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. )
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Filed by a Party other than the Registrant [_]
Check the appropriate box:
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[_] | Soliciting Material Pursuant to Section 240.14a-12 |
Quest Diagnostics Incorporated
(Name of Registrant as Specified In Its Charter) |
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) |
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[_] | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 |
Notice of 2024 Annual Meeting of Stockholders
and
Proxy Statement
April 5, 2024
The Quest Way
Purpose | Working together to create a healthier world, one life at a time | |||
We help people make the best decisions to improve health by providing high-quality, innovative, convenient and affordable diagnostic testing insights and services using our scale and extensive reach |
Strategy How we grow | • | Collaborating with healthcare providers and partners to leverage our broad access | ||
• | Offering an industry-leading menu of testing and other services | |||
• | Leveraging our data assets and services to improve population health and enable value-based care | |||
• | Continuously improving our quality and efficiency by leveraging the Quest Management System and by embracing innovative technologies, such as automation and artificial intelligence (“AI”) | |||
Who we serve: physicians, hospitals, patients and consumers, health plans, employers, emerging retail healthcare providers, government agencies, pharmaceutical companies and other commercial clinical laboratories | ||||
Culture How we work | Customer first, Care, Collaboration, Continuous improvement, Curiosity | ||
Notice of 2023 Annual Meeting of Stockholders
and
Proxy Statement
April 6, 2023
The Quest Way
| ||
|
Notice of Quest Diagnostics Incorporated One Insights Drive Clifton, New Jersey May |
April 6, 20235, 2024
Dear Fellow Stockholder:
It is my pleasure to invite you to attend Quest Diagnostics’ 20232024 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, stockholders will vote on the following, in addition to any other business as may properly come before the Annual Meeting or any adjournment or postponement thereof:
to elect |
• | to approve, on an advisory basis, the executive compensation disclosed in the accompanying proxy statement; |
to ratify the appointment of our independent registered public accounting firm for |
• | to |
• | a stockholder proposal, as described in the accompanying proxy statement, if properly |
Attendance at the Annual Meeting is limited to stockholders at the close of business on March 20, 2023,18, 2024, or their duly appointed proxy holder.
We enclose our proxy statement, our Annual Report and a proxy card; distribution of these materials is scheduled to begin on April 6, 2023.5, 2024. Your vote is very important. We urge you to submit your proxy even if you plan to attend the Annual Meeting. Most stockholders may submit a proxy via mail, telephone or the Internet. Instructions on how to submit your proxy are included with your proxy card and these proxy materials. Please submit your proxy promptly.
Thank you for your continued support of Quest Diagnostics.
Sincerely,
James E. Davis
Chief Executive Officer and President |
Proxy SummaryPROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
20232024 Annual Meeting of Stockholders
Time and Date: | 10:30 a.m. Eastern Time, May | ||
Place: | One Insights Drive, Clifton, New Jersey | ||
Record date: | March 18, 2024 | ||
Voting: | Record date stockholders only: One vote per share |
Meeting Agenda | Board Recommendation Recommendation | |
1. | Elect | FOR EACH NOMINEE |
2. | To approve, on an advisory basis, the compensation of our named executive officers disclosed in our Proxy Statement | FOR |
3. | To | |
FOR | ||
4. | To adopt an amendment to our Restated Certificate of Incorporation, the full text of which is attached to the proxy statement as Annex C and is incorporated herein by reference, to provide for the exculpation of officers as permitted by law | FOR |
5. | To | |
AGAINST |
20242025 Annual Meeting of Stockholders
Stockholder proposals submitted pursuant to SEC Rule 14a-8 must be received by Quest Diagnostics Incorporated (“Quest Diagnostics,” the “Company,” “we” or “our”) by December 8, 2023.6, 2024.
Notice of stockholder proposals outside of SEC Rule 14a-8, including nominations (other than proxy access nominations) for the Board of Directors (the “Board”), must be received by the Company no earlier than January 18, 202416, 2025 and no later than February 17, 202415, 2025 and must comply with the requirements set forth in our by-laws. StockholdersIn addition to the requirements set forth in our by-laws, stockholders who intend to solicit proxies for nominations for election to the Board other than the Company’s nominees in reliance on the universal proxy rules (Rule 14a-19 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) for nominations for election to the Board must also comply with the additional requirements of Rule 14a-19 and our by-laws.14a-19.
Notice of proxy access director nominations must be received by the Company no earlier than November 8, 20236, 2024 and no later than December 8, 2023.6, 2024.
i | ||
Board Nominees
The following table provides summary information about our director nominees.nominees*.
Name | Age | Director Since | Occupation | Current Committee Memberships | Other Public Company Boards | Age | Director Since | Occupation | Current Committee Memberships | Other Public Company Boards | |||||
James E. Davis | 60 | 2022 | Chairman, Chief Executive Officer and President, Quest Diagnostics Incorporated | EX | • N/A | 61 | 2022 | Chairman, Chief Executive Officer and President, Quest Diagnostics Incorporated | EX | • N/A | |||||
Luis A. Diaz, Jr., M.D. | 52 | Nominee | Head of Solid Tumor Oncology Division, Memorial Sloan Kettering Cancer Center | N/A | • Jounce Therapeutics, Inc. | 53 | 2023 | Head of Solid Tumor Oncology Division, Memorial Sloan Kettering Cancer Center | CS QC | • N/A | |||||
Tracey C. Doi | 62 | 2021 | Retired Chief Financial Officer and Group Vice President of Toyota Motor North America, Inc. | AC/FE CS | • N/A | 63 | 2021 | Retired Chief Financial Officer and Group Vice President of Toyota Motor North America, Inc. | AC/FE CS | • Pentair plc | |||||
Vicky B. Gregg | 68 | 2014 | Cofounder/Partner, Guidon Partners LLC and Retired CEO, Blue Cross and Blue Shield of Tennessee | CC(Chair) GC QC | • Acadia Healthcare Company | 69 | 2014 | Cofounder/Partner, Guidon Partners LLC and Retired CEO, Blue Cross and Blue Shield of Tennessee | CC GC QC (Chair) | • Acadia Healthcare Company | |||||
Wright L. Lassiter III | 59 | 2020 | CEO, CommonSpirit Health | AC QC | • Fortive Corporation
| 60 | 2020 | CEO, CommonSpirit Health | AC QC | • Fortive Corporation | |||||
Timothy L. Main | 65 | 2014 | Non-Executive Chairman of WNS (Holdings) Limited | AC GC CS (Chair) | • SCP & Co Healthcare Acquisition Company • WNS (Holdings) Limited
| 66 | 2014 | Non-Executive Chairman of WNS (Holdings) Limited | AC CS (Chair) GC | • WNS (Holdings) Limited | |||||
Denise M. Morrison | 69 | 2019 | Founder, Denise Morrison & Associates and Retired President and CEO, Campbell Soup Company | CC CS | • MetLife, Inc. • Visa, Inc. | 70 | 2019 | Founder, Denise Morrison & Associates and Retired President and CEO, Campbell Soup Company | CC(Chair) CS GC | • MetLife, Inc. • Visa, Inc. | |||||
Gary M. Pfeiffer | 73 | 2004 | Retired Senior Vice President and Chief Financial Officer, E.I. du Pont de Nemours and Company | AC/FE (Chair) GC EX CS | • N/A | 74 | 2004 | Retired Senior Vice President and Chief Financial Officer, E.I. du Pont de Nemours and Company | AC/FE (Chair) CC EX GC | • N/A | |||||
Timothy M. Ring, Lead Independent Director | 65 | 2011 | Retired Chairman and CEO, C. R. Bard, Inc. | CC GC (Chair) EX (Chair) | • Becton, Dickinson and Company | 66 | 2011 | Retired Chairman and CEO, C. R. Bard, Inc. | CC EX (Chair) GC (Chair) | • Becton, Dickinson and Company | |||||
Gail R. Wilensky, Ph.D. | 79 | 1997 | Senior Fellow, Project Hope | AC GC QC (Chair) | • ViewRay, Inc. |
AC | Audit | CC | Compensation |
CS | Cybersecurity Committee | ||
QC | Quality | ||
FE | Financial Expert |
* | In September 2023, Dr. Gail R. Wilensky informed the Board that she would not seek re-election and will retire from the Board at the Annual Meeting. |
Stephen H. Rusckowski, who served as our CEO and President until November 1, 2022, served as our Chairman through March 31, 2023.
ii |
20222023 Executive Compensation Highlights
Type | Form | Percentage of Equity Award for Named Executive Officers (%) | Terms | |||
Equity | •Performance Shares | 50 | •Performance metrics for | |||
•Vest after 3-year performance period | ||||||
•Stock Options | 25 | •3-year ratable vesting | ||||
•Restricted Share Units (“RSUs”) | 25 | •3-year ratable vesting | ||||
Cash | •Salary
| •Reviewed and approved annually | ||||
• Annual Incentive Compensation | • Based on financial and non-financial goals | |||||
Retirement | •401(k) Plan | • Company matching contributions | ||||
• Supplemental Deferred Compensation Plan | •Company matching contributions
|
Our Board is firmly committed to pay for performance. The table above outlines the main components of our compensation program for executive officers in 2022.The2023. In 2023, the Compensation and Leadership Development Committee, due to diminished demand for COVID-19 testing, implemented a change to no longer measure base business revenue and COVID-19 testing revenue separately, as was done for 2022, and to include COVID-19 revenues in the measure of base business revenue for purposes of performance shares granted in 2023 (except for determining base year revenues).
The objectives of our program are to attract and retain talented executives who have the skills and experience required to help us achieve our strategic objectives, and to align the interests of our executives to those of our stockholders, in each case to advance the long-term interests of our stockholders. The compensation opportunity for our named executive officers is directly tied to corporate performance, including both financial and non-financial results, and individual performance. Due to anticipated volatility in the Company’s COVID-19 testing revenues in 2022, the Committee determined to measure base business revenues and COVID-19 testing revenues separately for purposes of annual incentive awards and designed the performance shares granted in 2022 to include a performance measure focused on COVID-19 revenue. We are making changes in the program, highlighted in the Compensation Discussion and Analysis, for 2023.2024.
The average 20222023 annual incentive payout for our named executive officers on our annual cash incentives under the Senior Management Incentive Plan (“SMIP”) was 131%78% of target. Payout on performance shares for the 3-year performance period ended December 31, 20222023 was 196%186% of target. The following table summarizes annual incentive plan and performance share payouts for the two most recent performance periods for our named executive officers.
Annual Incentive Payout (% of target) | Performance Share Payout for 3-year performance period (% of target) | |
Performance period ended December 31, 2022 | 131 (average) | 196 |
Performance period ended December 31, 2021 | 145 | 200 |
Annual Incentive Payout (% of target) | Performance Share Payout for 3-year performance period (% of target) | |||
Performance period ended December 31, 2023 | 78 (average) | 186 | ||
Performance period ended December 31, 2022 | 131 (average) | 196 |
Our Compensation Discussion and Analysis, which includes a discussion of our program’s “Best Practices,” begins on page 30.23. The 20222023 compensation of our named executive officers is set forth in tables beginning at page 45.43.
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20222023 Business Performance Highlights
Leveraging our Capabilities and Collaborating
• | We increased base business (excluding COVID-19 testing) revenues by 7.1% to $9.03 billion. | |
• | We generated diluted earnings per share (“EPS") of $7.49 and adjusted diluted EPS of $8.71. | |
• | Our strong relationships with health plans were a key driver of growth in 2023, as we grew revenues from health plans by high single digits versus the prior year. We successfully completed negotiations for all our strategic health plan renewals that were scheduled for 2023. | |
• | We continued to work with health systems to help them execute their lab | |
• | In Advanced Diagnostics, we invested in areas to |
• | ||
• | We are taking advantage of opportunities to work with emerging retail healthcare providers, not only to offer new access partners (e.g., Rite-Aid retail locations) and new access points for our services (e.g., our collaboration with Safeway), but also to grow our business by expanding our service offerings (e.g., our collaborations with CVS and Walmart). | |
• | We consummated important acquisitions, including Haystack Oncology, certain assets of the laboratory services business of New York-Presbyterian, one of the nation’s largest and most comprehensive academic medical centers, and select assets of the outreach laboratory services business of Northern Light Health, a large integrated healthcare system in Maine. |
Continuous Improvement
Disciplined Capital Deployment
Management Transition
On November 1, 2022, James E. Davis, previously Executive Vice President, General Diagnostics, was appointed Chief Executive Officer and President of the Company, succeeding Stephen H. Rusckowski, who served as our Chief Executive
• | We delivered our Invigorate cost excellence program goal of annual savings and productivity improvements of 3% of our costs. | |
• | We continue to make progress in using front end automation to enhance specimen processing. In 2023, we completed front end automation upgrades in our Pittsburgh and Dallas laboratories, which is expected to improve quality and productivity. | |
• | We expanded our use of AI in 2023 to improve quality, efficiency and workforce experience in several clinical areas, including in microbiology to help identify bacteria as well as in cytogenetics to identify chromosomal abnormalities. | |
• | We are leveraging automation and AI to improve productivity and quality across our entire value chain, not just in the laboratory. Other areas of focus include reducing denials and patient concessions, enhancing the digital experience, and selecting and retaining talent. | |
• | We created an initiative to deploy generative AI to improve several areas of our business, including software engineering, customer service, claims analysis, scheduling optimization, specimen processing and marketing. We expect to further develop these projects in 2024. | |
• | We implemented several initiatives to improve talent retention, including capability-building programs. | |
• | We improved retention of our frontline employees by 11%. |
Disciplined Capital Deployment
• | In February 2024, we announced the thirteenth increase in our quarterly common stock cash dividend since the beginning of 2012, increasing the dividend by approximately 5.6%, from $0.71 per share of common stock to $0.75 per share of common stock. | |
• | We repurchased approximately $276 million of our common stock in 2023. | |
• | Through the end of 2023, since the beginning of 2012 we have returned approximately $10.5 billion to stockholders: $7.5 billion through common stock repurchases (including $1.8 billion associated with pre-tax proceeds from divestitures), and $3.0 billion through common stock dividends. |
2024 Proxy Statement | iv |
Management Transition
On April 1, 2023, James E. Davis, Chief Executive Officer and President of the Company, was appointed Chairman of the Board, succeeding Stephen H. Rusckowski, who served as our Chief Executive Officer and President for more than a decade. Mr. Davis became Chairman of the Board on April 1, 2023, succeeding Mr. Rusckowski, who serveddecade and as Chairman of our Board through March 2023.
