UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [  ]

Check the appropriate box:

HEALTHSTREAM, INC.

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

HEALTHSTREAM, INC.

500 11^TH Avenue North, Suite 1000

Nashville, Tennessee 37203

(615) 301-3100

NOTICE OF 20192020 ANNUAL MEETING OF SHAREHOLDERS

To Be Held May 23, 201921, 2020

Dear Shareholder:

On Thursday, May 23, 2019,21, 2020, HealthStream, Inc. will hold its 20192020 Annual Meeting of Shareholders. Due to concerns regarding the coronavirus outbreak and to assist in protecting the health and well-being of our shareholders and employees, the meeting will be held virtually via the Internet, with no physical in-person meeting. Shareholders at 500 11^th Avenue North, Suite 1000, Nashville, Tennessee 37203.of record and holders of shares in “street name,” in each case as of March 27, 2020, will be able to listen, vote and submit questions regardless of location via the Internet (for additional information regarding procedures for attending the annual meeting on a remote basis, see below under “How Do I Attend the Annual Meeting?”).  The meeting webcast will begin at 2:00 p.m., Central Daylight Time. DirectionsTime on May 21, and we encourage you to access the meeting prior to the meeting are provided on the back page of the proxy statement.start time.

We welcome shareholders that owned our common stock at the close of business on April 3, 2019March 27, 2020 to vote at this meeting. At the meeting, we will consider the following proposals:

In reliance on SEC rules which allow issuers to make proxy materials available to shareholders on the Internet, we are mailing our shareholders a notice instead of paper copies of our proxy statement and our annual report. The notice contains instructions on how to access those documents on the Internet. The notice also contains instructions on how shareholders can receive a paper copy of our proxy materials, including the proxy statement, our 20182019 annual report, and a form of proxy card.

Whether or not you plan to attend the virtual meeting, we request that you vote as soon as possible.

By the Order of the Board of Directors,

PROXY STATEMENT

TABLE OF CONTENTS

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on May 23, 2019:21, 2020: The Company’s Proxy Statement, Proxy Card, and 20182019 Annual Report to Shareholders are available to registered and beneficial shareholders at http://www.edocumentview.com/HSTM. This notice is not a form for voting and presents only an overview of the more complete proxy materials, which contain important information. We encourage all shareholders to access and review the proxy materials before voting.

These materials were made available to shareholders on April 10, 2019.9, 2020.

What is the Purpose of the Annual Meeting?

At HealthStream’s Annual Meeting, shareholders will act upon (i) the election of three (3) persons nominated by the Board of Directors (the “Board”) and identified in this proxy statement as Class III directors, (ii) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019,2020, (iii) the approval, on an advisory basis, of the compensation of the Company’s named executive officers under applicable SEC rules (the “Named Executive Officers”) as described in this proxy statement, and (iv) any other matters that may properly come before the meeting. In addition, our management will respond to questions from shareholders.  The Annual Meeting will be held on May 23, 2019 at the Company’s offices located at 500 11^th Ave. North, Suite 1000, Nashville, TN 37203. The meeting21, 2020 and will begin at 2:00 p.m., Central Daylight Time. Directions to the Annual Meeting are provided on the back page of the proxy statement.

What are the Board’s Recommendations?

Our Board recommends that you vote:

What Happens if I Do Not Give Specific Voting Instructions?

Shareholders of Record. If you are a shareholder of record and you:

then the proxy holders will vote your shares in the manner recommended by the Board on all matters presented in this proxy statement.

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Beneficial Owners of Shares Held in Street Name. If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with specific voting instructions, see below under “How do I Vote My Shares if They are Held in the Name of My Broker (Street Name)” for information regarding the impact of not providing such voting instructions.

Who MayHow Do I Attend the Annual Meeting?

Shareholders of record, on April 3, 2019and holders of shares in “street name,” in each case as of March 27, 2020 may attend the meeting. “Streetvirtual meeting by following the instructions at www.meetingcenter.io/244413509. In this regard, in order to attend the Annual Meeting, shareholders must have the information that is printed on the shaded bar area located on the reverse side of the notice. The password for the Annual Meeting is HSTM2020.

