capitalization
(as of

8/31/19,
in millions)

    Market
Capitalization
(as of
12/31/19,
in millions)
    Market
Capitalization
(as of
12/31/20,
in millions)
 
           

Evolent Health, Inc.

  $ 732     $ 846     $ 1,022     $ 576     $ 759     $ 1,351  
           

Evolent Health, Inc. Percentile Rank

    43     46     63     0     0     16
           

Peer Group 75th Percentile

  $ 1,055     $ 1,172     $ 1,271     $ 3,598     $ 3,300     $ 4,880  
           

Peer Group Median

  $ 848     $ 880     $ 871     $ 2,420     $ 2,057     $ 2,813  
           

Peer Group 25th Percentile

  $ 641     $ 603     $ 592     $ 1,313     $ 1,513     $ 1,993  

Compensation data from public filings of companies in our peer group and from published surveys formed the basis of the competitive benchmarking analysis and pay mix comparison. The data provided a useful reference point in the Compensation Committee’s efforts to align target total executive compensation to that of our peers, which affords our NEOs the opportunity to earn above-target level of compensation for exceptional performance that could be expected to increase value for stockholders, while providing that they would earn less than targeted compensation if the Company’s performance failed to meet expectations.

In determining the structure of our executive compensation program, as well as the individual pay levels of our executive officers, the Compensation Committee reviewed competitive market data provided by Exequity, which compared the various elements of compensation provided to our executive officers, relative to compensation paid to individuals holding similar positions at companies in our executive

 

   

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Compensation Discussion and Analysis

 

compensation peer group. Exequity worked with the Committee and Management to assess the data and review our compensation practices. Given our position in our revised peer group, the Committee set target 2020 compensation moderately below peer median.

 

Target Pay vs. Peer Median by Elements of Program  
      CEO      All other Sr.
Executives
Benchmarked,
Including NEOs
 
 

Base Salary

     (17.0)%        (15.8)%  
 

Target Bonus

     (18.2)%        (30.0)%  
 

Long-term Incentive

     (14.0)%        1.6%  

Say-on-Pay Vote and Compensation Actions Taken

In 2020, we received roughly 97.5% approval on our advisory vote to approve NEO compensation. We considered this in general as an affirmation that our stockholders support our executive compensation program. We regularly engage in investor outreach to better understand our investors’ concerns and to solicit feedback on our executive compensation program. Our Board and the Compensation Committee greatly value the benefits of maintaining a dialogue with our stockholders to understand their views on our executive compensation program and practices. The Compensation Committee intends to consider the outcome of say-on-pay votes and is devoted to consistently reviewing and enhancing our compensation programs.

Elements of our Compensation Program

Base Salary

The Compensation Committee reviews executive officer base salaries each year (or otherwise at the time of a new hire or promotion) and makes any adjustments it deems necessary. In setting base salaries, the Compensation Committee considers changes in responsibilities, individual performance, tenure in position, internal pay equity, Company performance, market data for individuals in similar positions and advice from our independent compensation consultant. The Compensation Committee gives no specific weighting to any one factor in setting the level of base salary and the process ultimately relies on the subjective exercise of the Compensation Committee’s judgment. As part of the annual review process, base salaries for Messrs. Williams, Blackley, Tutewohl, and Weinberg remained the same as compared to 2019 because the Compensation Committee determined that market conditions did not warrant any other adjustments, while Mr. Johnson’s salary was increased in January 2020 to better align his compensation versus the market median for comparable executives among our peers. Mr. Shams received a promotional salary adjustment of $8,000 in January 2020 as he took on additional accounting responsibilities.

 

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Compensation Discussion and Analysis

 

The Compensation Committee approved base salary adjustments for Mr. Williams and Mr. Blackley, effective October 1, 2020, in connection with the CEO transition. Mr. Weinberg received a base salary increase of $40,000, effective December 16, 2020, to better align with the market median for comparable executives among our peers. Mr. Shams received a base salary increase of $17,000 effective June 1, 2020 as he took on the Principal Accounting Officer and Corporate Controller roles.

 

Name      2019 Base
Salary
       2020 Base
Salary
       $ Increase  
   

Frank Williams

     $ 600,000          $400,000        $  
   

Seth Blackley

       400,000          550,000          150,000  
   

John Johnson

       300,000          350,000          50,000  
   

Steve Tutewohl

       375,000          375,000           
   

Jonathan Weinberg

       350,000          390,000          40,000  
   

Aammaad Shams

       190,000          215,000          25,000  

Annual Cash Incentive Plan

Under our annual performance-based short-term cash incentive plan, which we refer to as the 2020 Bonus Plan, we provide our NEOs with the opportunity to receive a variable, at-risk cash payment designed to motivate and reward them to achieve a set of defined quantitative and qualitative business goals and objectives established by the Compensation Committee. Payments under the 2020 Bonus Plan to our NEOs are determined by our Compensation Committee based, in the case of our NEOs other than Mr. Williams and Mr. Blackley, on recommendations made by Mr. Blackley, considering the executive’s performance as rated on a five-point scale against predetermined performance goals. There were no changes made to the 2020 Bonus Plan as a result of COVID-19.

Each of our NEO’s threshold bonus opportunities, which correspond to three out of five points (or a rating of “meets expectations”), target bonus opportunities, which correspond to four out of five points (or a rating of “exceeds expectations”) and maximum bonus opportunities, which correspond to five out of five points (or a rating of “exceptional performance”) under the 2020 Bonus Plan are set forth in the table below. Bonuses are not awarded in the event of overall performance below the threshold level. Threshold performance would result in payouts equal to 50% of annualized base salary for each of Messrs. Williams, Blackley and Tutewohl; 35% of annualized base salary for Messrs. Johnson and Weinberg; and 25% of annualized base salary for Mr. Shams. Because they are calculated based on annualized base salaries, bonus opportunities factor in mid-year salary adjustments.