On July 11, 2022, Sam A. Samad joined our Company as an Executive Vice President and, on July 25, 2022, became our Chief Financial Officer. Mr. Samad succeeded Mark Guinan, who in February 2022 announced his intention to retire.
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PROXY STATEMENT | QUEST DIAGNOSTICS INCORPORATED | |
Contents |
Contents
2024 Proxy Statement | |||
Information About Our Corporate GovernanceINFORMATION ABOUT OUR CORPORATE GOVERNANCE
Proposal No. 1 — Election of Directors
The Board of Directors recommends that you vote FOR each of the nominees described below |
Our Board currently has nineten directors. Directors are elected annually for a one-year term concluding on the date of the next annual meeting of stockholders. Each director holds office until his or her successor has been elected and qualified or the director’s earlier resignation, death or removal.
Our Company recently completed a management transition. James E. Davis became Chief Executive Officer In September 2023, Dr. Wilensky informed the Board that she would not seek re-election and Presidentwould be retiring from the Board at the Annual Meeting. The Board would like to thank Dr. Wilensky for her leadership and dedication to Quest Diagnostics’ foundational values during her more than 25 years of service on the Company effective November 1, 2022 and ChairmanBoard. Upon the retirement of Dr. Wilensky, the size of the Board effective April 1, 2023. Mr. Davis succeeded Stephen H. Rusckowski, who served as our Chief Executive Officer and President for more than a decade, and also served as Chairman of our Board until he retired on March 31, 2023. The Board is gratefulwill be reduced to Mr. Rusckowski for his many contributions to our Company.
On July 11, 2022, Sam A. Samad joined our Company as an Executive Vice President and, on July 25, 2022, became our Chief Financial Officer. Mr. Samad succeeded Mark Guinan, who in February 2022 announced his intention to retire.nine directors.
After considering the recommendation of the Governance Committee, the Board nominated the nominees below to serve as directors of Quest Diagnostics. Each nominee other than Dr. Diaz, currently is a director of the Company whose term expires at the Annual Meeting. The Board nominated Dr. Diaz for election for the first time at the Annual Meeting. The Governance Committee evaluated several candidates as potential director nominees. After directors interviewed Dr. Diaz, the Governance Committee unanimously recommended to the Board that Dr. Diaz be nominated to be a director. The biography of each nominee contains information regarding the person’s service as a director of the Company, business experience, other public company director positions and the experience, qualifications, attributes and skills that led the Board to conclude that the person should serve as a director of the Company. The Board believes that each nominee possesses the qualities and experience that nominees should possess in accordance with the Company’s Corporate Governance Guidelines, which set forth the Company’s philosophy regarding Board composition and identify key qualifications and other considerations for the nomination of directors (the relevant portion of the Company’s Corporate Governance Guidelines is set forth below under the heading “Board Nomination Process” beginning on page 9). Each nominee has consented to serve if elected.
James E. Davis |
Chairman, Chief Executive Officer and President Age: Director since: 2022
| Mr. Davis became Chairman of the Board on April 1, 2023 and Chief Executive Officer and President of the Company on November 1, 2022, having served as CEO-Elect since February 3, 2022. Mr. Davis joined Quest Diagnostics in April 2013 as Senior Vice President, Diagnostics Solutions. He initially managed a portfolio of businesses and was instrumental in refocusing the Company on diagnostic information services. Mr. Davis was given positions of increasing responsibility and was named Executive Vice President, General Diagnostics in January 2017.
Prior to joining Quest Diagnostics, Mr. Davis served as Lead Director, and then as Chief Executive Officer, of InSightec, Inc., a medical device company that designs and develops ultrasound ablation devices that are guided by magnetic resonance imaging systems. Previously, he held a number of senior positions in General Electric’s healthcare business, held leadership positions in General Electric’s aviation business and led the development of strategic and operational improvement initiatives for clients of McKinsey & Company, Inc.
Qualifications, Skills and Expertise
Mr. Davis has extensive executive experience, including in operations, general management, science, strategic planning and international operations, with large, complex corporations operating in the healthcare industry. |
1 | 2024 Proxy Statement |
Luis A. Diaz, Jr., M.D. |
Head of the Division of Solid Tumor Oncology
Age: Director since: 2023 | Dr. Diaz has been the head of the division of solid tumor oncology at the Memorial Sloan Kettering Cancer Center since December 2016. Previously, he was a faculty member and physician at the Johns Hopkins University School of Medicine. He has founded several biotechnology companies, including Epitope, Inostics, PapGene (Thrive) and Personal Genome Diagnostics, Inc. Dr. Diaz’s early work provided the first definitive evidence for using circulating tumor DNA as cancer biomarker for screening, monitoring, and detection of occult disease. He discovered the therapeutic link between immunotherapy and cancer genetics in patients with mismatch repair deficient tumors, which led to the first tumor agnostic FDA approval for tumors with this genetic lesion and the first cancer study, published in 2022, that resulted in a 100% complete remission rate. Dr. Diaz
Qualifications, Skills and Expertise
Dr. Diaz has extensive experience in healthcare, medical and science and strong management and strategic planning experience with enterprises engaged in healthcare, medical and science. | |
Tracey C. Doi |
Retired Chief Financial Officer and Group Vice President Toyota Motor North America, Inc.
Age: Director since: 2021 | Ms. Doi retired as Chief Financial Officer and Group Vice President of Toyota Motor North America, Inc. in 2022, after serving nearly twenty years as Chief Financial Officer. Ms. Doi joined Toyota in 2000 as Vice President, Corporate Controller and her responsibilities continued to expand upon her elevation to Chief Financial Officer in 2003. She currently serves on the board of Pentair plc and as an independent trustee of SunAmerica Series Trust and Season Series Trust. Ms. Doi served on the board of City National Bank, a Royal Bank of Canada Company, from 2016 to 2021, and on the Federal Reserve Bank of San Francisco Economic Advisory Council from 2009 to 2016. She is an active board member of the National Asian/Pacific Islander American Chamber of Commerce Foundation, National Association of Corporate Directors North Texas, 50/50 Women on Boards, International Women’s Forum – Dallas and the Japanese American National Museum.
Qualifications, Skills and Expertise
Ms. Doi has extensive executive experience, including in corporate finance, general management, strategic planning, operations, risk, enterprise systems, consumer focus, business analytics and transformation, with a multinational corporation operating in a complex industry. Ms. Doi also has experience with cybersecurity and technology matters. |
2024 Proxy Statement | 2 |
Vicky B. Gregg |
Cofounder/Partner
Retired Chief Executive Officer Blue Cross and Blue
Age: Director since: 2014 | Ms. Gregg is a cofounder/partner of Guidon Partners LLC. She retired as Chief Executive Officer of Blue Cross Blue Shield of Tennessee in 2012. Prior to becoming Chief Executive Officer in 2003, Ms. Gregg served in a number of other leadership roles, including President and Chief Operating Officer. Before that, she held a series of senior roles at Humana Health Plans. Ms. Gregg served as a member of the U.S. National Institutes of Health Commission on Systemic Interoperability. She currently serves on the boards of Acadia Healthcare Company, Inc., Erlanger Health System and the Electric Power Board of Chattanooga, as well as the boards of several private companies, including MyEyeDr. Previously, Ms. Gregg served on several
Qualifications, Skills and Expertise
Ms. Gregg has extensive executive and advisory experience, including in general management and strategic planning, with a range of health care organizations, and extensive experience with healthcare issues and the operation of the U.S. healthcare system, including as a practicing nurse. |
Wright L. Lassiter III |
Chief Executive Officer Common Spirit Health
Age: Director since: 2020 | In August 2022, Mr. Lassiter became Chief Executive Officer of CommonSpirit Health, one of the country’s largest and most diverse health care organizations, with a network of 140 hospitals and more than 1,500 care sites across 21 states. Prior to joining CommonSpirit Health, he was President and Chief Executive Officer of Henry Ford Health System in Detroit, Michigan from December 2014 to 2022. Prior to that, he was Chief Executive Officer of Alameda Health System in Oakland, California from 2005 to 2014. Mr. Lassiter currently serves on the board of Fortive Corporation and is the Chair of the American Hospital Association. Previously he served on the boards of DT Midstream, Inc.
Qualifications, Skills and Expertise
Mr. Lassiter has extensive executive experience in the U.S. healthcare system, including in governance, strategic planning, market expansion, mergers and acquisitions, performance improvement and corporate turnaround. |
3 | 2024 Proxy Statement |
Timothy L. Main |
Non-Executive Chairman WNS (Holdings) Limited
Age: Director since: 2014 | Mr. Main has been the Non-Executive Chairman of WNS (Holdings) Limited since September 2021. From 2000 until 2013 he was the Chief Executive Officer, and from 2013 until 2021 the non-executive Chairman of the Board, of Jabil, Inc., an electronic product solutions company providing comprehensive electronics design, manufacturing and management services to global electronics and technology companies. As Chief Executive Officer, Mr. Main led Jabil’s growth strategy, increasing annual revenues nearly five-fold to reach $17 billion in 2012, and expanding in Asia and other emerging markets. He also
Qualifications, Skills and Expertise
Mr. Main has extensive executive experience, including in capital markets, technology, operations, corporate governance, strategic planning and general management in a complex global industry. Mr. Main also has experience with cybersecurity and technology matters. |
Denise M. Morrison |
Founder, Denise
Retired President Campbell Soup Company
Age: Director since: 2019 | Ms. Morrison is the founder of Denise Morrison & Associates, LLC, a consulting firm. She retired in 2018 as the President and Chief Executive Officer of Campbell Soup Company. Ms. Morrison joined Campbell in 2003, where she held positions of increasing responsibility. Prior to joining Campbell, she held executive management positions at Kraft Foods, Inc. from 2001 to 2003. Ms. Morrison is a director of MetLife, Inc. and Visa, Inc. and served as a director of Campbell Soup Company from 2010 to 2018 and a director of The Goodyear Tire & Rubber Company from 2005 to 2010. She is a member of the Board of Trustees for Boston College, the Business Council and the Advisory Council for Just Capital. Ms. Morrison previously served on the Advisory Board for Tufts Friedman School of Nutrition Science and Policy; the New Jersey Restart and Recovery Commission; President Trump’s Manufacturing Jobs Initiative; and President Obama’s Export Council.
Qualifications, Skills and Expertise
Ms. Morrison has extensive executive experience, including in consumer focus, corporate governance, general management and strategic planning, operations and marketing, with multinational corporations operating in consumer-focused, regulated industries. Ms. Morrison also has experience with cybersecurity and technology matters. |
2024 Proxy Statement | 4 |
Gary M. Pfeiffer |
Retired Senior E.I. du Pont de
Age: Director since: 2004 | Mr. Pfeiffer retired in 2006 as the Senior Vice President and Chief Financial Officer of E.I. du Pont de Nemours and Company. He joined DuPont in 1974, where he held positions of increasing responsibility in finance and international operations, as well as in various DuPont divisions. Mr. Pfeiffer served as Secretary of Finance for the state of Delaware from January through June 2009. Mr. Pfeiffer served as a director of Internap Corporation from 2007 to 2020, TerraVia Holdings, Inc. from 2014 to 2017 and Talbots, Inc. from 2005 to 2012. He served as the non-executive Chair of the Board of Directors of Christiana Care Health System, a regional hospital system located in Delaware, from 2012 to 2016.
Qualifications, Skills and Expertise
Mr. Pfeiffer has extensive executive experience, including in capital markets, corporate finance, accounting, international operations, general management, and strategic planning, with a multinational corporation operating in complex industries. Mr. Pfeiffer also has experience with cybersecurity and technology matters. |
Timothy M. Ring |
Retired Chairman C. R. Bard, Inc.
Age: Director since: 2011 | Mr. Ring is our Lead Independent Director. He retired in 2017 as Chairman and Chief Executive Officer of C. R. Bard, Inc., positions in which he had served since 2003. Mr. Ring is a director of Becton, Dickinson and Company, and was director of C. R. Bard, Inc. from 2003 to 2017 and of CIT Group Inc. from 2005 to 2009. He is a co-founder of TeamFund, Inc., an impact fund and non-profit focused on delivering medical technology to Sub-Saharan Africa and India.
Qualifications, Skills and Expertise
Mr. Ring has extensive executive experience, including in corporate governance, strategic planning and international operations, with a multinational corporation operating in the healthcare industry. Mr. Ring also has experience with cybersecurity and technology matters.
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH NOMINEE. PROXIES SOLICITED BY THE BOARD THAT HAVE BEEN SIGNED AND RETURNED WILL BE VOTED FOR EACH NOMINEE UNLESS OTHERWISE INSTRUCTED.
5 | 2024 Proxy Statement |
Governance Practices
The Board believes that good corporate governance, designed to protect and enhance stockholder value, is important. The Company has strong corporate governance structures, processes, policies and practices. We engage with our stockholders and listen to their concerns. Our Board benefits from knowledgeable independent directors.
The Board has adopted Corporate Governance Guidelines to enhance its own effectiveness and to demonstrate its commitment to strong corporate governance for the Company. The Board reviews these Guidelines no less frequently than annually, including in response to changing regulatory requirements, evolving practices and the concerns of our stockholders. The Company also has adopted a Code of Ethics applicable to all directors, officers and employees. The Corporate Governance Guidelines and Code of Ethics are published on our website at www.QuestDiagnostics.com. The information on or accessible through our website is not incorporated by reference in this Proxy Statement.