Additionally, holders of shares in “street name” holders will need to bring a copyregister to attend by submitting proof of a brokerage statementsuch holder’s proxy power (legal proxy) reflecting their ownership of our common stocksuch holder’s HealthStream holdings, along with such holder’s name and email address, to Computershare via email at legalproxy@computershare.com.  Requests for registration must be labeled as of“Legal Proxy” and must be received no later than 2:00 p.m., Central Daylight Time, on May 18, 2020.

The meeting webcast will begin at 2:00 p.m., Central Daylight Time on May 21, 2020. We encourage you to access the record date.  Cameras and recording devices are not permitted atmeeting prior to the meeting.start time.

Who is Entitled to Vote at the Annual Meeting?

The Board has fixed the close of business on Wednesday, April 3, 2019Friday, March 27, 2020 as the record date. Shareholders of record of our common stock at the close of business on April 3, 2019March 27, 2020 may vote at this meeting.

As of the record date, there were 32,388,307 shares32,026,956shares of our voting common stock outstanding.  These shares were held by approximately 10,4149,404 record holders. Every shareholder is entitled to one vote for each share of common stock the shareholder held of record on the record date.

Who is Soliciting My Vote?

This proxy solicitation is being made and paid for by HealthStream. In addition, we have retained ComputerShareComputershare and Georgeson Shareholder Communications to assist in the solicitation. We will pay these entities an aggregate of approximately $1,500 plus out-of-pocket expenses for their assistance.assistance in connection with the solicitation. Our directors, officers and other employees not specially employed for this purpose may also solicit proxies by personal interview, mail, telephone, or facsimile. They will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of the common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.

On What Matters May I Vote?

You may vote on (i) the election of the three (3) persons nominated by the Board and identified in this proxy statement to serve as Class III directors of our Board, (ii) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019,2020, (iii) the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers as described in this proxy statement, and (iv) any other matters that may properly come before the meeting. In addition, our management will respond to questions from shareholders.

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Why Did I Receive a One-Page Notice in the Mail Regarding the Internet Availability of Proxy Materials Instead of a Full Set of Proxy Materials?

Pursuant to rules adopted by the SEC, the Company has elected to provide access to its proxy materials via the Internet. Accordingly, the Company is sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to the Company’s shareholders. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

I Share an Address With Another Shareholder, and We Received Only One Paper Copy of the Proxy Materials. How May I Obtain an Additional Copy of the Proxy Materials?

The Company has adopted a procedure called “householding” in accordance with SEC rules. Under this procedure, the Company is delivering a single copy of the Notice and, if requested, this proxy statement and the Annual Report to multiple shareholders who share the same address unless the Company has received contrary instructions from one or more of the shareholders. This procedure reduces the Company’s printing costs, mailing costs, and fees. Shareholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, the Company will deliver promptly a separate copy of the Notice and, if requested, this proxy statement and the Annual Report to any shareholder at a shared address to which the Company delivered a single copy of any of these documents. To receive a separate copy of the Notice and, if requested, this proxy statement or the Annual Report, shareholders may write or call the Company at the following address and telephone number:

HealthStream, Inc.

Investor Relations Department

500 11^th Avenue North

Suite 1000

Nashville, Tennessee 37203

Telephone Number: (800) 845-1579

How Do I Vote?

Your vote is important. Whether or not you plan to attend the meeting in person,on a remote basis, we urge you to submit your voting instructions to the Company as soon as possible (and, in any event, prior to the meeting) by voting (1) via the Internet by following the instructions provided in the Notice, (2) by mail, if you requested printed copies of the proxy materials, by filling out the vote instruction form and sending it back in the envelope provided, or (3) by telephone, if you requested printed copies of the proxy materials, by calling the toll free number found on the proxy card or (4) in personcard. Alternatively, you may vote at the meeting. Annual Meeting on a remote basis as described in the last paragraph below.

If you requested printed copies of the proxy materials, and properly sign and return your proxy card and return it in the prepaid envelope, your shares will be voted as you direct. If you requested printed copies of the proxy materials, and return your signed proxy card but do not mark the boxes showing how you wish to vote, your shares will be voted in the manner recommended by the Board on all matters presented in this proxy statement. You have the right to revoke your proxy at any time before the meeting by:

The Charter of the Lead Independent Director can be found on our website at www.healthstream.com (under the “Corporate Governance” section of the Investor Relations page).