 

Name    Threshold
(Meets Expectations)
     Target
(Exceeds Expectations)
     Maximum
(Exceptional Performance)
 
   

Frank Williams

   $ 275,000      $ 550,000      $ 825,000  
   

Seth Blackley

     250,000        500,000        750,000  
   

John Johnson

     122,500        227,500        400,000  
   

Steve Tutewohl

     187,500        562,500        937,500  
   

Jonathan Weinberg

     128,771        211,552        294,333  
   

Aammaad Shams

     47,662        61,097        74,532  

Short-term incentive payments are based on the attainment of company-wide financial objectives, company-wide strategic and operational objectives and an individualized leadership assessment of each executive, each assessed with reference to the Compensation Committee’s five-point scale.

The Compensation Committee, in exercising its judgment and discretion to adjust an award up or down, then considers all facts and circumstances when evaluating performance, including changing market conditions and broad corporate strategic initiatives, along with overall responsibilities and contributions of the executives, in making final award determinations.

 

   

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Compensation Discussion and Analysis

 

Company-Wide Financial Performance Objectives

We value the link between performance and payout. In establishing the 2020 Bonus Plan, the quantitative company-wide financial objectives against which our executives are measured included revenue and Adjusted EBITDA. The Compensation Committee utilized these quantitative company-wide performance objectives because it believes that they are key determinants of stockholder value and offer a comprehensive and clear measure of the Company’s performance.

In order to qualify for target payout under the 2020 Bonus Plan, our revenue was required to be at least $960 million and our Adjusted EBITDA was required to be at least $28 million.

The table below sets forth the company-wide financial objectives and actual performance under the 2020 Bonus Plan.

 

Metric    Target      Actual      Committee Assessment
   

Revenue

   $ 960M      $ 1.02B      Target - Exceeds Expectations
   

Adjusted EBITDA

   $ 28M      $ 41.4M      Maximum - Exceptional Performance

Company-Wide Strategic and Operational Performance

We believe that Company performance is best measured with reference to both financial and operational measures. The Compensation Committee establishes goals that it believes align with our evolving strategic vision and that were considered achievable, but not without rigorous effort.

The table below sets forth the company-wide strategic and operational objectives under the 2020 Bonus Plan.

 

Operational Goal    Results    Committee
Assessment
 

Refocus the Business on Core Services
Offerings

  

•  Exited or had definitive agreements to exit all health plan assets by early 2021

 

•  Completed sale of Passport assets

   Target - Exceeds Expectations
 

Reduce Cost Structure and Set Path to
Expanded Margins

  

•  Reduced costs and expanded gross margins

 

•  Reorganized to P&L model

 

•  Reorganized to drive accountability on cash contribution

 

•  Set up adjusted EBITDA margin expansion in 2021

   Target - Exceeds Expectations
 

Drive Organic Growth

 

•  Set up 2021 topline through same store expansion and new partnerships

 

•  Drive partner success, resulting in high satisfaction, retention and growth

  

•  Set up significant growth rates for 2021

 

•  New Century Health entered the Blue Cross Blue Shield segment

 

•  Achieved top end of targeted new customer announcements

   Maximum - Exceptional Performance
 

Maintain a high performing organization

 

•  Focus on leadership, diversity and a differentiated employee experience

  

•  Closed 2020 with firmwide engagement score exceeding our goal by 4%

 

•  Closed 2020 with a firmwide diversity, equity and inclusion score exceeding our goal by 2%

   Target - Exceeds Expectations

 

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Compensation Discussion and Analysis

 

Personal Leadership Assessment

The final component of the Compensation Committee’s review of executive performance under the 2020 Bonus Plan is an individualized personal leadership assessment of each named executive officer. The personal leadership assessment considered achievement by each named executive officer against pre-determined goals, changes in responsibility levels, and input obtained from other members of the Company’s senior management and included 360-degree feedback to consider what was accomplished and how it was accomplished. The Compensation Committee does not give specific weight to any one individual goal.

2020 Bonus Plan Payout Results

After evaluating how well each NEO performed his job, based on both qualitative and quantitative results, along with guidance from the CEO in the case of Messrs. Johnson, Tutewohl, Weinberg and Shams, our Compensation Committee determined, in its discretion, to award annual bonuses to Mr. Williams at “Target” and to Mr. Blackley at a modified amount between “Target” and “Maximum.” Annual bonuses were awarded to Mr. Johnson at “Maximum” and to Mr. Tutewohl at a modified amount between “Target” and “Maximum.” Mr. Weinberg’s annual bonus was awarded at a modified amount between “Threshold” and “Target.” Separate from his 2020 bonus plan award, during 2020, Mr. Weinberg was awarded a $135,000 transaction bonus opportunity in connection with the Company’s sale of True Health New Mexico. This transactional bonus was earnable upon closing of the transaction, which occurred on March 31, 2021, and was paid in 2021. Mr. Shams was paid out above “Maximum” under the 2020 Bonus Plan. The Compensation Committee determined to pay Mr. Shams an incremental amount above the “Maximum” bonus to reflect his increased responsibilities and personal performance following the establishment of the 2020 bonus opportunities.

Each of these amounts is included in the “Bonus” column of the Summary Compensation Table in this proxy statement. The Compensation Committee’s review is not a formula-based process, but rather involves the exercise of discretion and judgment. This enables the Compensation Committee to differentiate among NEOs and emphasize the link between personal performance and compensation. All amounts earned under the 2020 Bonus Plan were paid to participants in the first quarter of 2021.