Corporate Governance Highlights | |
Board Practice |
Commitment to board refreshment – | ||
Eight of nine | ||
Five of nine | ||
Cybersecurity Committee of the Board since 2019 | ||
Annual election of entire board | ||
Majority voting standard for director elections | ||
Annual assessment of Board and Committee structure and performance | ||
Lead Independent Director with clearly defined role and robust responsibilities | ||
Regular executive sessions for independent directors only, presided over by Lead Independent Director | ||
Independent directors receive a majority of their annual compensation in equity to further align their interests with our stockholders’ interests | ||
Committee assignments are regularly reviewed and selected with a view to continuity and diversity | ||
Annual reviews of succession planning and development of management personnel | ||
Stockholder Matters |
Proxy access right for stockholders | ||
Right to request that the Company call a special meeting of stockholders | ||
Right to act by written consent | ||
No “poison pill” stockholders’ rights plan | ||
No supermajority voting requirements | ||
Annual say-on-pay vote | ||
Active stockholder engagement | ||
Procedural Best Practices |
Committees report on their activities to the Board at each Board meeting | ||
Director education programs conducted by third parties provided for our directors | ||
Public disclosure of corporate political contributions policy and information regarding corporate political expenditures | ||
Board materials provided to directors in advance of meetings to allow preparation for discussion of items | ||
Board portal enhances the Board’s efficiency, access to information, security and communication | ||
Independent directors have unlimited access to officers and employees of the Company | ||
Board and committees have access to and the authority to retain independent legal, financial or other advisors |
2024 Proxy Statement | 6 | |||
Corporate Responsibility
The Company and the Board take seriously the responsibility of corporate stewardship, which includes creating a healthier world and building value for all stakeholders. The Company has a deep commitment to its patients, employees, communities and the environment. The Company aims to do business in an environmentally sustainable, socially responsible manner and make a difference in the communities in which it operates. We maintain a Corporate Responsibility webpage, www.QuestDiagnostics.com/our-company/corporate-responsibility, that provides information about our corporate responsibility program, including our focus on environmental, social and governance (“ESG”) issues. The information on or accessible through our website is not incorporated by reference in this Proxy Statement.
Corporate Responsibility Highlights | ||
Information Available on Our Corporate Responsibility Webpage www.QuestDiagnostics.com/our-company/corporate-responsibility | ||
Corporate Responsibility Reports
Information about our corporate political contributions
ESG resources
Governance, ethics, and values |
Quest for Health Equity®
Quest Diagnostics Foundation Sustainability
Community giving
Global Diagnostic | |
Creating a Healthier World, Building Value for Stakeholders, and Creating an Inspiring Workplace |
Approximately 72% of employees identify as women and approximately 50% of U.S. employees identify as people of color | |||
Ten Employee Business Networks (including African-American Business Leaders, DiverseAbilities, Hispanic/Latino, Pan Asian Leaders and Women in Leadership) that work closely with our talent acquisition team to bring in diverse talent and support them through targeted mentoring and training programs | |||
Initiatives to conserve resources and minimize the negative impact of our operations and facilities on the environment through pollution prevention, energy efficiency, fleet conservation, and strategic sourcing | |||
Environment, Health and Safety program reduces risk of employee injury | |||
Patient Assistance Program tailors solutions for uninsured or underinsured patients based on individual circumstances | |||
“Action with Integrity” Code of Ethics reflects the Company’s commitment to operate as a trustworthy, transparent and ethical organization | |||
Collaborations with nonprofit organizations improve access to care through donated services, charitable giving, and thought leadership | |||
Quest for Health Equity®, a $100 million-plus initiative to help reduce health disparities in underserved American communities | |||
Employee volunteer program Quest Community Action Network, with chapters across the country, has raised millions of dollars for worthwhile causes | |||
Support employee service with the Company’s Matching Gifts programs, which provide funds to hundreds of nonprofit organizations that share the Company’s commitment to empowering better health and fostering inclusion | |||
Named as one of Fortune’s World’s Most Admired Companies in | |||
Named a Best Place to Work for LGBTQ Equality, based on the Human Rights Campaign Foundation Corporate Equality Index | |||
Named one of America’s Greatest Workspaces for Diversity in |
Director Independence
The Board assesses the independence of each director annually, and of each director nominee, in accordance with the Company’s Corporate Governance Guidelines and New York Stock Exchange (“NYSE”) listing standards. The independence guidelines in the Corporate Governance Guidelines are consistent with the independence
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requirements in the NYSE listing standards and include guidelines as to categories of relationships that are considered not material for purposes of director independence.
All members of the Audit and Finance Committee, the Governance Committee, and the Compensation and Leadership Development Committee must be independent under NYSE listing standards and the Company’s Corporate Governance Guidelines. Pursuant to the charters of the Audit and Finance Committee and the Compensation and Leadership Development Committee, respectively, members of these committees also must satisfy separate independence standards based on requirements of the Securities and Exchange Commission (“SEC”) and NYSE, respectively.
The Board has determined that a substantial majority (eight of nine) of our directors, as well as our new director nominee, Dr. Diaz,nominees are independent. Each member, including the chair, of each of the Audit and Finance Committee, the Compensation and Leadership Development Committee, the Governance Committee, the Cybersecurity Committee and the Quality and Compliance Committee qualifies as independent, including under the committee-specific independence requirements discussed above. In making its determinations as to the independence of the directors, the Board reviewed relationships between the Company and each of them. The Board considered the ordinary course commercial relationships in the last three years between the Company and the entity of which Mr. Lassiter is an executive officer and determined that these relationships did not exceed the thresholds under the NYSE listing standards and did not otherwise impair Mr. Lassiter’s independence.
The Board has determined the following directors and nominee to be independent:
Luis A. Diaz, Jr., M.D. | Timothy L. Main | |||
Tracey C. Doi | Denise M. Morrison | |||
| Gary M. Pfeiffer | |||
Wright L. Lassiter III | ||||
Timothy M. Ring |
Mr. Davis, who is the Company’s Chairman, Chief Executive Officer and President, is not independent.
Stockholder Access and Outreach
Stockholders and any other person may communicate with the Board by sending comments to our Lead Independent Director through the web form available at www.questdiagnostics.com/contact-us/lead-independent-director, or by writing to the full Board or any individual director or any group or committee of directors, c/o Corporate Secretary, 500 Plaza Drive, Secaucus, New Jersey 07094. Communications received are reviewed by the Corporate Secretary and handled in accordance with protocols approved by the Governance Committee and forwarded to the intended directors as appropriate.
We have a program of ongoing dialogue with our investors and regularly reach out to large stockholders to listen to their concerns and to inform them about the Company. Our Board receives reports regarding these discussions. During the past year, we reached out to stockholders holding approximately two-thirdsthree-quarters of the Company’s outstanding common stock, and held discussions with those that accepted our invitation and others that reached out to us. These discussions addressed topics such as corporate governance, executive pay, company strategy and the Company’s approach to other ESG issues. During these discussions during the past year, investors generally shared positive feedback regarding the Company’s structuring of and overall approach to corporate governance and executive pay, as well as the other topics discussed. Further, our Corporate Governance Guidelines publicly affirm the Board’s long-standing approach of being available for discussions with stockholders in appropriate circumstances.
The Audit and Finance Committee maintains a procedure whereby complaints and concerns with respect to accounting, internal controls and audit matters may be submitted to the Audit and Finance Committee. All communications received by a director relating to the Company’s accounting, internal controls or audit matters are immediately forwarded to the Chair of the Audit and Finance Committee and are investigated and responded to in accordance with the procedures established by the Audit and Finance Committee. In addition, the Company has established a hotline (known as CHEQline) pursuant to which employees can anonymously report accounting, internal controls, and financial irregularities (as well as compliance concerns on other laws, and other issues).
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Our Corporate Governance Guidelines provide that directors are encouraged and expected to attend the Annual Meeting. All our directors then in office attended the 20222023 annual stockholders meeting.
Board Nomination Process
The Governance Committee is responsible for reviewing with the Board, on an annual basis, the composition of the Board as a whole and whether the Company is being well served by the directors, taking into account each director’s independence, skills, experience, tenure, availability for service to the Company and other factors the Governance Committee deems appropriate. The Governance Committee is responsible for recommending director nominees to the
Board, including re-nomination of persons who are already directors. The Governance Committee does not set specific, minimum qualifications that nominees must meet in order for the Governance Committee to recommend them to the Board, but rather believes that each nominee should be evaluated based on his or her own merits, taking into account the Company’s needs, Board succession planning considerations, and the overall composition of the Board, which includes an analysis of current directors’ skills and experience. Recommendations are made by the Governance Committee in accordance with the Company’s Corporate Governance Guidelines, which set forth the Company’s philosophy regarding Board composition and identify key qualifications and other considerations. The Governance Committee believes that the Board should be comprised of individuals whose backgrounds and experience complement those of other Board members, and considers whether a prospective nominee promotes a diversity of talent, skill, tenure, expertise, background, perspective and experience, as well as diversity with respect to age, gender identity, race, ethnicity, place of residence, sexual orientation and specialized experience. The Governance Committee does not assign specific weights to particular criteria and nominees are not required to possess any particular attribute.
The key qualifications and other considerations set forth in the Company’s Corporate Governance Guidelines are set forth below.
Key Qualifications and Other Considerations for Directors |
• Reputation for highest ethical standards and integrity consistent with Quest Diagnostics’ values of Quality, Integrity, Innovation, Accountability, Collaboration and Leadership • Independence • Prior experience as a director or executive officer of a public company • Number of current board positions and other time commitments • Overall range of skills, experience and seniority represented by the Board as a whole | • Relevant experience such as:
|
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In recruiting and selecting a Board candidate, as a supplement to the key qualifications and other considerations for director candidates outlined in the Corporate Governance Guidelines, the Governance Committee considers other important skills and professional experiences to determine whether a candidate has skills and experience well-suited for the expected needs of the Board, including whether the skills and experience complement those of the other Board members or nominees. The table below includes, for each director nominee, an illustrative, non-exhaustive listing of supplemental skills and experiences that the Board considered most relevant when nominating that nominee. Although a check mark indicates that the Board relied upon the specific skill or experience in making its decision, the absence of a check mark does not mean the nominee does not possess the specific skill or experience. The biographies beginning on page 2 provide more information on each nominee’s skills and experience. The table also provides self-identified demographic and tenure information regarding each nominee.
Davis | Diaz | Doi | Gregg | Lassiter | Main | Morrison | Pfeiffer | Ring | Wilensky | Davis | Diaz | Doi | Gregg | Lassiter | Main | Morrison | Pfeiffer | Ring | |
Skills and Experience | |||||||||||||||||||
Accounting/Finance | ✓ | ✓ | |||||||||||||||||
Advisory | ✓ | ||||||||||||||||||
Capital Markets | ✓ | ✓ | |||||||||||||||||
Consumer Focus | ✓ | ✓ | |||||||||||||||||
Corporate Governance | ✓ | ✓ | |||||||||||||||||
Cybersecurity/Technology | |||||||||||||||||||
Executive Management | ✓ | ✓ | |||||||||||||||||
Government | ✓ | ||||||||||||||||||
Healthcare | ✓ | ✓ | ✓ | ||||||||||||||||
International | ✓ | ✓ | ✓ | ||||||||||||||||
Operations | ✓ | ✓ | ✓ | ✓ | |||||||||||||||
Medical/Science | ✓ | ✓ | |||||||||||||||||
Strategic Planning | ✓ | ✓ | |||||||||||||||||
Demographics | |||||||||||||||||||
Race/Ethnicity | |||||||||||||||||||
African American | ✓ | ||||||||||||||||||
Asian/Pacific Islander | ✓ | ||||||||||||||||||
Hispanic/Latino | ✓ | ||||||||||||||||||
White/Caucasian | ✓ | ✓ | ✓ | ||||||||||||||||
Gender | |||||||||||||||||||
Male | ✓ | ✓ | ✓ | ||||||||||||||||
Female | ✓ | ✓ | ✓ | ✓ | |||||||||||||||
Board Tenure | |||||||||||||||||||
Years | <1 | 0 | 1 | 9 | 3 | 9 | 4 | 19 | 12 | 26 | 1 | 2 | 10 | 4 | 10 | 5 | 20 | 13 |
The Governance Committee regularly reviews the Board’s composition to ensure that we continue to have the right mix of skills, diversity, background and tenure reflected on the Board. Our Board’s membership represents a balanced approach to director tenure, allowing the Board to benefit from the experience of longer-serving directors
2024 Proxy Statement | 10 |
as well as the fresh perspectives of newer directors. The composition of the director nominee group (assuming Dr. Diaz’s election at the Annual Meeting) with respect to tenure and ethnic and gender diversity are shown below:
The Board is committed to fostering diversity of the Board. In addition to valuing diversity of talent, skill, tenure, expertise and experience, the Board seeks to include directors with diverse backgrounds, including with respect to race, ethnicity, age, gender identity and sexual orientation, in order to ensure that diverse perspectives are included on the Board. When conducting searches for new directors, it is the Board’s policy to actively and routinely seek a diverse candidate pool, including women and ethnically diverse candidates. The Board assesses the effectiveness of this process each time a new director is nominated to join the Board.