Risk Oversight

The Board believes that an effective risk management system should be focused on (1) timely identifying the material risks that the Company faces, (2) communicating necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant Board committee, (3) implementing appropriate and responsive risk management strategies consistent with the Company's risk profile, and (4) integrating risk management into Company decision-making. The Board has designated the Audit Committee to take the lead in overseeing risk management, and the Audit Committee makes periodic reports to the Board regarding briefings and reports provided by management and advisors as well as the Audit Committee's own analysis and conclusions regarding the adequacy of the Company's risk management processes.  A particular area of risk that the Audit Committee evaluates and oversees on a regular basis is that of cyber security.  A summary of this review is provided as part of the Audit Committee’s report to the Board during each quarterly Board meeting. In addition, the Board encourages management to promote a corporate culture that incorporates risk management into the Company's corporate strategy and day-to-day business operations. The Board also works, with the input of the Company's executive officers, to assess and analyze the most likely areas of future risk for the Company. Additionally, on an annual basis the Nominating Governance Committee reviews and recommends an Incident Response Policy for the Board’s approval. The Incident Response Policy is intended to categorize certain risk scenarios, designate members of senior management charged with addressing them, and provide for escalation of certain risk events from management to the appropriate Board Committee or the Board as a whole.

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In addition to the Audit Committee, the other committees of the Board consider the risks within their areas of responsibility. In this regard, the Compensation Committee considers the risks that may be implicated by our executive compensation programs. Based upon the comprehensive review of the executive compensation programs, the Compensation Committee has concluded that the Company’s executive compensation programs are not reasonably likely to have a material adverse effect on the Company as a whole.

Nominating Committee ProcessProcess and Board Diversity

The Nominating and Corporate Governance Committee is responsible for identifying qualified individuals to serve as members of the Company’s Board as well as reviewing the qualifications and performance of incumbent directors to determine whether to recommend them to the Board as nominees for re-election.  In identifying candidates for membership on the Board, the Nominating and Corporate Governance Committee takes into account all factors it considers appropriate, which may include (a) ensuring that the Board, as a whole, is diverse and consists of individuals with various and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise (including expertise that could qualify a director as an “audit committee financial expert,” as that term is defined by the rules of the SEC), and local or community ties and (b) appropriate qualifications on an individual level, including strength of character, mature judgment, time availability, familiarity with the Company’s business and industry, independence of thought, and an ability to work collegially.  The Nominating and Corporate Governance Committee also may consider the extent to which the candidate would fill a present need on the Board.  With respect to new candidates for Board service, a full evaluation generally also includes a detailed background check.

The Company does not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, and expertise to oversee the Company's business.

The Nominating and Corporate Governance Committee will consider nominees for the Board recommended by shareholders. Shareholders may propose nominees for consideration by the Nominating and Corporate Governance Committee by submitting the names and supporting information to:  General Counsel and Corporate Secretary, HealthStream, Inc., 500 11^th Avenue North, Suite 1000, Nashville, Tennessee 37203.  The Nominating and Corporate Governance Committee will only consider candidates who are recommended by shareholders in accordance with the procedures set forth above under “What is the Deadline for Submitting Other Business or Nominations for the 20202021 Annual Meeting?”

Limitations on Other Board Service

Our Code of Conduct and Governance Principles provide that a director may not serve on more than two other public company boards without Board approval.  Otherwise, we do not believe that our directors should be categorically prohibited from serving on boards and/or board committees of other organizations.  Service on boards and/or committees of other organizations must also be consistent with our conflict of interest policy, as set forth in our Code of Conduct and Code of Ethics for executive officers and directors, which, among other things, require a director to provide notice to the Board of his or her acceptance of a nomination to serve on the board of another public company.

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Communication with the Board

Shareholders may communicate with any of the Company’s directors by writing to them c/o HealthStream, Inc., 500 11^th Avenue North, Suite 1000, Nashville, Tennessee 37203.  Shareholders may also communicate with our directors by sending an email to boardofdirectors@healthstream.com.  Shareholders may communicate with the chair of any committee by sending an email to auditchair@healthstream.com (Audit Committee), nomgovchair@healthstream.com (Nominating and Corporate Governance Committee), or compchair@healthstream.com (Compensation Committee), or with our outside directors as a group by sending an email to outsidedirectors@healthstream.com.  Shareholders may also communicate with the Lead Independent Director by sending an email to LID@healthstream.com.  Michael M. Collier, Senior Vice President and General Counsel is our Compliance Officer, and he reviews all such correspondence and regularly forwards to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Compliance Officer, deals with the functions of the Board or committees thereof or that he otherwise determines requires their attention.  Concerns relating to accounting, financial reporting, internal controls, or auditing matters are immediately brought to the attention of the Company’s Audit Committee and handled in accordance with procedures established by the Audit Committee. Concerns relating to the Board’s overall governance are brought to the immediate attention of the Lead Independent Director and are handled in accordance with procedures established by the Lead Independent Director.