 

Name    Threshold      Target      Maximum      Overall Committee
Assessment
   Bonus
Payout
 

Frank Williams

   $ 275,000      $ 550,000      $ 825,000      Target    $ 550,000  

Seth Blackley

     250,000        500,000        750,000      Above Target      700,000  

John Johnson

     122,500        227,500        400,000      Maximum      400,000  

Steve Tutewohl

     187,500        562,500        937,500      Above Target      702,750  

Jonathan Weinberg

     128,771        211,552        294,333      Above Threshold      150,000  

Aammaad Shams

     47,662        61,097        74,532      Maximum      100,000  

Long-Term Annual Equity Compensation

As part of our annual equity award grants, in March 2020, our Compensation Committee approved the grant of equity-based awards under the Evolent Health, Inc. 2015 Omnibus Incentive Compensation Plan (as amended, the “2015 Plan”) to certain of our employees, including our NEOs, in the form of performance-based LSUs and time-based RSUs. For our NEOs, 2020 grant amounts were determined and established to deliver the total target compensation opportunity within an acceptable range of the peer group median for each respective position. The Compensation Committee considers its long-term equity compensation program to be a key component of the executive officer compensation program in order to motivate and reward executive officers over the long term and further align the interests of our executives with those of our stockholders.

Leveraged Stock Units

On March 2, 2020, Messrs. Williams and Blackley each received a grant of performance-based LSUs. In addition, on June 4, 2020, Mr. Blackley received an additional LSU grant with a 3.5 year performance

 

   

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Proxy Statement 2021

    41  


Compensation Discussion and Analysis

 

period in connection with his promotion to the CEO role. The amount of LSUs granted was equal to 100% of the targeted grant date value, divided by the estimated fair value of the units, based on Monte-Carlo Simulation, on the grant date. The design of the LSUs serves to align management’s interests with those of long-term stockholders, incentivize decisions that promote appreciation of stockholder value and create retentive value over an established horizon. The LSUs vest, if at all, upon the third anniversary (or, in the case of the June 4, 2020 award, the three year and six month anniversary) of the grant date with the final award determined based on the cumulative stock price performance during the period. The awards require that the cumulative stock price performance exceed 33.3% growth during the performance period. No vesting will occur in the event that our stock price does not experience cumulative growth of at least 33.3% from the grant date to the business day following the third anniversary (or, in the case of the June 4, 2020 award, the three year and six month anniversary) of grant. Each of the grants is subject to share price-based vesting, as follows: (i) if the stock price has increased by 33.3%, 75% of the shares will vest, (ii) if the stock price has increased by 50%, 100% of the shares will vest, (iii) if the stock price has increased by 100%, 150% of the shares will vest and (iv) if the stock price has increased by 200% or more, a maximum of 200% of the shares will vest (with payouts at stock prices between such percentages to be determined by linear interpolation).

The following table illustrates potential payout percentages to Messrs. Williams and Blackley under the March 2, 2020 LSU grants, based on the Company’s stock price on the date of grant:

 

Cumulative Stock Price
Performance
   Performance Level   

Payout in Shares

as a % of Target Amount

 
< $12.12    Below Threshold      0
$12.12    Threshold      75
$13.64    Target      100
$18.18    Above Target      150
Equal to or greater than $27.27    Maximum      200

The following table illustrates potential payout percentages to Mr. Blackley under the June 4, 2020 LSU grant, based on the Company’s stock price on the date of grant:

 

Cumulative Stock Price
Performance
   Performance Level   

Payout in Shares

as a % of Target Amount

 
< $8.40    Below Threshold      0
$8.40    Threshold      75
$9.45    Target      100
$12.60    Above Target      150
Equal to or greater than $18.90    Maximum      200

Restricted Stock Units

On March 2, 2020, Messrs. Johnson, Tutewohl, and Weinberg received grants of equity awards in the form of time-based RSUs, which were based on targeted grant date value. The RSUs vest ratably on each of the first four anniversaries of the grant date, subject to the individual’s continued employment through such date. RSUs are fair value awards that fluctuate with the upward and downward movement of the Company’s stock price. These awards serve to align management’s interest with those of stockholders, while at the same time creating more stability by providing an incentive for holders of RSUs to remain with the Company even if our stock price declines after the grant date.

Grants of stock-based awards to our NEOs are generally made as part of the broad grant to other Company employees, which occurs annually, typically in the first quarter of the calendar year. The timing of annual grants generally is dictated by the timing of the completion of performance reviews and the timing of decisions regarding other forms of direct compensation. We do not have any program, plan, or practice to time such awards in coordination with the release of material non-public information. Stock-based awards are

 

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Compensation Discussion and Analysis

 

made under the terms of the Company’s 2015 Plan and, in the case of stock options, are granted with an exercise price equal to the closing price of our common stock on the grant date, as reported on the NYSE.

The following table summarizes total LSU and RSU awards to our NEOs made during 2020, as well as grant date value potential payout percentages based on the Company’s stock price on the date of grant:

 

Name    LSUs      RSUs      Grant Date Value(1)  

Frank Williams

     200,000             $ 1,932,000  

Seth Blackley

     320,000               2,823,800  

John Johnson

            80,000        727,200  

Steve Tutewohl

            40,000        363,600  

Jonathan Weinberg

            40,000        363,600  

Aammaad Shams

                    

 

(1) 

Represents the aggregate grant-date fair value of awards as computed in accordance with Accounting Standards Codification 718 “Compensation-Stock Compensation” (“ASC 718”).

For further information regarding our LSU and RSU awards, see the “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” and “Potential Payments Upon Termination or Change of Control” sections of this proxy statement.