Process for Nominating New Candidates for Director | |
Board identifies the need to add a new Board member |
Governance Committee identifies, assesses, and ranks candidates
• Seeks input from Board members • Considers recommendations submitted by other sources, including stockholders • Considers retaining third-party search firms to assist in identifying and evaluating candidates for nomination |
Interview of candidates by | |
• Chairman and Chief Executive Officer • Lead Independent Director | • Other Board members • Members of senior management may also interview candidates |
Governance Committee reassesses the candidates and makes recommendation to the Board |
Board determines whether candidate is elected to the Board or is nominated for election by stockholders |
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The Governance Committee considers suggestions from many sources, including stockholders, regarding possible candidates for director. Stockholders may recommend candidates for consideration as director by sending comments to our Lead Independent Director through the web form available at www.questdiagnostics.com/contact-us/lead-independent-director or writing to the full Board or any independent Board member, c/o Corporate Secretary, 500 Plaza Drive, Secaucus, New Jersey 07094. The recommendation should contain the proposed nominee’s name, biographical information and relationship to the stockholder. The Governance Committee evaluates stockholder recommendations for director candidates in the same manner as other director candidate recommendations. Stockholders may also nominate director candidates. See “Frequently Asked Questions” beginning on page 7769 for information regarding the process and deadline for stockholders to submit director nominations for the 20242025 annual meeting of stockholders.
Board Committees
During 2022,2023, the Board held nineeight meetings. In order to fulfil its responsibilities, the Board has delegated certain authority and responsibilities to its six standing committees. The Board’s structure and operations reflect its alignment on ESG issues. The Board holds primary responsibility for oversight of human capital management issues, as reflected in the Corporate Governance Guidelines. The Board expects to continue to monitor developments related to ESG issues and whether its allocation of responsibilities remains appropriate. RecentlyIn 2023, the Board renamed the Compensation Committee the Compensation and Leadership Development Committee and revised the committee’s charter to include leadership development for senior management other than the Chief Executive Officer. As discussed under the heading “Board, Committee and CEO Evaluation Process” beginning on page 17, each committee reviews its own performance.
In 2022,2023, each nominee attended at least 75% of the meetings of the Board and the Board committees on which he or she served held during the period such nominee was in office. Any director may attend meetings of any committee of which the director is not a member.
For each year, a schedule of Board meetings is established before the year begins. Committee meetings are generally scheduled for shortly before, or the day of, meetings of the full Board, except that meetings of the Executive Committee are scheduled only when needed. The Board and each committee also hold such additional meetings as the Board or committee, respectively, determines necessary or appropriate. Set forth below is a brief description of each standing committee and its function, its membership and the number of meetings it held during 2022. The Board will identify committee appointments for Dr. Diaz following his election to the Board.2023. Additional information about the committees can be found in their charters, which are available on our website at www.QuestDiagnostics.com.
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Audit and Finance Committee | |
Number of
Gary M. Pfeiffer (Chair) *Dr. Wilensky is retiring |
This committee:
• Monitors the quality and integrity of the Company’s financial statements and related disclosures, including the Company’s disclosure controls and procedures and internal control over financial
• Oversees
• Oversees the internal audit function and
• Has primary oversight responsibility for the Company’s enterprise risk management program.
• Appoints the independent registered public accounting firm, monitors its qualifications, independence and performance, approves its compensation and pre-approves the services it performs.
• Reviews with the Company’s independent registered public accounting firm, and informs the Board of, any significant accounting and audit matters, including critical accounting policies and judgments.
• Advises and makes recommendations with regard to certain financing transactions and other significant financial policies and actions.
• Reviews the Company’s insurance programs, including regarding cybersecurity.
• Establishes procedures for the receipt, retention and treatment of complaints relating to accounting and internal accounting controls, and for the confidential, anonymous submission by employees of concerns regarding accounting or audit matters (and other issues).
• Reviews and reports to the Board on the Company’s management of its financial resources.
The Board has determined that each of Ms. Doi and Mr. Pfeiffer qualifies as an “audit committee financial expert” as defined by the SEC. For a description of the experience of Ms. Doi and Mr. Pfeiffer, see “Proposal No. 1—Election of Directors” beginning on page 1. |
13 | ||
Compensation and Leadership Development Committee | |
Number of
Denise M. Morrison (Chair) | This committee:
• In consultation with senior management of the Company, establishes the Company’s executive compensation philosophy.
• Reports to the Board with respect to,
•
• Annually reviews the compensation arrangements for the Company’s executive leadership team members to assess whether they encourage risk taking that is reasonably likely to have a material adverse effect on the Company.
•
• Annually reviews and recommends to the Board the compensation of the Company’s non-employee directors.
•
• Supports the Board in the Board’s succession planning for the Company’s Chief Executive Officer.
• Oversees talent management, leadership development and succession planning for senior management other than the Chief Executive Officer, including other executive leadership team members.
• Provides oversight and exercises the responsibility it has under the Company’s incentive compensation recoupment policy.
For more information regarding the Company’s processes and procedures for executive compensation, including regarding the role of executive officers and compensation consultants in connection with determining or recommending executive and director compensation, see “Compensation Discussion and Analysis” beginning on page |
14 |
Cybersecurity Committee | |
Number of
Timothy L. Main (Chair) | This committee:
• Oversees the Company’s cybersecurity policies, plans, programs and
• Reviews the Company’s management of risks and compliance with legal and regulatory requirements and industry standards related to its information technology security systems and processes.
|
Executive Committee | |
Number of
Timothy M. Ring (Chair) | This committee:
• May act for the Board, except with respect to certain major corporate matters such as mergers, the appointment of directors to fill vacancies, removal of the Chief Executive Officer, amendment of the Company’s certificate of incorporation or by-laws, declaration of dividends and matters delegated to other Board committees.
|
Governance Committee | |
Number of
Timothy M. Ring (Chair) | This committee:
• Identifies individuals qualified to become Board members, and reviews and recommends possible candidates for Board membership.
• Reviews the structure of the Board, its committee structure and overall size.
• Monitors developments in corporate governance.
• Assists the Board in the oversight of ESG matters, including reviewing the Company’s overall ESG priorities, goals and strategies.
• Reviews policies, programs and reports pertaining to environmental sustainability matters.
• Reviews the Company’s Corporate Governance Guidelines and recommends to the Board such changes to the Guidelines, if any, as the committee may determine.
• Recommends to the Board assignments of directors to Board committees.
• Reviews relationships and transactions of directors, executive officers and senior financial officers for possible conflicts of interest.
• Reviews and approves transactions or proposed transactions in which a related person is likely to have a direct or indirect material interest pursuant to the Company’s Statement of Policy and Procedures for the Review and Approval of Related Person Transactions.
• Oversees the Board and each Board committee in their annual self-evaluation.
• Oversees the Company’s engagement efforts with stockholders and other key stakeholders. |
15 | ||
Quality and Compliance Committee | |
Number of
*Dr. Wilensky is retiring |
This committee:
• Reviews the adequacy
• Reviews the Company’s policies, programs and performance relating to medical quality assurance.
• Reviews the responsibilities, plans, results, budget, staffing and performance of the Company’s Compliance Department, including its independence, authority and reporting obligations, the proposed audit plans and the summary of findings from compliance audits.
• Reviews the Company’s policies, programs and performance relating to government affairs and corporate political contributions.
• Reviews and concurs in the appointment, replacement, reassignment or dismissal of the Senior Vice President, Chief Compliance Officer and reviews any reports from that officer.
• Reviews the significant reports to management or summaries thereof regarding the Company’s compliance policies, practices, procedures and programs and management’s responses thereto.
• Monitors significant external and internal investigations of the Company’s business as they relate to possible violations of law by the Company or its directors, officers, employees or agents and concerns and complaints regarding medical quality.
• Monitors material legal matters and compliance with legal and regulatory requirements, and coordinates with the Audit and Finance Committee regarding the same. |
Board Leadership Structure
At Quest Diagnostics, we recognize the importance of good corporate governance and value the leadership and input of the independent members of our Board. The Board believes that its leadership structure should be determined by what is in the best interest of the Company. The Board does not have a policy that requires the combination or separation of the Chair and Chief Executive Officer roles. The Board has revised its leadership structure from time to time and retains the flexibility to revise its leadership structure if, in the exercise of its fiduciary duties, the Board believes that such revision is appropriate. Currently, the roles of Board Chair and Chief Executive Officer are combined with James E. Davis. The Board believes that Mr. Davis’ long tenure with the Company in multiple roles and his extensive industry experience make him well-suited to facilitate the Board’s oversight of our operations, strategy and risk. In accordance with the Company’s Corporate Governance Guidelines, where the Board Chair is not an independent director, the independent directors designate a Lead Independent Director, who has a robust set of responsibilities set forth in our Corporate Governance Guidelines and described below under the heading “Principal Responsibilities of the Lead Independent Director,” and who assists with the administration and organization of the Board and facilitates the effective performance of its duties, including the activities of the independent directors. The independent directors have selected Timothy M. Ring to serve as Lead Independent Director.
16 |
Principal Responsibilities of the Lead Independent Director |
• Participates with the Chairman of the Board and Chief Executive Officer in the preparation of the agendas for Board meetings, and has the authority to call meetings of the independent directors
• Serves as a member of the Board’s Executive Committee
• Coordinates providing timely feedback from the directors to the Chairman of the Board
• Presides over all executive sessions of the independent directors and all Board meetings in the absence of the Chairman of the Board | • Takes a leading role in the process of evaluating the Board, and leads the independent directors in the annual evaluation of the performance of the Chief Executive Officer and President
• Interviews candidates for the Board
• Serves as the principal contact for stockholder communications with the independent directors
• Monitors, and if appropriate discusses with the other independent directors, communications received from stockholders and others |
We also have other mechanisms in place to promote the appropriate level of independence and oversight in Board decisions. See “Corporate Governance Highlights” on page 7.6.
Board Oversight of Company Culture and Human Capital
The Board is committed to fostering a strong culture of compliance and ethical conduct and has structured its committees and their activities to support its commitment. The Board supports management’s promotion of a corporate culture of integrity, ethical behavior and compliance with laws and regulations and efforts to ensure that the Company’s culture and its strategy are aligned. The Board expects all directors, as well as officers and employees, to conduct themselves in a manner consistent with our Code of Ethics and our values. The Board believes that a strong culture of integrity, ethics and compliance is fundamental to the conduct of the Company’s business, and is necessary for effective risk management, maintaining investor trust, and successful corporate governance.
We have long strived to create an inspiring workplace, and this has driven our approach to human capital management. Effectively managing our human capital resources is a priority with key components that include culture, safety and well-being programs, employee engagement, and development and succession planning. Our Board actively engages in oversight of our human capital management, including by receiving management reports on key areas, strategies and initiatives. Additional information about our human capital management strategies and initiatives is available in our 20222023 Annual Report on Form 10-K and our 20212022 Corporate Responsibility Report, each of which is available on our website at www.QuestDiagnostics.com.www.QuestDiagnostics.com.
Board, Committee and CEO Evaluation Process
The Board annually conducts a self-evaluation of its performance and effectiveness. The charter of each standing committee of the Board, discussed under the heading “Board Committees” beginning on page 12, calls for the committee to conduct an annual self-evaluation of its performance, and report to the Board the results of the self-evaluation. The Governance Committee is tasked with establishing criteria and processes for and overseeing the annual self-evaluation of the Board and the committees. Each year, the Governance Committee discusses the appropriate approach for that year’s Board and committee evaluations.
Prior to the meeting at which each annual self-evaluation occurs, each member of the Board and the committees receives a discussion outline, which encourages the directors to consider the Board’s or committee’s structure, processes, overall effectiveness, and improvement since the previous year’s assessment. In addition, our General Counsel discusses individually with each director, and with members of our senior management, the self-evaluation items and compiles feedback received for discussion with the Lead Independent Director and the full Board. At the meeting, the Lead Independent Director or the committee chair, as applicable, leads a discussion guided by the outline provided, and the Board or committee, as applicable, identifies action items as well as items for further review.
17 | ||
Periodically (including in 2023), the Board engages an independent consultant to assist with the evaluation, including evaluating individual director performance. When the Board evaluates individual director performance, input from other directors and senior management is considered, in a process that protects anonymity to ensure honest feedback. In these situations, the independent consultant and the Lead Independent Director together review the results of the individual director evaluations with the individual directors. The Lead Independent Director reviews the remaining items with the Board and assists the Board in identifying action items as well as items for further review.
In addition, the Compensation and Leadership Development Committee, pursuant to its charter, conducts an annual review of the Chief Executive Officer’s performance, receives input on the review from the Board, and reports the results of its review to the Board. Pursuant to our Corporate Governance Guidelines, the Board, led by the Lead Independent Director, reviews the Compensation and Leadership Development Committee’s report in order to ensure that the Chief Executive Officer is providing the necessary leadership for the Company in light of the Company’s current and longer-term goals. The Board then provides feedback to the Chief Executive Officer regarding his performance.
Board Role in Risk Oversight
The Board and its committees play an active role in overseeing the Company’s key risks. As highlighted in the table below, the Board has delegated primary responsibility for overseeing our enterprise risk management program to the Audit and Finance Committee, and has assigned oversight of specific risks to the Board committee with the appropriate subject matter responsibility, as set forth in the committee charters. The Board has also considered its role in risk oversight in determining the current Board leadership structure. The Company’s management is responsible for risk management, which it does through a committee of senior managers that leads the Company’s enterprise risk management program. The program includes a formal continuous process that identifies, assesses, mitigates and manages the risks from both internal and external conditions that could significantly impact the Company and influence its business strategy and performance, including ESG issues.ESG-related matters. The program is designed to focus on the Company’s key risk types, which are: operational; financial; legal and compliance; and strategic. The Company’s key risks currently include without limitation: medical quality, cybersecurityAs part of our program, the Board and business continuity.its committees receive updates and training from internal and external experts on topics that are relevant to overall risk management. The Company’s enterprise risk management program, including cybersecurity risk management and strategy, is discussed in the Company’s Annual Report on Form 10-K.
Roles of the Board and its Committees in Risk Oversight |
Board of Directors | Cybersecurity Committee | |
• Annually reviews our enterprise risk management program.