Certain Relationships and Related Transactions

The Board has adopted a written Related-Party Transaction Policy (the “Policy”) for approval of transactions in which (1) the aggregate amount involved will or may be reasonably expected to exceed $120,000 in any calendar year, (2) the Company or any of its subsidiaries is a participant, and (3) any of our directors, director nominees, executive officers, greater than five percent beneficial owners,  or an immediate family member of any of the foregoing individuals (“Related Party”) has or will have  a direct or indirect material interest (other than solely as a result of being a director, officer or a less than ten percent beneficial owner of another entity) (“Related Party Transaction”).   A copy of the Policy may be accessed in the “Corporate Governance” section of the Investor Relations page of our website at www.healthstream.com.

The Board has determined that the Audit Committee is best suited to review and approve Related Party Transactions.  Pursuant to the Policy, the Audit Committee reviews Related Party Transactions and determines whether or not to approve or ratify those Related Party Transactions and may also review and approve transactions with Related Parties that do not constitute a “Related Party Transaction” as defined above as the result of not meeting the dollar or materiality thresholds set forth above. In doing so pursuant to the terms of the Policy, the Audit Committee takes into account, among other factors it deems appropriate:

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As set forth in the Policy, the Audit Committee has reviewed the types of Related Party Transactions described below and determined that each of the following Related Party Transactions shall be deemed to be pre-approved by the Audit Committee, even if the aggregate amount involved will exceed $120,000, unless otherwise specifically determined by the Audit Committee:

Since January 1, 2018,2019, the Company has not been a participant in any transaction, and is not a participant in any currently proposed transaction, with any of our directors, executive officers, greater than five percent beneficial owners or their respective immediate family members which would require disclosure under Item 404404(a) of Regulation S-K under the Securities Exchange Act.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are responsible for determining executive compensation and equity-based grants to executive officers. The Compensation Committee is comprised of (and during 2019 was comprised ofof) Frank Gordon, Jeffrey L. McLaren, and Linda Rebrovick, during 2018, each of whom is independent within the meaning of the listing standards of Nasdaq. Other than Mr. McLaren, who served as the Company’s President from 1990 to 2000 and as Chief Product Officer from 1999 to 2000, none of these persons has at any time been an officer or employee of the Company or any of its subsidiaries.  In addition, there are no relationships among the Company’s executive officers, members of the Compensation Committee or entities whose executive serves on the Board or the Compensation Committee that require disclosure under applicable SEC rules.

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Code of Conduct

The Company has established a Code of Conduct that applies to all directors and employees of HealthStream, Inc.  The purpose of the Code of Conduct is, among other things, to provide written standards for our directors and employees that are reasonably designed to support high standards of business and personal ethics in the discharge of their duties.  A copy of the Code of Conduct may be accessed in the “Corporate Governance” section of the Investor Relations page of our website at www.healthstream.com.

Code of Ethics for Executive Officers and Directors

The Company has established a Code of Ethics that applies to all executive officers and directors of HealthStream, Inc., including our principal executive officer, principal financial officer, and principal accounting officer.  The purpose of the Code of Ethics is, among other things, to provide written standards that are reasonably designed to deter wrongdoing and to promote:  honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest; full, fair, accurate, timely, and understandable disclosure in reports and documents filed with the SEC and other public communications by the Company; compliance with applicable governmental laws, rules and regulations; prompt internal reporting of violations of the code; and accountability for adherence to the Code of Ethics.  A copy of the Code of Ethics may be accessed in the “Corporate Governance” section of the Investor Relations page of our website at www.healthstream.com.  In addition, the Company intends to post amendments to or waivers, if any, from its Code of Ethics at this location on its website.