Potential Payments Upon Termination or Change in Control

On January 27, 2021, the Company entered into severance and change in control agreements pursuant to which Frank Williams, Seth Blackley, John Johnson, Steve Tutewohl and Jonathan Weinberg (the “Covered Executives”) are eligible to receive certain payments and benefits in the event that they are terminated involuntarily by the Company without cause or resign from their employment with the Company for good reason, either prior to or after a change in control of the Company. These agreements were approved by the Board of Directors’ Compensation Committee in consultation with its independent compensation consultant following a review of peer and industry plans and practices. The severance benefits vary depending on whether the qualifying termination occurs in connection with or within the 24-month period following a change in control of the Company (a “CIC Qualifying Termination”) or is not in connection with a change in control (a “Non-CIC Qualifying Termination”).

If a Covered Executive incurs a Non-CIC Qualifying Termination, timely executes a release of claims and complies with applicable restrictive covenants, he will be entitled to receive the following: (i) for twelve months following termination for Mr. Johnson, Mr. Tutewohl and Mr. Weinberg, and for eighteen months following termination for Mr. Williams and Mr. Blackley (the “Non-CIC Severance Period”), cash payments equal to in the case of Mr. Williams and Mr. Blackley, 1.5 times, the Covered Executive’s base salary payable in ordinary payroll installments and in the case of Mr. Johnson, Mr. Tutewohl and Mr. Weinberg, the Covered Executive’s base salary is payable in ordinary payroll installments; (ii) a lump sum cash bonus for the fiscal year of termination based on (x) the Covered Executive’s target annual bonus in the case of a termination in the first six months of the fiscal year; or (y) actual performance in the case of a termination during the last six months of the fiscal year, in each case pro-rated based on the portion of the year elapsed prior to termination; (iii) for outstanding unvested time-vesting equity awards, additional service equal to the applicable Non-CIC Severance Period will be credited; the vesting of outstanding performance-based equity awards will be determined at the end of the applicable performance period based on actual performance and pro rated for the Covered Executive’s period of service during the performance period, including the Non-CIC Severance Period; and (iv) if the Covered Executive elects COBRA coverage under a group health plan of the Company, an amount that, after applicable taxes, is equal to the portion of the cost of coverage under the group health plan that is subsidized by the Company for active employees, for the applicable Non-CIC Severance Period or the period of COBRA coverage, if shorter.

If a Covered Executive incurs a CIC Qualifying Termination, timely executes a release of claims and complies with applicable restrictive covenants, he will be entitled to receive the following: (i) for each of Mr. Johnson, Mr. Tutewohl and Mr. Weinberg, a cash lump sum equal to his then annual base salary plus his target bonus for the fiscal year of termination multiplied by 1.5, and for each of Mr. Williams and

 

   

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Proxy Statement 2021

    43  


Compensation Discussion and Analysis

 

Mr. Blackley, a cash lump sum equal to his then annual base salary plus his target bonus for the fiscal year of termination multiplied by two; (ii) a lump sum cash bonus for the fiscal year of termination based on (x) the Covered Executive’s target annual bonus in the case of a termination in the first six months of the fiscal year; or (y) actual performance in the case of a termination during the last six months of the fiscal year, in either case pro-rated based on the portion of the year elapsed prior to termination; (iii) outstanding unvested time-vesting equity awards will automatically vest in full, and any outstanding unvested performance-based equity awards will be deemed to have vested at the greater of target and actual performance through to the date of termination; and (iv) if the Covered Executive elects COBRA coverage under a group health plan of the Company, an amount that, after applicable taxes, is equal to the portion of the cost of coverage that is subsidized by the Company for active employees, for 18 months for each of Mr. Johnson, Mr. Tutewohl and Mr. Weinberg and for twenty-four months for each of Mr. Williams and Mr. Blackley, or for the period of COBRA coverage, if shorter.

Other Benefits

Our NEOs are entitled to employee benefits generally available to all full-time employees of the Company, including health and welfare benefits. In designing these offerings, the Company seeks to provide an overall level of benefits that is competitive with the level of benefits offered by similar companies in the markets in which it operates. During 2020, as a result of the COVID-19 pandemic, we expanded the benefits available to all employees to include an additional mental health offering and well-being support.    

Retirement Plans

The Company maintains a qualified defined contribution retirement plan (the “Evolent Health 401(k) Plan”) to allow employees to save for retirement in a tax-efficient manner. The plan is broadly available to eligible employees and does not discriminate in favor of the NEOs or other members of senior management. All our NEOs are eligible to participate in the Evolent Health 401(k) Plan in the same manner as all U.S. employees.

Participants are eligible for a discretionary annual match on up to 4% of eligible pay, subject to IRS-qualified plan compensation limits and highly compensated threshold limits and may not receive 401(k) benefits in excess of these limits. None of the NEOs participate in any defined benefit pension plans, non-qualified deferred compensation plans or supplemental retirement or executive savings plans.

Corporate Governance Policies

Prohibition on Derivative Trading, Hedging and Pledging

Under our policies, no director, officer or employee may buy or sell puts, calls, other derivative securities of the Company or any derivative securities that provide the economic equivalent of ownership of any of the Company’s securities at any time. We also have an anti-pledging policy whereby no director, officer or employee may pledge Company securities.

Clawback Policy

The Compensation Committee has adopted a clawback policy, pursuant to which we may recoup all or any portion of the value of any incentive compensation provided to any current or former executive officer in the event that our financial statements are restated due to material noncompliance with any financial reporting requirement under the securities laws. The clawback policy expressly applies to all incentive compensation awards made after April 17, 2020, including any bonus or short- or long-term incentive awards, in each case where the bonuses or awards are based in whole or in part on the achievement of financial results.