• Receives regular updates from management and the Board’s committees regarding their activities with respect to the program. | •
• Reviews adequacy and effectiveness of our cybersecurity program and regularly receives reports from management on cybersecurity matters. |
Audit and Finance Committee | Governance Committee | |
• Has been delegated primary responsibility for overseeing our enterprise risk management program by the Board. • Receives regular updates from management regarding our enterprise risk management program, including with respect to business continuity. • Regularly oversees compliance with securities and accounting rules and regulations. | • Reviews policies, programs and reports related to environmental sustainability matters. • Reviews the Company’s overall ESG priories, goals and strategies. • Receives regular reports from management regarding these topics. |
18 |
Compensation and Leadership Development | Quality and Compliance Committee | |
• Annually reviews compensation arrangements for members of our executive leadership team. • Assesses whether such compensation arrangements encourage risk taking that is reasonably likely to have a material adverse effect on the Company. | • Reviews the adequacy and effectiveness of policies and programs to ensure compliance with laws and regulations applicable to our business (other than with respect to securities and accounting). • Oversees and receives regular updates on data privacy. •
Reviews the adequacy and effectiveness of our medical quality program. • Receives regular reports from management regarding these topics. |
Related Person Transactions
The Company has a written policy pursuant to which it evaluates proposed transactions involving a related person and the Company in which the amount involved exceeds $120,000. A related person is any director or executive officer of the Company, any immediate family member of a director or executive officer, or any person who owns 5% or more of the Company’s outstanding common stock. The office of the General Counsel is primarily responsible for the administration of the policy and for determining, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in the transaction. Certain transactions are defined not to be related person transactions under the policy.
The Governance Committee reviews any proposed transaction in which a related person has a direct or indirect material interest, except for any compensation arrangements involving an immediate family member of a director or an executive officer. In the event that the General Counsel becomes aware of a related person transaction not approved in advance, the General Counsel will arrange for the related person transaction to be reviewed at the next regularly scheduled meeting of the Governance Committee. Any member of the Governance Committee who is a related person with respect to a transaction under review may not participate in any review, consideration or approval of the transaction.
In considering any related person transaction, the Governance Committee determines whether the transaction is fair to the Company. In considering a proposed transaction involving a director or the immediate family member of a director, the Governance Committee also assesses whether the proposed transaction could reasonably be expected to impact the independence of the director under the Company’s Corporate Governance Guidelines, the NYSE listing standards or other applicable rules.
Compensation arrangements involving an immediate family member of an executive officer are reviewed and approved by the Chief Executive Officer and the Senior Vice President, Chief Human Resources Officer, unless such person is an immediate family member of the Chief Executive Officer, in which case the compensation arrangement is approved by the Compensation and Leadership Development Committee. Compensation arrangements involving an immediate family member of a director are reviewed and approved by the Compensation and Leadership Development Committee.
During 2022,2023, there were no related person transactions meeting the requirements for disclosure in this proxy statement.
Policies Regarding Hedging and Pledging our Common Stock; Window Periods
Our directors and executive officers are prohibited from pledging the Company’s common stock to secure a loan and from holding such stock in a margin account. Our directors and employees, including executive officers, are prohibited from entering into transactions or purchasing financial instruments that are expected to hedge or offset, or designed to hedge or offset, a decline in our common stock price, including, but not limited to, the use of financial derivatives (including, for example, prepaid forward contracts, equity swaps, collars, puts and calls or exchange funds). Our directors and employees, including executive officers, also are prohibited from entering into transactions (including, for example, short sales) that establish downside price protection for our common stock. In addition, our directors and executive officers, as well as certain other employees, generally may purchase or sell
19 | 2024 Proxy Statement |
Company securities only during permitted window periods (generally beginning on the business day following the issuance of our quarterly earnings releases and continuing until the end of the second month of the fiscal quarter).
Director Compensation Program for 20222023.. The following table sets forth the 20222023 compensation of our non-employee directors then in office. No changes to our director compensation program were made in 2022.2023. Mr. Rusckowski and Mr. Davis, each of whom served as an employee director during 2022,2023, received no additional compensation in 20222023 for serving as director. None of our non-employee directors receives any consulting or other non-director fees from the Company.
Director | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | |||||||||||
Luis A. Diaz, Jr. | 100,467 | 179,941 | 280,408 | ||||||||||||||
Tracey C. Doi | 120,500 | 179,943 | 300,443 | 120,500 | 179,941 | 300,441 | |||||||||||
Vicky B. Gregg | 134,500 | 179,943 | 314,443 | 135,791 | 179,941 | 315,732 | |||||||||||
Wright L. Lassiter III | 120,500 | 179,943 | 300,443 | 120,500 | 179,941 | 300,441 | |||||||||||
Timothy L. Main | 135,500 | 179,943 | 315,443 | 135,500 | 179,941 | 315,441 | |||||||||||
Denise M. Morrison | 117,000 | 179,943 | 296,943 | 132,385 | 179,941 | 312,326 | |||||||||||
Gary M. Pfeiffer | 159,500 | 179,943 | 339,443 | 162,174 | 179,941 | 342,115 | |||||||||||
Timothy M. Ring | 166,000 | 179,943 | 345,943 | 166,000 | 179,941 | 345,941 | |||||||||||
Helen I. Torley | 58,500 | - | 58,500 | ||||||||||||||
Gail R. Wilensky | 138,000 | 179,943 | 317,943 | 124,875 | 179,941 | 304,816 |
(1) | Represents the aggregate grant date fair values of the awards. Each of our non-employee directors then in office received a single award of |
Dr. Diaz | 1,369 | Ms. Morrison | 5,096 | |||||||
Ms. Doi | 2,232 | Mr. Pfeiffer | 25,236 | 3,660 | Mr. Pfeiffer | 27,129 | ||||
Ms. Gregg | 2,712 | Mr. Ring | 24,179 | 2,686 | Mr. Ring | 26,051 | ||||
Mr. Lassiter | 4,680 | Dr. Torley | 1,420 | 6,158 | Dr. Wilensky | 2,686 | ||||
Mr. Main | 2,712 | Dr. Wilensky | 2,712 | 2,686 | ||||||
Ms. Morrison | 5,075 |
(2) | No stock options were awarded to our non-employee directors during |
Annual Cash Retainer Fees.. During 2022,2023, our non-employee directors received an annual cash retainer fee. Directors serving on Board committees also received additional retainers for such service, and directors who served as Lead Independent Director and committee chairs each received an additional fee for such service. All such cash retainer fees were paid at annual rates as set forth in the table below.
Members | Chair | |||
Board of Directors | • $100,000, payable in quarterly installments of $25,000 | • $40,000 (Lead Independent Director) | ||
Audit and Finance Committee | • $13,000 | • $30,000 | ||
Compensation and Leadership Development Committee | • $9,500 | • $10,000 | ||
Governance Committee | • $7,500 | • $7,500 | ||
Quality and Compliance Committee | • $7,500 | • $10,000 | ||
Executive Committee | • $1,500 | • N/A | ||
Cybersecurity Committee | • $7,500 | • $7,500 |
Equity AwardsAwards.. Each non-employee director participates in the Company’s Long-Term Incentive Plan for Non-Employee Directors (the “Director Plan”). The Director Plan currently authorizes the grant to each non-employee director, on the date of the annual stockholders meeting, of stock options and stock awards covering shares of common stock having an aggregate value on the date of grant not exceeding $500,000. If a person is appointed or
2024 Proxy Statement | 20 |
elected as a director other than on the date of the annual stockholders meeting, the Board may grant to such director a prorated equity award, in such proportions as the Board may determine. Annual option grants become exercisable, and annual RSUs generally vest and convert to shares of our common stock, in three equal annual installments, beginning on the first anniversary of the grant date, regardless of whether the non-employee director remains a director. The Director Plan also permits the
Board to grant to any non-employee director an equity award for any special service as a director (e.ge.g.., service on a special purpose committee). Special service equity awards shall not exceed the grant date value of the annual equity award granted to each non-employee director at the most recent annual meeting of stockholders. The exercise price of all stock options issued under the Director Plan is the fair market value of our common stock on the grant date. Options, once vested, will be exercisable through the tenth anniversary of the date of grant even if the director’s service on the Board terminates.
For 2022,2023, the Board fixed the value of the annual equity award to non-employee directors at $180,000 and determined that the award would be delivered entirely in the form of RSUs. The 20222023 award was granted effective May 18, 2022,17, 2023, with each non-employee director then in service receiving an award of 1,2921,369 RSUs.
A non-employee director may elect to receive annual retainer fees in stock awards in lieu of cash. The number of shares issued in lieu of cash for the retainer fees is based on the fair market value of the stock on the date that the cash payment would otherwise be made.
Opportunity to Defer CompensationCompensation.. Under the Company’s Deferred Compensation Plan for Non-Employee Directors, each non-employee director may elect to defer, until a date specified by the director or until the director’s termination of service as a director, the director’s cash compensation or any stock grants awarded pursuant to the Director Plan. If a director specifies a deferral date that is prior to the director’s termination of service, the payout will occur or commence, as applicable, upon termination of service as a director. Cash amounts deferred may be indexed to (i) a cash account under which amounts deferred earn interest, compounded quarterly, at a rate in effect on the first date of each calendar quarter or (ii) the Company’s common stock.
Changes in Director Compensation Program for 20232024.. No changes were made in the compensation program for directors for 2023.2024.
Stock Ownership Information |
We encourage our directors, officers, and employees to own our common stock, which aligns their interests with the interests of our stockholders. The Company maintains stock ownership and retention guidelines for its directors and executive officers. The guidelines call for our directors to beneficially own not less than 6,000 shares of our common stock. Until a director satisfies the minimum shareholding requirement, directors are required to maintain 75% of net shares received from vesting of RSUs and from the exercise of options. For purposes of determining whether a director has met the minimum shareholding requirements, we count shares subject to unvested RSUs, but not shares subject to stock options. The guidelines for our executive officers are discussed in “Compensation Discussion and Analysis” beginning on page 24.23.
The following tables show the number of shares of the Company’s common stock beneficially owned by (1) each person who is known to the Company to own beneficially more than 5% of the Company’s common stock, (2) each director of the Company and each nominee, (3) each named executive officer, currently employed,and (4) each named executive officer no longer employed, and (5) all directors, nominees and named executive officers currently employed as a group. Information in the table regarding the Company’s directors, nominees and executive officers is provided as of March 8, 2023.2024.
Name | Number of Shares Beneficially Owned | Percentage of Class | Number of Shares Beneficially Owned | Percentage of Class | |||||||
The Vanguard Group (1) | 13,973,339 | 12.27 | 13,575,974 | 12.07 | |||||||
BlackRock, Inc. (2) | 12,391,327 | 10.9 | 10,578,025 | 9.4 | |||||||
State Street Corporation (3) | 5,879,980 | 5.16 |
(1) | The business address of The Vanguard Group (“Vanguard”) is 100 Vanguard Blvd., Malvern, PA 19355. Vanguard has sole voting power with respect to 0 of these shares, sole dispositive power with respect to 13,101,247 of these shares, shared voting power with respect to 141,923 of these shares and shared dispositive power with respect to 474,727 of these shares. The ownership information is based on the information contained in the Schedule 13G/A filed by |
2024 Proxy Statement |
(2) | The business address of BlackRock, Inc. (“Blackrock”) is |
Name | Shares (1) | Shares Subject to Stock Options Exercisable within 60 days (2) | Total (3) | Shares Underlying RSUs (4) | Shares(1) | Shares Subject to Stock Options Exercisable within 60 days(2) | Total(3) | Shares Underlying RSUs(4) | ||||||||||||||||
Named Executive Officers Currently Employed | Named Executive Officers Currently Employed | |||||||||||||||||||||||
James E. Davis | 62,798 | 241,243 | 304,041 | 39,837 | 74,845 | 290,663 | 365,508 | 51,123 | ||||||||||||||||
Sam A. Samad | - | - | - | 20,384 | 4,108 | 12,757 | 16,865 | 17,224 | ||||||||||||||||
Catherine T. Doherty | 64,686 | 79,389 | 144,075 | 7,371 | 64,787 | 97,198 | 161,985 | 7,973 | ||||||||||||||||
Michael E. Prevoznik | 38,602 | 135,469 | 174,071 | 5,338 | 38,543 | 149,106 | 187,649 | 5,477 | ||||||||||||||||
Patrick Plewman | 8,562 | 14,727 | 23,289 | 3,796 | ||||||||||||||||||||
Karthik Kuppusamy | 9,496 | 19,135 | 28,631 | 7,512 | ||||||||||||||||||||
Directors and Nominees | ||||||||||||||||||||||||
Luis A. Diaz, Jr. | - | - | - | - | - | - | - | 1,369 | ||||||||||||||||
Tracey C. Doi | - | - | - | 2,242 | - | - | - | 3,681 | ||||||||||||||||
Vicky B. Gregg | 14,419 | 14,419 | 2,712 | 13,643 | - | 13,643 | 2,686 | |||||||||||||||||
Wright L. Lassiter III | - | - | - | 4,701 | - | - | - | 6,192 | ||||||||||||||||
Timothy L. Main | 19,531 | 2,037 | 21,568 | 2,712 | 20,926 | - | 20,926 | 2,686 | ||||||||||||||||
Denise M. Morrison | 1,474 | - | 1,474 | 6,174 | 2,869 | - | 2,869 | 6,222 | ||||||||||||||||
Gary M. Pfeiffer | - | - | - | 29,523 | - | - | - | 31,541 | ||||||||||||||||
Timothy M. Ring | - | - | - | 37,434 | - | - | - | 40,862 | ||||||||||||||||
Gail R. Wilensky | 29,800 | - | 29,800 | 2,712 | 31,195 | - | 31,195 | 2,686 | ||||||||||||||||
All directors, nominees and executive officers currently employed as a group (17 persons) | 246,568 | 488,073 | 734,641 | 177,845 | 273,268 | 602,464 | 875,732 | 200,869 | ||||||||||||||||
Named Executive Officers Formerly Employed | ||||||||||||||||||||||||
Stephen H. Rusckowski | 347,348 | 262,400 | 609,748 | 42,250 | ||||||||||||||||||||
Mark J. Guinan | 102,648 | 171,849 | 274,497 | 3,390 | ||||||||||||||||||||
Carrie Eglinton Manner | 11,683 | - | - | - |
(1) | Each person has sole voting power and sole dispositive power. |
(2) | Includes shares of common stock which are subject to options issued under the Amended and Restated Employee Long-Term Incentive Plan (the “Employee Plan”) or the Director Plan, as applicable, that were exercisable as of, or would become exercisable within 60 days of, March 8, |
(3) | Each named executive officer, director and nominee beneficially owned less than 1% of the shares of common stock outstanding. All directors, nominees and named executive officers as a group beneficially owned less than |
(4) | Shares of common stock corresponding to RSUs reported in this column are not considered beneficially owned under SEC rules and are not included in the total column in this table. This column also includes phantom stock units held by directors under the Deferred Compensation Plan for Non-Employee Directors. |
22 |
Information Regarding Executive CompensationINFORMATION REGARDING EXECUTIVE COMPENSATION
Proposal No. 2 — Advisory Resolution to Approve Executive Officer Compensation
The Board of Directors recommends that you vote
FOR approval of our |
Section 14A of the Exchange Act entitles stockholders to vote to approve or not approve, on an advisory (non-binding) basis, our executive officer compensation as disclosed in the Compensation Discussion and Analysis and accompanying compensation tables and narrative. We are asking stockholders to approve the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and related narrative disclosure, is hereby APPROVED.