Succession Planning

Annually, during an executive session of our directors, our Board reviews the Company’s succession plan.  In preparation for this session, the Nominating and Corporate Governance Committee reviews the Company’s succession plan with our Chairman and Chief Executive Officer.

Director Orientation

Upon the election of a new director, management and the Nominating and Corporate Governance Committee conduct an orientation session with the new director.  During this session, the director is provided with an overview of the Company’s operations, its organizational structure, its products and services, management’s risk assessment, corporate governance documents and guidelines, compliance and reporting requirements, as well as our annual Board calendar.  Orientation is further customized for any particular new director to address anticipated committee assignments or specific requests of our directors.

Strategic Planning

The Board and executive team meet annually to review the Company’s strategic plan.  During this session, discussions include a high level review of the Company’s mission and vision as well as the Company’s strategic plan for the next three to five years.

Recoupment Policy

The Company has established a recoupment policy that allows the Company to recover any incentive compensation awarded or paid to executive officers of the Company in the event that: (i) the Company is required to restate its financial statements due to its material noncompliance with financial reporting requirements under the federal securities laws (other than a restatement to comply with changes in applicable accounting principles), (ii) such executive officer, at any time after the effective date of the recoupment policy and during the three-year period preceding the date on which the Company is required

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to restate its financial statements, received payment or realized compensation from incentive

compensation based on the erroneous financial data, (iii) such executive officer engaged in misconduct, violated the Company’s Code of Conduct or otherwise caused or contributed to the requirement of the restatement and (iv) in the discretion of the Compensation Committee, a lower payment would have been made to the executive officer based upon the restated financial results.

In addition, Section 304 of the Sarbanes-Oxley Act of 2002 requires the recovery of incentive awards in certain circumstances. If we are required to restate our financial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, our CEO and CFO will be required under Section 304 of the Sarbanes-Oxley Act to reimburse us for (1) any bonus or other incentive- or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and (2) any profits realized from the sale of our securities during such 12 month period.

In 2015, the SEC issued proposed rules regarding the adoption of “clawback” policies by publicly listed companies in accordance with the requirements of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). When final SEC rules implementing these requirements have been adopted and become effective, publicly listed companies will be required to adopt a “clawback” policy providing for the recovery of certain incentive-based compensation from the executive officers of the company in the event the company is required to restate its financial statements as a result of material noncompliance of the company with any financial reporting requirements under the securities laws. When final rules under the Dodd-Frank Act are adopted, we expect to revise our existing recoupment policy as necessary to comply with these final SEC rules.

Anti-Hedging Policy

The Company has established an anti-hedging policy that prohibits the Company’s directors and officers from engaging in hedging or monetization transactions with respect to the Company’s securities. The Board believes that it is inappropriate for directors and officers to hedge or monetize transactions to lock in the value of holdings in the Company’s securities.  Such transactions, while allowing the holder to own the Company’s securities without the full risks and rewards of ownership, potentially separate the holder’s interests from those of the public shareholders of the Company. Moreover, certain short-term or speculative transactions in the Company’s securities create the potential for heightened legal risk and/or the appearance of improper or inappropriate conduct involving the Company’s securities.

Director Compensation

20182019 Cash Compensation of Directors. During 2018,2019, we paid each non-employee director a flat fee of $20,000 for their board and committee meeting attendance and participation, except for members of the Audit Committee who received a flat fee of $22,500, and an annual retainer of $5,000, except for the Audit Committee Chair and Nominating and Corporate Governance Chair, each of whom was paid an additional retainer of $7,500, and the Compensation Committee Chair who was paid an additional retainer of $2,000. These amounts were the same in 2019 as they were in 2018, as in 2017, except thatfor increasing the annual flat fee for board and committee meeting attendance was increasedpaid to members of the Audit Committee from $15,000 in 2017$20,000 to $20,000 in 2018.$22,500.

20182019 Equity Compensation of Directors. During 2018,2019, we granted 2,6362,359 restricted share units (“RSUs”) to each non-employee director of the Company. The RSUs vest annually, in three equal increments as of the first, second, and third anniversaries of the grant date pursuant to the provisions of the 2016 Plan as discussed below. The grant date fair value of the RSUs granted to directors in 20182019 was approximately the same as the grant date fair value of RSUs granted to directors in 2017.2018. Directors must remain in the service of the Company as a director for the RSUs to vest.vest unless otherwise determined by the Compensation Committee.  In connection with the retirement of Dale Polley as a director on May 23,

2019, the Compensation Committee approved the acceleration of the vesting of unvested RSUs of Mr. Polley which had been awarded in 2017 and 2018 (which constituted 2,677 RSUs in the aggregate).