 

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Compensation Discussion and Analysis

 

Stock Ownership Guidelines

To further align the long-term interests of our executives and our stockholders, in 2020, we adopted stock ownership guidelines applicable to our executive officers, certain other officers and directors. The guidelines require the relevant executives and directors to maintain the following beneficial ownership of shares of our common stock (measured in market value):

 

Group    Required ownership

Chief Executive Officer and Executive Chairman

   6 times base salary

Other Executive Officers, EVPs, P&L CEOs and Presidents

   3 times base salary

Non-Employee Directors

   5 times cash retainer

Our executives and directors have five years from the effective date of their respective election, appointment or promotion, as the case may be, to satisfy these stock ownership guidelines.

Policy with Respect to Tax Deductibility of Compensation

As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Section 162(m), as in effect prior to 2018, provided that we may not deduct compensation of more than $1,000,000 paid in any year to the CEO or any of the three other most highly compensated officers (excluding the Chief Financial Officer), unless the compensation qualified as “performance-based compensation” under Section 162(m). In connection with granting incentive compensation to the NEOs, the Compensation Committee’s historical practice has been to consider the implications under Section 162(m) while retaining flexibility to design programs that it believes are in the best interests of the Company and its stockholders and consistent with the objectives of our executive compensation programs, including the flexibility to authorize payments that might not be deductible, including payments under the 2020 Bonus Plan. The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, eliminated the exception for “performance-based” compensation under Section 162(m) with respect to compensation paid in fiscal year 2018 and in future years. As a result, compensation over $1,000,000 paid in fiscal 2020 by the Company to any NEO will be nondeductible under Section 162(m).

Compensation Program Risk Assessment

As part of its oversight role, the Compensation Committee considers the impact of our compensation program, policies and practices (both at the executive and below-executive levels), on the Company’s overall risk profile. Specifically, the Compensation Committee, with assistance from our CEO, reviews the compensation plans, incentive plan design, incentive payouts and factors that may affect the likelihood of excessive risk taking to determine whether they present a significant risk to the Company. We believe that our pay program provides an effective balance in cash and equity mix and short- and longer-term performance periods, and also allows for the Compensation Committee’s discretion. The Company also maintains policies to mitigate compensation-related risk such as vesting periods on equity, insider-trading prohibitions, and independent Compensation Committee oversight. Based on the Compensation Committee’s most recent review, the Compensation Committee determined that the risks arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

 

   

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Proxy Statement 2021

    45  


 

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with management. Based on its review and discussion with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Submitted by our Compensation Committee

Peter Grua, Chairman

Craig Barbarosh

Cheryl Scott

This report shall not be deemed to be “soliciting material” or to otherwise be considered “filed” with the SEC or be subject to Regulation 14A or 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

 

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COMPENSATION OF NAMED EXECUTIVE OFFICERS

Summary Compensation Table

The following table sets forth information concerning the compensation earned by our chief executive officer, our chief financial officer in 2020 and our three other most highly compensated executive officers, who we refer to as our NEOs, during our fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018, except in the case of Messrs. Tutewohl and Shams, who were not NEOs in 2019 or 2018 or Mr. Johnson, who was not a NEO in 2018.

 

Name and

Principal Position

  Year     Salary     Bonus     Stock
Awards
(1)
    Option
Awards
(2)
    Non-Equity
Incentive Plan
Compensation
    All Other
Compensation
(3)
    Total
Compensation
 

Frank Williams

    2020     $ 550,000     $ 550,000     $ 1,932,000     $     $     $ 11,400     $ 3,043,400  

Executive Chairman (4)

    2019       600,000       300,000       3,200,000                   3,000       4,103,000  
    2018       600,000             1,350,000       1,350,000             11,000       3,311,000  

Seth Blackley

    2020       437,500       700,000       2,823,800                   11,400       3,972,700  

Chief Executive Officer (4)

    2019       400,000       250,000       2,400,000                   2,667       3,052,667  
      2018       400,000             1,200,000       600,000             11,000       2,211,000  

John Johnson

    2020       350,000       400,000       727,200                   11,400       1,488,600  

Chief Financial Officer

    2019       287,500       150,000       600,000                   1,667       1,039,167  

Steve Tutewohl

    2020       375,000       702,750       363,600                   11,400       1,452,750  

Chief Operating Officer

                               

Jonathan Weinberg

    2020       351,667       150,000       363,600                   11,400       876,667  

General Counsel

    2019       350,000       300,000       450,000                   2,333       1,102,233  
      2018       325,000             150,000       150,000             11,000       636,000  

Aammaad Shams

    2020       207,917       100,000                         8,317       316,234  

Principal Accounting Officer

                               

 

(1) 

The amounts reported in this column represent the aggregate grant-date fair value of LSUs and RSUs granted during 2020, 2019 and 2018, as computed in accordance with ASC 718. For a further discussion of the assumptions used in the calculation of the grant-date fair values for the RSUs pursuant to ASC 718, see Note 13 of Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. For further discussion of LSUs and RSUs granted in 2020, see the section entitled “Long-Term Annual Equity Compensation” in the “Compensation Discussion & Analysis” section of this proxy statement and the discussion in the “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” section of this proxy statement.

 

(2) 

The amounts reported in this column represent the aggregate grant-date fair value of the stock options granted during 2019 and 2018, as computed in accordance with ASC 718. For a further discussion of the assumptions used in the calculation of the grant-date fair values for the stock options pursuant to ASC 718, see Note 13 of Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

 

(3) 

Amounts reported in this column represent a 401(k) matching contribution provided by the Company to each NEO. The discretionary 401(k) matching contributions are made to each participant in the 401(k) in an amount up to 4% of the participant’s annual base salary, subject to certain limitations, and vest over a three-year period. The amounts shown do not include life insurance premiums for coverage offered through programs available on a nondiscriminatory basis to all employees of the Company.