Pay for Performance. As discussed in “Compensation Discussion and Analysis” below, our executive compensation program is designed to pay for performance, to align the interests of our executive officers with the interests of our stockholders and to support the Company’s long- and short-term business goals. Our program reflects many “best practices,” and our executive compensation structure and levels in 20222023 clearly demonstrate our commitment to aligning pay and performance.
Advisory Vote. This vote is advisory. We conduct an advisory vote to approve executive officer compensation annually; the next stockholder advisory vote to approve executive compensation will take place after consideringat the resultsCompany’s 2025 annual meeting of the stockholder vote on Proposal No. 3.stockholders. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the executive compensation policies and practices described in this proxy statement. The Board and the Compensation and Leadership Development Committee value the opinions of the Company’s stockholders and will take into account the outcome of the vote, in conjunction with such other factors as the Board and the Compensation and Leadership Development Committee consider appropriate, in connection with the Company’s executive compensation program.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. PROXIES SOLICITED BY THE BOARD THAT HAVE BEEN SIGNED AND RETURNED WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE INSTRUCTED.
Proposal No. 3 — Advisory Vote to Recommend the Frequency of the Executive Officer Compensation Advisory Vote
vote on executive compensation. |
Pursuant to Section 14A of the Exchange Act, we are required, at least once every six years, to hold a stockholder advisory vote to recommend the frequency with which we conduct a stockholder advisory vote on executive compensation. This proposal gives you the opportunity to vote, on an advisory (non-binding) basis, on how often the Company will conduct a stockholder advisory vote on executive officer compensation. You may vote on whether you prefer that the Company conduct such an advisory vote every one, two, or three years. You may also vote to abstain.
Annual Vote Recommended. Our Board unanimously recommends that stockholders vote in favor of conducting the advisory vote on executive compensation required by Section 14A of the Exchange Act annually. We held our last vote to recommend the frequency of the stockholder advisory vote on executive compensation at our 2017 annual stockholders meeting. In 2017, a significant majority of our stockholders voted in favor of conducting the advisory vote on executive compensation annually, and our experience in the past six years has shown that conducting the vote every year is currently the most appropriate option. An annual vote allows stockholders to provide us with direct and immediate feedback regarding our executive compensation program. It also fosters stockholder communications and is consistent with our practice of engaging with our stockholders, and obtaining their input, on our executive compensation program. The Board is open to receiving from our stockholders at any time specific concerns regarding the Company’s executive compensation program.
Advisory Vote. This vote is advisory. The Board and the Compensation and Leadership Development Committee value the opinions of the Company’s stockholders and will take into account the outcome of the vote, in conjunction with such other factors as the Board and the Compensation and Leadership Development Committee consider appropriate, when determining the frequency of future advisory votes on executive compensation.
THE BOARD RECOMMENDS A VOTE TO CONDUCT THE ADVISORY VOTE ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.” PROXIES SOLICITED BY THE BOARD WILL BE VOTED “ONE YEAR” WITH RESPECT TO THIS PROPOSAL UNLESS OTHERWISE INSTRUCTED.
Compensation Discussion and Analysis
Executive Summary
Introduction
The Compensation and Leadership Development Committee (the “Committee”) determined 20222023 compensation for the Company’s named executive officers after considering, among other things, the Company’s performance, (including our continued response to the COVID-19 pandemic), the competitive market for executive talent, and the current environment in the healthcare industry, including in diagnostic information services. We believe that our executive compensation structure, compensation opportunity levels, and pay outcomes in 20222023 reflect our firm commitment to the core principles of our executive compensation philosophy, which is designed to motivate leaders, and to align pay with performance, the Company’s financial results and the interests of stockholders and stakeholders. Our named executive officers are listed below.
Officer | Title | |
James E. Davis | Chairman, Chief Executive Officer, and President | |
Sam A. Samad | Executive Vice President, Chief Financial Officer | |
Catherine T. Doherty | ||
Michael E. Prevoznik | Senior Vice President, General Counsel | |
Senior Vice President, |
23 | ||
2023 Company Performance
In 2023, we continued to make progress by executing on our business strategy and delivering on our earnings commitments to stockholders and stakeholders. The Company improved on financial and operating metrics and met several key financial targets, despite the nation’s diminishing demand for COVID-19 testing.
Net revenues | ||||
13.6% | ||||
Diluted earnings per share (“EPS”) | $7.49 | |||
Cash provided by operations | ||||
Operating income as a percentage of net revenues | 15.8% | |||
Diluted EPS | $8.71 |
2022 Company Performance
In the third yearAdjusted operating income as a percentage of the COVID-19 pandemic, we continued to bring critical COVID-19 testing to our country. The nation’s demand for COVID-19 testing diminished, as expected, over the course of 2022, and that diminished demand resulted in an overall decline in 2022 from the record revenues, earnings and cash from operations the Company generated in 2021. The Company still generated $1.45 billion in COVID-19 testingnet revenues and the Company’s revenues excluding revenue associated with its COVID-19 testing business (the “base business”) grew 5% in 2022. The strong growth of our base business, combined with our continued strong provision of COVID-19 testing, drove our financial performance during 2022.
Results | Change | |||
Reported: | ||||
Net revenues | $9.9BB | (8.4)% | ||
Operating income as a percentage of net revenues | 14.5% | (7.6) bps | ||
Diluted earnings per share (“EPS”) | $7.97 | (48.7)% | ||
Cash provided by operations | $1.7BB | (23.1)% | ||
Adjusted: | ||||
Operating income as a percentage of net revenues | 17.6% | (6.2) bps | ||
Diluted EPS | $9.95 | (30.1)% |
Adjustedadjusted diluted EPS is aare non-GAAP financial measure. measures. See Annex A for a reconciliation to a financial measure reported under U.S. GAAP.
In 2022, Quest Diagnostics remained at the forefront of the response to the COVID-19 pandemic, playing a pivotal role to broaden access to laboratory insights to help people lead healthier and safer lives. We provided both molecular diagnostic and antibody serology tests to aid in the diagnosis of COVID-19 and the detection of immune response to the virus. From the beginning of the pandemic through December 31, 2022, we have performed approximately 77 million of these tests. We built up and maintained the testing capacity to handle surges in COVID-19 testing demands, including using our national courier, air fleet and logistics network to balance volume across approximately two dozen COVID-19 testing laboratories, and also through our laboratory referral partner program. We worked with federal, state and local governments, healthcare organizations, payers, suppliers, retailers, trade associations and other laboratories in the effort to bring as much COVID-19 testing as possible to the American people. We also provided data on COVID-19 testing that we conducted to federal, state and local public health authorities, including the U.S. Centers for Disease Control and Prevention. In addition, we participated in studies with government and private institutions, aiding COVID-19 public health response and research. All our employees, including our dedicated laboratory professionals, phlebotomists, air fleet team, and couriers took tremendous pride in the role we played and worked tirelessly to help patients and communities access quality COVID-19 testing. As the impact of COVID-19 moderates, we remain active in the continued response to COVID-19, including supporting ongoing testing needs and public health response.
We also continued to see how underserved communities were disproportionately impacted by COVID-19. Quest for Health Equity, our initiative with the Quest Diagnostics Foundation, was launched to reduce health disparities in underserved communities in the U.S. This initiative provides a combination of testing services, education programs, alliances and financial support to efforts to address health disparities. Since its inception, we have committed approximately $30 million to approximately 65 programs launched across the U.S. and Puerto Rico, including supporting COVID-19 testing and vaccination events, wellness events, educating young students on healthy nutrition choices and expanding research and mentorship opportunities for Black and Hispanic scholars. Numerous Quest for Health Equity undertakings demonstrate our commitment to federally-qualified health centers and the people they serve, including by providing free lab testing services.
Our approach to fighting the COVID-19 pandemic has been rooted in our purpose and strategy. We believe that the challenges we faced from the COVID-19 pandemic brought us together, made us a stronger company and will help us capture the substantial opportunities in front of us. The following table highlights additionalour progress during 2022.2023.
Summary Highlights of | ||
Leveraging our Capabilities and Collaborating | ||
• We increased base business (excluding COVID-19 testing) revenues by
• We generated
• Our strong relationships with health plans were a key driver of growth in 2023, as we grew revenues from health plans by high single digits versus the prior year. We
• We continued to work with health systems to help them execute their lab |
• In Advanced Diagnostics, we invested in areas to further differentiate and grow our advanced diagnostics value | • Our Consumer-initiated testing service, QuestHealth.com, generated strong base business growth in
• We are taking advantage of opportunities to work with emerging retail healthcare providers, not only to offer new access partners (e.g., Rite-Aid retail locations) and new access points for our services (e.g., our collaboration with Safeway), but also to grow our business by expanding our service offerings (e.g., our collaborations with CVS and Walmart).
• We consummated important acquisitions, including |
2024 Proxy Statement | 24 |
Continuous Improvement | |
• We
|
|
• We continue to make progress in using front end automation to enhance specimen processing. In 2023, we completed front end automation upgrades in our Pittsburgh and Dallas laboratories, which is expected to improve quality and productivity. • We expanded our use of AI in 2023 to improve quality, efficiency and workforce experience in several clinical areas, including in microbiology to help identify bacteria as well as in cytogenetics to identify chromosomal abnormalities. | • We are leveraging automation and AI to improve productivity and quality across our entire value chain, not just in the laboratory. Other areas of focus include reducing denials and patient concessions, enhancing the digital experience, and selecting and retaining talent. • We created an initiative to deploy generative AI to improve several areas of our business, including software engineering, customer service, claims analysis, scheduling optimization, specimen processing and marketing. We expect to further develop these projects in 2024. • We implemented several initiatives to improve talent retention, including capability-building programs. • We improved retention of our frontline employees by 11%. | ||
Disciplined Capital Deployment | |
• In February
• We repurchased 2023. | • Through the end of |
Incentive Compensation Outcomes and Alignment with Performance
The Committee’s approach to annual incentive compensation generally has been to tie annual incentive compensation to key operating goals and to establish targets that are challenging, yet attainable. The average 20222023 annual incentive payout for our named executive officers (excluding Ms. Eglinton Manner, who did not receive an annual incentive payout for 2022) on our annual cash incentives under the Senior Management Incentive Plan (“SMIP”) was 131%78% of target.
Payout on performance share awards for the three-year performance period ended December 31, 20222023 was 196%186% of target. The following table summarizes annual incentive and performance share payouts for the two most recent performance periods for our named executive officers.
Annual Incentive Payout (% of target) | Performance Share Payout for 3-year performance period (% of target) | |||
Performance period ended December 31, 2022 | 131 (average) | 196 | ||
Performance period ended December 31, 2021 | 145 | 200 |
Annual Incentive Payout (% of target) | Performance Share Payout for 3-year performance period (% of target) | |||||||
Performance period ended December 31, 2023 | 78 (average) | 186 | ||||||
Performance period ended December 31, 2022 | 131 (average) | 196 |
25 | 2024 Proxy Statement |
Our total stockholder return (“TSR”) for recent periods, relative to relevant publicly tradedpublicly-traded comparator groups, is set forth below.
1-year TSR (%) (2022) | 3-year TSR (%) (2020-22) | 5-year TSR (%) (2018-22) | 1-year TSR (%) (2023) | 3-year TSR (%) (2021-23) | 5-year TSR (%) (2019-23) | |||||||||||||||||||
Quest Diagnostics Incorporated | (7.8 | )% | 55.6 | % | 75.8 | % | (10.1 | )% | 22.6 | % | 83.4 | % | ||||||||||||
Compensation Peer Group Median | (7.4 | )% | 20.6 | % | 48.9 | % | (2.0 | )% | 8.8 | % | 68.7 | % | ||||||||||||
S&P 500 Index | (18.1 | )% | 24.8 | % | 56.9 | % | 26.3 | % | 33.1 | % | 107.2 | % | ||||||||||||
S&P 500 Health Care Industry Index | (2.0 | )% | 40.3 | % | 80.5 | % | 2.1 | % | 26.2 | % | 73.0 | % |
The TSR shown combines stock price appreciation and reinvestment of dividends paid during the relevant performance period, thereby taking into consideration the effect of divergent dividend policies.
Taken in the aggregate, the results of our annual and long-term incentive programs demonstrate that compensation has been sensitive to Company performance. Annex B sets forth historical payouts for our annual incentive compensation and performance share awards for each year since 2005.