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Employee directors are not eligible for any compensation for service on the Board or its committees.

Summary of 20182019 Director Compensation. The following table sets forth the compensation for the Company’s non-employee directors during 2018.2019.

The following table shows the aggregate number of outstanding and unexercised option awards and the number of outstanding RSUs held by each non-employee director at fiscal year-end 2018.2019.

20192020 Director Compensation.  For 2019,2020, the Compensation Committee determined to increase the annual flat fee paid to members of the Audit Committee from $20,000 to $22,500. There weremade no other changes from 20182019 with regard to the amount of payment for annual retainers paid to non-employee directors, including committee chairs, for board and committee attendance.

For 2019,2020, we granted 2,3592,836 RSUs to each non-employee director of the Company. The grant date fair value of the RSUs granted to directors in 20192020 was approximately the same as the grant date fair value of RSUs granted to directors in 2018.2019. These RSUs will vest annually, in three equal increments as of the first, second and third anniversaries of the grant date.

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Executive Officers

The following table sets forth certain information regarding the executive officers of the Company. Information pertaining to Mr. Frist, who is both a director and an executive officer of the Company, is located in the section entitled “Directors.”

Gerard M. Hayden, Jr. joined the Company as senior vice president and chief financial officer in May 2008, and served in these positions until resigning effective February 26, 2019 as noted above.  He earned a Bachelor of Arts from the University of Notre Dame and a Master of Science from Northeastern University.

J. Edward Pearson joined the Company in June 2006 as senior vice president and was promoted to chief operating officer in 2011 and to president on May 15, 2018. He earned a Bachelor of Business Administration in Accounting from Middle Tennessee State University.

Scott A. Roberts joined the Company in January 2002 and served as vice president of accounting and finance beginning in January 2015, following service in multiple positions to which he was promoted. Thereafter, Mr. Roberts was appointed as interim chief financial officer in February 2019 and was appointed as chief financial officer and senior vice president of the Company in September 2019. He earned a Bachelor of Business Administration degree from Middle Tennessee State University.

Jeffrey D. Cunningham joined the Company in July 2017 as senior vice president and chief technology officer. Prior to joining the Company, he founded and served as chief technology officer and chief strategy officer for Informatics Corporation of America for twelve years. He earned a Bachelor of Science in Computer Science from the University of North Texas.

Michael Sousa joined the Company in October 2004 and served as senior vice president of sales from January 2010 to June 2014. In June 2014, he was promoted to senior vice president of business development. In SeptemberFebruary 2015, he was named president of Echo, Inc. (now(now known as Verity, Inc., a HealthStream Company)VerityStream), HealthStream’s Provider Solutions business segment, while continuing to serve as a senior vice president of the Company. He earned a Bachelor of Science degree from Boston College and a Master of Business Administration from Boston University.

Michael M. Collier joined the Company in August 2011 as vice president and general counsel, began serving as the vice president of business development and general counsel shortly thereafter, and was promoted to senior vice president of businesscorporate development and general counsel in July 2017. Mr. Collier also serves as the Company’s Corporate Secretary. He graduated with bachelors and mastersMasters degrees in Philosophy and Religion from University of Tennessee-Knoxville and earned a Juris Doctorate (J.D.) from University of California, Berkeley – School of Law.

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Trisha L. Coady joined the Company in January 2014 and served as associate vice president and subsequently vice president and general manager of clinical development solutions from June 2015 to November 2018. In November 2018, she was promoted to senior vice president and general manager of clinical solutions. She earned a Science in Nursing degree from Université de Moncton.

M. Scott McQuigg joined the Company in January 2019 as senior vice president of hStream solutions. Prior to joining the Company, he co-founded and served as chief executive officer for GoNoodle for thirteen years. Before this role, he co-founded and served as chief executive officer of HealthLeaders.

Scott A. Roberts joined the Company in January 2002 and served in various roles within the finance and accounting department until January 2015, when he was promoted to vice president of finance and accounting. In February 2019, he was appointed as interim Chief Financial Officer, following the resignation of Mr. Hayden. Mr. Roberts earned a bachelor of business administration degree in accounting from Middle Tennessee State University.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

Company Performance in 20182019 and Impact on Executive Compensation

In 2018,2019, the Company continued its focus on improving patient outcomes through the development of healthcare organizations’ greatest asset: their people.  