 

(4) 

Messrs. Williams and Blackley also serve as directors of the Company but did not receive any compensation for their role as a director.

 

   

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Proxy Statement 2021

    47  


Compensation of Named Executive Officers

 

Grants of Plan-Based Awards

The following table shows information with respect to each equity-based award granted to our NEOs during 2020.

 

             

 

Estimated Future Payouts Under
Equity Incentive Plan Awards

    All other stock
awards:
Number of
Shares of
Common
Stock or Units(2)
    Grant Date Fair
Value of
Stock and
Option
Awards(3)
 

Name

  Grant
Date
  Approval
Date
  Threshold (1)     Target (1)     Maximum (1)  

Frank Williams

  3/2/2020   2/11/2020     150,000       200,000       400,000         $ 1,932,000  

Seth Blackley

  3/2/2020   2/11/2020     135,000       180,000       360,000           1,738,800  
  6/4/2020   6/2/2020     105,000       140,000       280,000           1,085,000  

John Johnson

  3/2/2020   2/11/2020                       80,000       727,200  

Steve Tutewohl

  3/2/2020   2/11/2020                       40,000       363,600  

Jonathan Weinberg

  3/2/2020   2/11/2020                       40,000       363,600  

Aammaad Shams

                                 

 

(1) 

The threshold, target and maximums represent 75%, 100% and 200% of the number of LSUs awarded, respectively.

 

(2) 

Reflects time-based RSUs granted under the 2015 Plan.

 

(3) 

The amounts reported in this column represent the aggregate grant-date fair value of LSUs and RSUs granted during 2020 as computed in accordance with ASC 718. For a further discussion of the assumptions used in the calculation of these amounts, please see Note 13 of Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

The following describes material features of the compensation disclosed in the Summary Compensation Table and the Grants of Plan-Based Awards table. Consistent with our policy, we have not entered into employment agreements with any of our NEOs. For further information on the material features of the 2020 Bonus Plan, see the section entitled “Annual Cash Incentive Plan” in the “Compensation Discussion & Analysis” section of this proxy statement.

Leveraged Stock Unit Awards, Restricted Stock Unit Awards and Stock Options Under the 2015 Plan and 2011 Plan

As part of our annual equity award grants, in February 2018 and in March 2019 and 2020, our Compensation Committee approved the grant of equity-based awards under the 2015 Plan to certain of our employees, including our NEOs, in the form of RSUs, time-based stock options (in 2018 and 2019 only) and in March 2019 and March 2020, LSUs. Our Compensation Committee approved an additional grant of LSUs to Mr. Blackley in June 2020. The RSUs and time-based stock options granted to our NEOs vest 25% on each of the first four anniversaries of the grant date. The LSUs granted to our NEOs vest, if at all, upon the third anniversary of the grant date (or, in the case of the LSUs awarded in June 2020, three years and six months after the grant date) with the final award determined based on the cumulative stock price performance during the period. The award agreements under the 2015 Plan contain restrictive covenants, including confidentiality, non-competition and non-solicitation obligations.

 

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Compensation of Named Executive Officers

 

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the outstanding equity awards held by each of our NEOs as of December 31, 2020:

 

 

         Option Awards   Stock Awards  

Name

  Grant
Date
  Number of
Securities
Underlying
Unexercised
Options -
Exercisable
   

Number of
Securities
Underlying
Unexercised

Options -
Unexercisable

    Equity
Incentive
Plan Awards:
Number  of
Securities
Underlying
Unexercised
Unearned
Options
    Option
Exercise
Price
    Option
Expiration
Date
  Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
    Market
Value of
Shares
of Units
of Stock
That
Have
Not
Vested (1)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
 

Frank Williams

  4/1/2014     736,560                   3.84     4/1/2024                        
  2/1/2015     340,000                   6.87     2/1/2025                        
  3/1/2016     108,190                   10.27     3/1/2026                        
  3/1/2016     162,285                   10.27     3/1/2026                        
  2/1/2017     103,401       34,467  (2)            18.25     2/1/2027                        
  2/1/2017                               15,411  (3)      247,038              
  2/1/2018     113,637       113,636  (4)            13.95     2/1/2028                        
  2/1/2018                               48,386  (3)      775,628              
  3/1/2019                               249,000  (5)      3,991,470              
  3/2/2020                               200,000  (5)      3,206,000              

Seth Blackley

  4/1/2014     336,040                 $ 3.84     4/1/2024                      
  2/1/2015     200,000                   6.87     2/1/2025                        
  3/1/2016     70,324                   10.27     3/1/2026                        
  3/1/2016     105,485                   10.27     3/1/2026                        
  2/1/2017     68,934       22,978  (2)            18.25     2/1/2027              
  2/1/2017                               10,274  (3)      164,692              
  2/1/2018     50,505       50,505  (4)            13.95     2/1/2028                        
  2/1/2018                               43,010  (3)      689,450              
  3/1/2019                               186,750  (5)      2,993,603              
  3/2/2020                               180,000  (5)      2,885,400              
  6/4/2020                               140,000  (5)      2,244,200              

Steve Tutewohl

  2/1/2017     11,489       3,830  (2)            18.25     2/1/2027                        
  2/1/2017                               1,712  (3)      27,443              
  2/1/2018     12,627       12,627  (4)            13.95     2/1/2028                        
  2/1/2018                               5,376  (3)      86,177              
  3/1/2019     5,388       16,164  (6)          13.29     3/1/2029                        
  3/1/2019                               8,465  (3)      135,694              
  7/1/2019     9,352       28,055  (6)          7.83     7/1/2029                        
  7/1/2019                             14,367  (3)      230,303              
  3/2/2020                               40.000  (3)      641,200              

 

   

Evolent Health, Inc.