20222023 Compensation Program Changes
In furtherance of our executive compensation philosophy, in February 2022,2023, due to the uncertain impact of thediminished demand for COVID-19 pandemic on the operating environment,testing, the Committee determined to continue to measure base business revenues andremove the COVID-19 testing revenues separatelyresponse goal for purposes of 2023 annual incentive compensation and the COVID-19 revenue goal for the 2023-2025 performance share awards. In addition,Additionally, for the SMIP, the Committee reviseddetermined to add the mix of equity awards for our executive officers other than our Chief Executive Officer, to further emphasize awards subject to performance conditions. The Committee determined that awards to our other executive officers, andCompany’s long-term ESG goals to the remainder of our most senior employees, would consist of 50% performance shares, 25% options and 25% RSUs, mirroring the mix of awards to our Chief Executive Officer. In addition, to increase the reach of the Company’s equity awards program and its benefits, and to enhance the competitiveness of
the Company’s compensation program, the Committee expanded the pool of employees receiving equity awards to include director-level employees.
Certain 2022 Compensation Actions Related to Management Transition
2022 was a year of significant transition in the management of our Company. The Committee took numerous actions during 2022 to foster the success of that transition. The following is a summary of compensation actions taken during 2022 that impacted certain of our named executive officers. Details regarding their compensation are discussed further below in this Compensation Discussion and Analysis.
Mr. Davis. Mr. Davis became CEO-Elect on February 3, 2022, and in February 2022, the Committee adjusted his base salary, target annual incentive and annual equity award to reflect his new position. Mr. Davis became CEO on November 1, 2022, andnon-financial goals, which were weighted at that time the Committee adjusted his base salary and target annual incentive to reflect his promotion to CEO. The Committee also granted him an additional equity award, with certain terms and conditions different from his annual equity award, effective November 1, 2022 intended to provide him an incentive in his new role.
Mr. Samad20%. Mr. Samad joined the Company in July 2022 to become its Chief Financial Officer. At that time, the Committee established his base salary and target annual incentive and granted to him an annual equity award (structured consistent with the annual equity awards issued to our named executive officers in the normal course in February 2022) commensurate with his position. To compensate Mr. Samad for certain forfeitures incurred in connection with the termination of his employment from his immediately preceding employer and as a sign-on inducement, the Committee agreed that Mr. Samad’s annual incentive award for 2022 would be paid based on his annualized base salary, rather than his salary earned at the Company during 2022, and approved for Mr. Samad: (i) a lump-sum cash payment of $1,200,000 (the “Make Whole Cash Payment”); and (ii) a grant of restricted stock units (“RSUs”) with a value of $1,500,000 (the “Make Whole RSUs”). 50% of the Make Whole RSUs are scheduled to vest on each of the first and second anniversaries of the grant date. Mr. Samad is required to refund the Make Whole Cash Payment if he voluntarily terminates employment or if the Company terminates his employment for willful misconduct, in each case at any time prior to the second anniversary of his start date. Neither the Make Whole Cash Payment nor the Make Whole RSUs received by Mr. Samad will be repeated in 2023, because they are not part of his ongoing compensation. In addition, in future years, Mr. Samad’s annual incentive compensation will be determined on base salary paid to him.
Mr. Plewman. Mr. Plewman became Senior Vice President, Diagnostic Services in April 2022. In connection with his promotion to that role, the Committee adjusted his base salary and target annual incentive and granted him an additional equity award intended to provide him an incentive in his new role.
Mr. Guinan. Mr. Guinan retired in July 2022 after transitioning his responsibilities to Mr. Samad. The 2022 compensation for Mr. Guinan reflected this planned transition. For example, the annual equity award to Mr. Guinan for 2022 was reduced to reflect, and vested at the time of, his retirement. In addition, his annual incentive payout was prorated for his partial-year service and he received retirement treatment for his vested 2017 option award.
Ms. Eglinton Manner. In addition to her regular annual equity award in February 2022, Ms. Eglinton Manner also received a retention equity award having a grant date value of $2.0 million. The retention award consisted of 50% RSUs and 50% performance shares, each cliff-vesting three years after the grant date. Ms. Eglinton Manner forfeited her annual equity award, and her retention equity award, when she terminated employment in June 2022.
Executive Compensation Philosophy
Core Principles of Our Executive Compensation Philosophy
• | Effectively align executive interests with the interests of stakeholders with performance measured against TSR and key financial metrics; |
• | Utilize performance-based metrics, with the majority of compensation at risk; |
• | Motivate executives to achieve results that appropriately balance short-term operating goals and long-term stockholder value creation; |
• | Support our long-term business strategy and financial objectives; |
• | Set performance targets that are challenging, yet achievable in the context of both our strategic plan and market and healthcare industry conditions; |
• | Attract, motivate, reward and retain talented executives; and |
• | Target total compensation levels in the context of peer group and market data, as well as consideration of individual executives’ performance, tenure, industry expertise, breadth of responsibilities and succession planning. |
2024 Proxy Statement | 26 |
The principal components of compensation for our named executive officers are discussed in the following table.
Component | Form | Purpose | ||
Base Salary | Cash (Fixed) | Provides a competitive level of pay that reflects the executive’s experience, role and responsibilities | ||
Annual Cash Incentive | Cash (Variable) | Rewards achievement of overall corporate financial and, to a lesser extent, non-financial results for the most recently completed fiscal year; may also reward achievement of individual results | ||
Long-Term Incentive | Equity Award (Variable) | Provides meaningful alignment with long-term financial and strategic growth goals that drive stockholder value creation and support the Company’s talent retention strategy |
Our program is designed to align executive compensation with the Company’s performance. The Committee has built a strong foundation for our executive compensation program and has taken numerous steps over time to structure the program to align pay with performance. We focus on aligning the annual results of our executive compensation program with the compensation of our other employees eligible for annual incentive compensation. Our long-term awards provide a strong link with stockholder interests in performance against important long-term goals and help attract and retain critical employee talent. We believe that a balanced compensation program that encourages a long-term focus supports sustained long-term corporate performance.
27 | 2024 Proxy Statement |
As shown in the chart below, the bulk of our senior executives’ compensation is performance based and variable in nature (91%(90% for our CEO and an average of 79%80% for our other named executive officers in 2022)2023). The chart reflects the target direct compensation for our named executive officers who are current employees (i.e., it excludes Mr. Rusckowski, Mr. Guinan and Ms. Eglinton Manner) in effect at the end of 20222023 and excludes the value of other benefits and perquisites.
The chart on the right shows the mix of our 2023 long-term incentive equity awards for executive officers, consisting of performance shares, stock options, and RSUs. The Committee annually grants equity awards to a significant number of eligible employees under the Employee Plan. These awards may include performance shares, stock options and/or RSUs, and are designed to foster an alignment of stockholder interests with a broader group of employees, to incentivize these employees to continue to perform at a high level and to promote a culture of employee ownership. |
None of our named executive officers has an employment agreement. Mr. Rusckowski had an employment agreement with the Company that terminated on December 31, 2022.
2024 Proxy Statement | 28 |
Best Practices
Our program reflects many best practices.
What We Do | What We Don’t Do | |
Link executive pay with performance Maintain a discretionary clawback policy that covers both equity and cash incentive awards to current and former executive officers and key employees,
Maintain share ownership and retention guidelines for executives and members of senior management Use three-year vesting for equity awards Measure performance for performance share awards over a single three-year performance period Provide for “double trigger” change-in-control vesting in equity awards: awards vest following a change in control only if the employee experiences a qualifying termination of employment Require a minimum vesting period of at least one year following grant (except for up to 5% of awards) Utilize an independent compensation consultant Conduct annual risk assessment of compensation plans Maintain an investor outreach program to incorporate feedback in our program Provide stockholders an annual “say on pay” vote Evaluate management succession and leadership development efforts on an ongoing basis |
No excise tax gross-ups upon a change in control
No supplemental pension benefits for executives
No
No hedging or pledging or speculative transactions in our securities by directors and executive officers
No repricing or buyouts of equity awards without stockholder approval
No excessive perquisites
No payment of dividends or dividend equivalents on performance shares
No encouraging imprudent risk taking
No employment agreements for executive officers |
Independent Compensation Consultant
The Committee has retained Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent compensation consultant to assist it in carrying out its responsibilities. The following table provides information regarding Pearl Meyer.
Independent Compensation Consultant
• | Reports directly to, and is directly accountable to, the Committee, which has sole authority to retain and terminate it, at Company |
• | February |
29 | 2024 Proxy Statement |
What They Do | ||
Provide analyses and information regarding the three-year realizable pay of the Company’s executive officers and the three-year stockholder returns of the peer group Advise on the design of our executive compensation programs to ensure the linkage between pay and performance Provide related executive compensation advice and services to the Committee ( | Provide analyses and information regarding market practices and trends in executive and non-employee director compensation for companies in our peer group and more broadly Periodically participate in private sessions of the Committee (without Company employees present) Periodically meet with the Committee’s Chair to discuss compensation matters Avoid ties to management that could jeopardize their fully independent status |
Say on Pay, Stockholder Outreach, and Feedback
At the Company’s 20222023 annual meeting of stockholders, approximately 89%90% of votes cast on the say-on-pay proposal voted in favor of the compensation of our named executive officers. We continued to monitor market practices and trends and to engage with our investors. As part of our program of ongoing dialogue with our investors (see “Stockholder Access and Outreach” beginning on page 9,8), during the past year we held discussions regarding our executive compensation program. Investors generally shared positive feedback regarding the Company’s structuring of, and overall approach to, executive pay. The Committee also received advice from Pearl Meyer and considered management recommendations based on the Company’s strategic direction. Insights gained from these efforts, including the investor feedback, were taken into account by the Committee in taking action regarding the Company’s compensation programs.
Setting Executive Compensation
The Committee establishes the Company’s executive compensation philosophy, oversees our executive compensation program and regularly monitors our executive compensation programs to ensure adherence to our philosophy.philosophy and compliance with applicable guidelines and policies. The Committee is supported in its work by our Senior Vice President, Chief Human Resources Officer and her staff, andas well as by Pearl Meyer.
Within the framework of the executive compensation programs approved by the Committee, the Chief Executive Officer recommends to the Committee individual compensation for the executive officers, other than himself. These recommendations are based on market data and an assessment of both Company and individual performance. The Chief Executive Officer also recommends incentive compensation performance measures to align compensation with our corporate objectives. At the Committee’s request, he is present during the portions of Committee meetings in which compensation regarding the named executive officers other than the Chief Executive Officer is reviewed and decided, but the Committee retains the final authority for all such decisions. The Chief Executive Officer does not make any recommendations to the Committee regarding his own compensation and does not participate in portions of Committee meetings when his compensation is reviewed and decided.
For each named executive officer, the Committee annually reviews performance and approves all elements of compensation, including base salary, annual incentive awards and long-term incentive awards, except for ourbut excluding broad-based employee benefit programs. After the Committee approves the compensation of our named executive officers, the Committee reports its compensation determinations to the full Board.
To assist the Committee with its review, our Human Resources department, in consultation with Pearl Meyer, annually prepares analyses of each named executive officer’s compensation, including tally sheets. The review includes current and prior-year compensation information regarding base salary, target and paid annual incentive compensation, deferred compensation activity and balances, aggregate equity grant values, perquisites, and any other compensation, as well as estimates of the amounts payable to each named executive officer upon termination of employment under various circumstances, including in connection with a change in control.
2024 Proxy Statement | 30 |
Peer Group
The compensation targets for, and compensation earned by, each named executive officer are analyzed relative to market data for comparable positions in a peer group. In 2022,2023, the Committee reviewed the Company’s peer group and, after considering input from Pearl Meyer, determined to make no changes.added Illumina, Inc. The peer group currently consists of the following 1314 companies, which generally are in the healthcare services, equipment and distribution industries.
• Agilent Technologies, Inc. | • Illumina, Inc. |
• Baxter International Inc. | • Laboratory Corporation of America Holdings |
• | • Owens & Minor, Inc. |
• | • |
• | • Stryker Corporation |
• | • Tenet Healthcare Corporation |
• | • Zimmer Biomet Holdings, Inc. |
During 2023, PerkinElmer, Inc. | , which had been a member of the Company’s peer group, sold its Applied, Food and Enterprise Services business and renamed itself Revvity, Inc. Revvity, Inc. remains in the Company’s peer group. |
For the named executive officers, the Committee establishes target compensation consistent, to the extent possible, with comparable positions in the peer group. Our practice is to target total direct compensation (including base salary, annual cash incentive targets and long-term incentive awards) at market competitive levels, depending upon the named executive officer’s responsibilities, expertise and experience, along with consideration given to both individual and Company performance.
Specific consideration is given to the weighting of fixed and at-risk components of pay relative to the peer group. No single element of compensation is set without considering the total direct compensation of the named executive officers relative to the marketplace, as well as the impact of any change on the other components of our pay model. When setting each participant’s annual compensation package, the grant date values of prior equity awards are considered, but realized or unrealized gains from prior equity awards are not taken into account.
For 2022,2023, the target total direct compensation for Mr. Davis, who became Chief Executive Officer on November 1, 2022 after having served as CEO-Elect since February 3, 2022, was below the peer group median for chief executive officers. The target total direct compensation, on average, for the otherour named executive officers, was within thea competitive range of the peer group median, except that in the case of Ms. Doherty and Mr. Prevoznik, their target total direct compensation was below the competitive range as a result of the management transition and their respective benchmarks.median.
Pay Components
We pay base salary to our executives to provide them a steady source of income for their services to the Company. The Committee annually reviews and approves base salaries for the named executive officers. Consistent with our executive compensation philosophy, base salaries are set at levels competitive with the peer group. Based on an assessment of each named executive officer’s position, performance, scope of responsibility, current salary level, and market comparables, the Committee determined the 20222023 base salary rates, including adjustments, set forth in the following table. The increase for Mr. Davis reflects the Committee’s decision to adjust his compensation over a period of a few years to be in alignment with the compensation of similarly-situated CEOs.
Increase in Base Salary Rate (%) | 2022 Base Salary Rate ($) | |||
James E. Davis | (a) | (a) | ||
Sam A. Samad (b) | N/A | 650,000 | ||
Catherine T. Doherty | 4.3 | 600,000 | ||
Michael E. Prevoznik | - | 535,000 | ||
Patrick Plewman (c) | 7.3 | 525,000 | ||
Former Executive Officers | ||||
Stephen H. Rusckowski | 3.0 | 1,287,500 | ||
Mark J. Guinan | 4.6 | 680,000 | ||
Carrie Eglinton Manner | 4.1 | 625,000 |
Increase in Base Salary Rate (%) | 2023 Base Salary Rate ($) | |||||||
James E. Davis | 13.6 | 1,250,000 | ||||||
Sam A. Samad | - | 650,000 | ||||||
Catherine T. Doherty | - | 600,000 | ||||||
Michael E. Prevoznik | 2.8 | 550,000 | ||||||
Karthik Kuppusamy | 5.0 | 525,000 |
Introduction
Our annual cash incentives reward the achievement of annual performance, including operating and strategic goals (both financial and non-financial). We generally pay annual incentives to our executive officers in accordance with the SMIP. Annual cash incentive payments to our named executive officers generally are subject to the achievement of specific performance goals and, if achieved, are scheduled to be paid on or before March 15th of the year following the completion of the performance year. The Committee generally has set performance goals with targets based on the Company’s operating plan and aligned with our strategy; non-financial goals may be objective or subjective in nature.
The Committee’s approach to annual incentive compensation generally has been to:
• | Tie annual incentive compensation to key operating goals; | |
• | Establish targets that are challenging, yet attainable; and | |
• | Provide for a maximum payout of 200% of target upon achievement of extraordinary performance. |
In recent years, the primary focus of the annual incentive planSMIP has been on revenue and profitability. Because the Committee believes that non-financial business objectives are also are important, it also has incorporated non-financial metrics in the annual plan.SMIP.
The following table sets forth, for each of the past five years, the aggregateaverage annual cash incentive payments as compared to target for the named executive officers for that year. The Committee believes that these results demonstrate that annual incentive compensation has been sensitive to Company performance. For additional information, Annex B sets forth the annual cash incentive payments as compared to target for each year since 2005.
Year | Incentive Payment as Compared to Target (%) |
2018 | 48 |
2019 (average) * | 83 |
2020 (average) ** | 171 |
2021 | 145 |
2022 (average)*** | 131 |
Year | Average Incentive Payment as Compared to Target (%) | |
2019* | 83 | |
2020** | 171 | |
2021 | 145 | |
2022** | 131 | |
2023 | 78 |
* | Excludes the annual incentive payment to one former named executive officer because it was paid at a guaranteed level in connection with
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** | Excludes one former named executive officer who forfeited his/her annual incentive payment upon resignation.
Annual Incentive Compensation Goals for
For
For each named executive officer, the threshold, target and maximum performance criteria were established with payout opportunities set at one-quarter (25%), one-time (100%), and two-times (200%) the target incentive, respectively. For non-discretionary goals, rewards for performance levels between these levels were interpolated. Performance below threshold results in zero payout for that goal.
The Committee may adjust performance measures based on objective criteria to focus on the operating performance of the Company, to avoid unintended compensation results and to ensure that participants are not inadvertently given incentives to avoid taking actions that are in the long-term interest of the Company and its stockholders.
For
Committee
The principal financial goals related to achieving budget targets
The medical quality,
The Committee also determined that, in addition to the factors identified above, the annual incentive compensation of each executive officer was subject to a potential modification of up to 20% (positive or negative) of her or his annual incentive payout based on her or his individual performance (including the performance of the portions of the business for which the person had responsibility). The Committee determined that after the end of The Committee further determined that, unless the Company achieved attainment of its base revenue growth target at a level exceeding 90% of target payout, payout on the
Annual Incentive Compensation Determinations for After the conclusion of
The following table shows the financial goals, the relative weight allocated to each, results and resulting payout factors for
The Committee made the following determinations regarding other goals.
Taking into account the weighted payout factors for each of the financial measures and the overall non-financial goal, the calculated payout factor for the SMIP was 103.0%. Notwithstanding the calculated results, the Committee determined to apply a 25% reduction to the calculated results under the SMIP. This reduction was taken to further recognize the shortfall from target in profitability (adjusted diluted EPS) despite actions taken to lower costs. Drivers of the shortfall included sharply reduced COVID-19 revenue, and increased employee and other costs. After giving effect to the reduction, the SMIP calculated payout factor was 77.25% of target.
After assessing the individual performance of The following table shows
The total payout factor for
From time to time, the Committee makes adjustments to the Company’s financial results based on objective criteria for purposes of calculating performance under the SMIP. Set forth in the following table are items, identified by the Committee, for which it may make adjustments. As a matter of policy, the Committee seeks to apply these principles consistently from year to year.
The Committee may make adjustments based on these items because:
In accordance with this policy, the Committee made the adjustments set forth in the table below to the Company’s diluted EPS for fiscal year
Items Adjusted for in
The adjustments made by the Committee are the same as those approved by the Audit and Finance Committee and disclosed when reporting our
For
Had the Committee not made the adjustments to diluted EPS discussed above, the payouts would have been:
Overall, the Committee believes that the annual incentive payments made to our named executive officers for
Introduction
We design our long-term incentive awards to:
To achieve these objectives, we award long-term incentives to our named executive officers annually in the form of equity awards. The following table shows the awards that we issued in
The time horizons shown operate in conjunction with, and in addition to, our stock ownership and retention requirements.
In determining the value of the long-term incentive component of each named executive officer’s compensation, the Committee considers, among other factors:
The Committee is responsible in its use of equity as long-term incentive compensation and regularly monitors the use of equity compensation for executives and the Company as a whole from a competitive standpoint. The Committee believes that our equity awards, which
Timing of Equity Awards; Awards Committee
It has been the Committee’s practice to make annual equity grants after we announce our prior year’s earnings. It also has been the Committee’s practice to make equity grants to new hires and promoted employees, and other grants in special cases, from time to time as appropriate. The Awards Committee, created by the Board, consists of one director, and has authority to grant certain equity awards under the Employee Plan and to make corrections to awards approved by the Compensation and Leadership Development Committee, to the extent the Awards Committee determines that corrections are necessary or appropriate to carry out the Compensation and Leadership Development Committee’s intentions. At this time, the Awards Committee consists of James E. Davis.
The Awards Committee is authorized to grant the full range of awards that can be issued under the Employee Plan. There are, however, significant limits on awards that the Awards Committee may grant. These include: (i) a prohibition on awards to executive officers; (ii) a prohibition on awards to any individual whose base salary exceeds a threshold amount; (iii) an annual limit on awards granted to any individual; and (iv) an annual limit on aggregate awards granted. It is expected that the Awards Committee will approve awards from time to time as it determines appropriate, and that the awards will be issued for, among other purposes, new hires, promoted employees, employee retention and special recognition awards, including for high-performing employees who generally are not eligible for annual equity awards. The Awards Committee regularly reports to the Compensation and Leadership Development Committee awards granted by, and corrections made by, the Awards Committee. In Approach to Performance Share Awards
For each year since 2005, the Committee has included an annual grant of performance shares in the long-term incentive awards to certain of our employees, including our executive officers. Performance shares encourage a long-term view and reinforce the link between financial results and rewards. Our performance shares have been generally based on a single three-year performance period and reward financial and operational performance during that period. The value that they provide depends on the level of achievement of predefined performance goals over the multi-year performance period. If minimum performance levels are not achieved, the performance shares are forfeited and provide no value. New performance share awards are made each year, and accordingly, participating named executive officers will participate in up to three overlapping performance periods during each year.
For each performance share award, the Committee establishes base-year performance levels, target performance levels and the measurement period. When the Committee is determining the payout under the performance measure, it may adjust items in the Company’s operating results and base-year performance levels using objective criteria (generally under the same categories identified above in the discussion of annual incentive compensation, and for the same reasons). No performance shares will be earned if a specified minimum performance level is not achieved. For performance above the threshold level, payment will vary with actual performance achieved, up to a maximum payment of
The Committee’s approach to performance shares has been to establish targets that are challenging, yet attainable, and to provide that a maximum payout of 200% of target requires extraordinary performance. The Committee adopted the use of average return on invested capital (“ROIC”) and revenue compound annual growth rate (“CAGR”) as performance share metrics in 2012 and has continued to use these metrics, with relative TSR added as a metric in 2020. ROIC is defined for purposes of performance shares as (i) net operating profit after tax (“NOPAT”) divided by (ii) the sum of average total debt and stockholders’ equity (Invested Capital). In addition to being well supported by our stockholders, the use of ROIC holds management accountable for efficient use of capital and further links executive compensation to value creation.
The following table sets forth the aggregate performance share payouts over the past five years, as compared to target, for the named executive officers then in office. For additional information, Annex B sets forth the payments as compared to target for performance shares for each year since 2005.
The Committee believes that these results demonstrate that performance share payouts have been sensitive to Company performance. Determination of February 2020 Performance Shares In February 2023, the Committee determined payment for performance shares awarded in February 2020. At the time of grant, the Committee established base-year performance levels, performance measures, target performance levels and the measurement period. The performance measures were the Company’s revenue CAGR (50% weight), the Company’s average ROIC (30% weight) and relative TSR (20% weight) during the performance period (calculated in accordance with the plan, subject to adjustment as discussed above). The measurement period was January 1, 2020 to December 31, 2022. The following table shows the targeted performance levels (awards for performance between these percentiles are interpolated on a straight-line basis).
The following table shows the actual performance levels for each of the performance measures during the measurement period, as determined by the Committee. As a result of these performance levels, the number of performance shares earned during the performance period was 196% of target.
The following table shows the 2020 performance shares actually earned by each of the named executive officers.
The table below shows the Company’s adjusted ROIC results for each of the three years during the performance period.
In accordance with the Company’s policy, in determining the Company’s ROIC for purposes of performance shares, NOPAT (i.e., net income attributable to the Company excluding interest expense) for each year in the performance period was adjusted to reflect the same adjustments used to calculate diluted EPS for purposes of the SMIP for the relevant year. The Committee made these adjustments based on the same pre-determined objective criteria, and for the same reasons, as described above in connection with the SMIP. The adjustments made by the Committee had the effect of decreasing ROIC for the performance period. The following table shows the performance levels for each of the performance measures during the period had the adjustments described above not been made.
As a result of these performance levels, the number of performance shares earned during the performance period would have been 196% of target, and the shares earned by each executive officer would have been the same as those actually earned. 2023 Equity Awards In February 2023, the Committee awarded long-term compensation for 2023 to our Chief Executive Officer and the other named executive officers, resulting in the equity awards shown for them in the “2023 Summary Compensation Table” and the “2023 Grants of Plan-Based Awards Table” beginning on pages 43 and 44, respectively. We continued to use stock options as a component of our equity awards because they align incentives with stockholder interests by rewarding appreciation in stock price. We believe that stock options are an appropriate incentive to motivate our employees. We also continued to use RSUs as a component of our equity awards because they provide retention incentives under diverse scenarios. RSUs also foster an ownership culture, help motivate employees to perform across business cycles and are aligned with stockholder value creation. The Committee also approved awards: (i) to our other more senior equity award recipients, consisting of the same mix of awards as those received by our named executive officers; and (ii) to less senior participants in the program, consisting solely of RSUs or a mix of stock options and RSUs. In addition, to increase the reach of the Company’s equity awards program and its benefits, and to enhance the competitiveness of the Company’s compensation program, the Committee continues to include director-level employees in the pool of employees receiving equity awards.
Due to the diminished impact of the COVID-19 pandemic on the operating environment, the Committee ceased measuring base business revenues and COVID-19 testing revenues separately during the performance period for purposes of performance shares awarded in 2023, as it had for performance shares awarded in 2021 and 2022. As a result, the calculation of the CAGR for the Company’s base business revenue includes COVID-19 revenues earned during the performance period, in comparison to the Company’s revenue during the baseline year of 2022, excluding revenues associated with COVID-19 testing. The weighting of the revenue CAGR metric was increased to its pre-COVID-19 weighting of 50% from its 2022 weighting of 35%. The performance measures for the 2023 performance share awards, and the relative weighting of the metrics, are as follows: the CAGR of the Company’s revenue, including COVID-19 revenue (50% weight); average ROIC (30% weight); and relative TSR (measured relative to the companies included in the S&P 500 Healthcare Index) (20% weight). These metrics support key tenets of our business strategy. The target performance shares subject to the 2023 performance share awards will be earned over a single three-year period ending December 31, 2025, and will be paid out in shares of the Company’s common stock after the end of the performance period to the extent that the performance level is achieved. Determination of the shares payable pursuant to the 2023 performance share awards will be made after the end of the performance period. Since 2012, when we began issuing performance shares with performance metrics based on the Company’s average ROIC and revenue CAGR, it has been the Company’s practice to disclose the performance targets for these measures at the conclusion of the performance period, but not at the inception of the performance period. We believe that disclosure of average ROIC and revenue CAGR performance targets at the inception of a single three-year performance cycle could work to our competitive disadvantage. Our targets are linked to our budget and to forecasts and projections that we, like other companies with which we compete, do not routinely disclose publicly, or disclose only in general terms. If we were to disclose these targets, our competitors would gain an informational advantage that could enable competitors to anticipate our strategies and take steps to counter them. In this regard, we note that these performance performance metric. Accordingly, we disclose in our annual proxy statement, in the year of grant, the relative TSR performance metric for our performance share awards.
The
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