Proxy Statement 2021

    49  


Compensation of Named Executive Officers

 

         Option Awards   Stock Awards  

Name

  Grant
Date
  Number of
Securities
Underlying
Unexercised
Options -
Exercisable
   

Number of
Securities
Underlying
Unexercised

Options -
Unexercisable

    Equity
Incentive
Plan Awards:
Number  of
Securities
Underlying
Unexercised
Unearned
Options
    Option
Exercise
Price
    Option
Expiration
Date
  Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
    Market
Value of
Shares
of Units
of Stock
That
Have
Not
Vested (1)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
 

John Johnson

  5/1/2016     7,896                 12.22     5/1/2026                        
  2/1/2017     3,063       1,533  (2)            18.25     2/1/2027                        
  2/1/2017                               685  (3)      10,981              
  2/1/2018     10,522       10,522  (4)            13.95     2/1/2028                        
  2/1/2018                               4,480  (3)      71,814              
  3/1/2019                               46,687  (5)      748,393              
  3/2/2020                               80,000  (3)      1,282,400            

Jonathan Weinberg

  4/1/2014     45,431                   3.84     4/1/2024                        
  10/22/2014     28,000                   3.84     10/22/2024                        
  6/4/2015     16,887                   17.00     6/4/2025                        
  3/1/2016     14,335                   10.27     3/1/2026                        
  2/1/2017     9,191       3,064  (2)            18.25     2/1/2027                        
  2/1/2017                                 1,369  (3)      21,945              
  2/1/2018     12,627       12,626  (4)            13.95     2/1/2028                        
  2/1/2018                               5,376  (3)      86,177              
  3/1/2019                               35,016  (5)      561,307              
  3/2/2020                               40,000  (3)      641,200              

 

(1) 

The values reported in this column are based on the closing price of the Company’s Class A common stock on the NYSE on December 31, 2020 ($16.03).

 

(2) 

Unvested stock options granted under the 2015 Plan on February 1, 2017 vest ratably on February 1, 2021, subject to the named executive officer’s continued employment through the applicable vesting date.

 

(3) 

The terms of the RSU awards provide that 25% of each award vests on each of the first four anniversaries of the grant date, subject to the named executive officer’s continued employment through the applicable vesting date.

 

(4) 

Unvested stock options granted under the 2015 Plan on February 1, 2018 vest ratably on each of February 1, 2021 and 2022, subject to the named executive officer’s continued employment through the applicable vesting date.

 

(5) 

The terms of the LSU awards provide for vesting, if at all, upon the third anniversary of the grant date (or, in the case of the June 4, 2020 grant to Mr. Blackley, upon the three and a half year anniversary) with the final award determined based on the cumulative stock price performance during the period. No vesting will occur in the event that our stock price does not experience cumulative growth of at least 33.3% from the grant date to the business day following third anniversary. Each of the grants is subject to share price-based vesting, as follows (i) if the stock price has increased by 33.3%, 75% of the shares will vest, (ii) if the stock price has increased by 50%, 100% of the shares will vest, (iii) if the stock price has increased by 100%, 150% of the shares will vest and (iv) if the stock price has increased by 200% or more, a maximum of 200% of the shares will vest, in each case, subject to the named executive officer’s continued employment through the applicable vesting date.

 

(6) 

Unvested stock options granted under the 2015 Plan on March 1, 2019 and July 1, 2019 to Mr. Tutewohl vest ratably on each of February 1 and July 1, 2021, 2022, and 2023 subject to Mr. Tutewohl’s continued employment through the applicable vesting date.

 

50  

Evolent Health, Inc.

Proxy Statement 2021

   


Compensation of Named Executive Officers

 

2020 Option Exercises and Stock Vested

The following table shows a summary of any stock option exercises and the vesting of RSUs with respect to our NEOs in 2020.

 

     Option Awards      Stock Awards  

Name

   Number of Shares
Acquired on
Exercise
     Value Realized
on Exercise(1)
     Number of Shares
Acquired on Vesting
     Value Realized on
Vesting(2)
 
     

Frank Williams

          $        51,776      $ 511,678  
     

Seth Blackley

                   39,691        393,440  
     

John Johnson

                   4,715        41,674  
     

Steve Tutewohl

                   12,012        105,873  
     

Jonathan Weinberg

     10,000        91,600        5,670        55,800  
     

Aammaad Shams

                           

 

(1) 

Calculated using the closing price of a share of our common stock on the exercise date, less the strike price of the option.

 

(2) 

Calculated using the closing price of a share of our common stock on the vesting date.

Summary of Potential Payments Upon Termination or Change in Control

The following table shows the estimated value of benefits to our NEOs if their employment had been terminated under the various circumstances described below as of December 31, 2020, or upon the occurrence of a change in control. The amounts shown in the table exclude accrued but unpaid base salary, unreimbursed employment-related expenses, distributions under our 401(k) retirement plan (which plan is generally available to all of our employees) and the value of equity awards that were vested by their terms as of December 31, 2020.

 

    

Without Cause/
For Good Reason
(No CIC)

($)

   

Without Cause/
For Good
Reason (In
connection

with CIC)

($)

   

CIC

(No
Termination)

($)

   

Death/Disability

($)

   

Retirement

($)

   

Any other
Voluntary
without
Good
Reason or
Involuntary
with Cause

($)

 

Frank Williams

           

Severance Pay (base salary and bonus components) (1)

    1,450,000       2,450,000                          

Employer-Paid COBRA (2)

    29,415       39,219                          

Value of Equity Award Acceleration (3)

    1,259,030       9,300,370          

TOTAL

    2,738,444       11,789,589                          

Seth Blackley

           

Severance Pay (base salary and bonus components) (1)

    1,937,500       2,800,000                          

Employer-Paid COBRA (2)

    29,415       39,219                          

Value of Equity Award Acceleration (3)

    959,193       11,574,900          

TOTAL

    2,926,107       14,414,119                          

John Johnson

           

Severance Pay (base salary and bonus components) (1)

    750,000       1,266,250                          

Employer-Paid COBRA (2)

                                   

Value of Equity Award Acceleration (3)

    378,431       2,135,473          

TOTAL

    1,128,431       3,401,723                          

 

   

Evolent Health, Inc.

Proxy Statement 2021

    51  


Compensation of Named Executive Officers

 

    

Without Cause/
For Good Reason
(No CIC)

($)

   

Without Cause/
For Good
Reason (In
connection

with CIC)

($)

   

CIC

(No
Termination)

($)

   

Death/Disability

($)

   

Retirement

($)

   

Any other
Voluntary
without
Reason or
Involuntary
with Cause

($)

 

Steve Tutewohl

           

Severance Pay (base salary and bonus components) (1)

    1,077,750       2,109,000                          

Employer-Paid COBRA (2)

    19,610       29,415                          

Value of Equity Award Acceleration (3)

    457,408       1,421,417          

TOTAL

    1,554,768       3,559,832                          

Jonathan Weinberg

           

Severance Pay (base salary and bonus components) (1)

    540,000       1,052,328                          

Employer-Paid COBRA (2)

    19,610       29,415                          

Value of Equity Award Acceleration (3)

    238,464       1,336,890          

TOTAL

    798,074       2,418,632                          

Aammaad Shams

           

Severance Pay (base salary and bonus components) (1)

                                   

Employer-Paid COBRA (2)

                                   

Value of Equity Award Acceleration (3)

                                   

TOTAL

                                   

 

(1) 

Amounts calculated based on the dollar value of the 2020 base salary and target bonus in effect immediately before the hypothetical termination of December 31, 2020 that would have been payable.

 

(2) 

Amounts represent the dollar value of the incremental cost to the Company by providing continuing health, dental, vision and life insurance coverage based on the individual’s selected coverage in effect immediately before the hypothetical termination of December 31, 2020.

 

(3) 

The amounts indicated represent the intrinsic value of all unvested non-qualified stock options, market value of all unvested RSUs and unearned LSUs that would have vested upon Termination with Good Reason or Without Cause in both CIC and non-CIC situations as of December 31, 2020. The amounts were calculated based on the closing price of our common stock of $16.03 on December 31, 2020.

Narrative to the Potential Payments Upon Termination or Change in Control Table

The material terms of the severance and change in control agreements for Messrs. Williams, Blackley, Johnson, Tutewohl and Weinberg are described under the heading “Executive Compensation—Compensation Discussion and Analysis—Severance and Change in Control Agreements for Executive Officers.”

The severance and change in control agreements for each of Messrs. Williams, Blackley, Johnson, Tutewohl and Weinberg operate with a “double trigger” in the event of a change of control, meaning severance payments do not occur unless the employment is involuntarily terminated (other than for cause or good reason) within 24 months following a change-in-control.

“Cause” is defined in each separation and change in control agreement as (a) the executive’s failure to perform any of executive’s material duties to the Company, including, without limitation, a breach of the Company’s code of ethics, conflict of interest or employment policies; (b) the executive’s misappropriation of a material business opportunity of the Company, including securing or attempting to secure any personal profit in connection with any transaction entered into on behalf of the Company; (c) the executive’s misappropriation (or attempted misappropriation) of any Company funds or property; (d) the executive’s conviction of, indictment for (or its procedural equivalent), or entering of a guilty plea or plea of no contest with respect to (or its procedural equivalent), a felony or any other crime involving dishonesty or theft of property; (e) the

 

52  

Evolent Health, Inc.

Proxy Statement 2021

   


Compensation of Named Executive Officers

 

executive’s commission of one or more acts of sexual harassment in violation of applicable federal, state or local laws; (f) the executive’s use of illegal drugs, abuse of controlled substances, or abuse or excessive use of alcohol, which (in the case of alcohol use) interferes with or affects executive’s responsibilities to the Company or which reflects negatively upon the integrity or reputation of the Company; or (g) the executive’s breach of the terms of the applicable severance and change in control agreement, any other employment agreement, any confidentiality agreement, non-competition agreement or non-solicitation agreement or any other material agreement between Executive and the Company, after giving effect to the notification provisions, if any, and the mechanisms to remedy or cure such breach as described in any such agreement.

“Good Reason” is defined in each separation and change in control agreement as the occurrence, without the executive’s written consent, of (a) a material reduction in executive’s annual base salary or target bonus, as the same may be increased from time to time; (b) the assignment of duties to executive inconsistent in any material respect with executive’s position, authority or responsibilities with the Company, or any other action or omission by the Company which results in a material diminution of such position, authority or responsibilities; (c) a relocation of executive’s principal work location by more than fifty (50) miles from such location as of immediately prior to the date of termination; (d) a material diminution of the authority, duties or responsibilities of the supervisor to whom executive reports; or (e) any material breach of the applicable separation and change in control agreement by the Company. Notice and cure provisions apply. For Mr. Williams, the occurrence of any of the following will not constitute “good reason”: (a) Mr. Williams ceases to be a member of the Board, or (b) Mr. Williams ceases to be the Chairman of the Board.

None of the severance and change in control agreements for Messrs. Williams, Blackley, Johnson, Tutewohl or Weinberg provide for the payment of any amounts or provision of any benefits upon death or due to disability.