In addition, on February 12, 2018, the Company divested its Patient Experience (PX) business to Press Ganey Associates for $65.5 million in cash. This sale of the PX business resulted in the divestiture of the Company’s patient experience solutions business segment. With the proceeds from this transaction, the Company’s Board of Directors declared a special cash dividend of $1.00 per common share paid on April 3, 2018 to shareholders of record on March 6, 2018.

Below is an overview of the Company’s performance in 20182019 as compared to 2017.2018. All results set forth below are for continuing operations, which exclude the gain on the sale of our PXPatient Experience business as referenced abovein February 2018 and the results of operations of such business segment prior to this divestiture. In addition, in accordance with GAAP, 2018 results are presented in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), whereas results for 2017 are presented in accordance with ASC 605.

We ended 20182019 well capitalized with a cash and marketable securities balance of $168.8$172.9 million and full availability of our $50.0 million line of credit.

Pay actionsCompensation decisions for Named Executive Officers in 20182019 reflected the results of the Company’s performance and are summarized below.in the bullets below (aside from Gerard M. Hayden, Jr., who resigned as Chief Financial Officer and Senior Vice President effective February 26, 2019, such that the compensation decisions for 2019 referenced below were not applicable to Mr. Hayden).

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Overview of Compensation Process.  The Compensation Committee of the Company’s Board is comprised solely of independent directors.  The Compensation Committee during 20182019 was comprised of Frank Gordon, Jeffrey McLaren, and Linda Rebrovick, each of whom is independent within the meaning of the listing standards of Nasdaq.

The Compensation Committee is responsible for setting the compensation of the Company’s executive officers, overseeing the Board’s evaluation of the performance of our Chief Executive Officer, and administering the Company’s equity-based and incentive plans for our Named Executive Officers, among other things.  The Compensation Committee undertakes these responsibilities pursuant to a written charter adopted by the Compensation Committee, which is reviewed at least annually by the Compensation Committee.  The Compensation Committee Charter may be accessed on our website in the “Corporate Governance” section of our Investor Relations page at www.healthstream.com.  

The Compensation Committee did not engage any compensation consultant in relation to the Compensation Committee’s evaluation of director and executive officer compensation in 2018.2019. 

The Compensation Committee annually reviews executive compensation and the Company’s compensation policies to ensure that the Chief Executive Officer and the other executive officers are rewarded appropriately for their contributions to the Company and that the overall compensation strategy supports the objectives and values of our organization, as well as shareholder interests.  The Compensation Committee also annually reviews the executive officers’ expense reimbursements with the Company’s Controller.

The Compensation Committee solicits the views and recommendations of our Chief Executive Officer when setting the base salaries of each member of the executive team, other than the Chief Executive Officer, given his insight into internal pay equity and positioning issues, as well as executive performance.  At a committee meeting typically held during the first quarter of each year, the Chief Executive Officer summarizes his assessment of the performance during the previous year of each member of the executive team, other than the Chief Executive Officer, including his recommendations on compensation for such members of the executive team, other than the Chief Executive Officer. Following the Chief Executive Officer’s presentation and Compensation Committee discussion, the Compensation Committee discusses and approves the compensation for each member of the executive team, other than the Chief Executive Officer, based on competitive considerations, the Chief Executive Officer’s assessment of individual performance, the Company’s overall performance and the executive’s current compensation package.

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The process is similar for determining the compensation for the Chief Executive Officer, except that the Chief Executive Officer does not provide the Compensation Committee with a recommendation or otherwise participate in discussions regarding his compensation.  The Compensation Committee meets to discuss and approve the Chief Executive Officer’s compensation, based on its assessment of the Chief Executive Officer’s performance, the Company’s performance, competitive considerations, the Chief Executive Officer’s current compensation package, and other factors which may be deemed appropriate by the Compensation Committee.  The Compensation Committee also solicits comments about the Chief Executive Officer’s performance from the other independent directors.

20182019 Advisory Vote on Executive Compensation.  At the Company’s 20182019 annual meeting of shareholders, shareholders holding approximately 98% of the votes cast voted to approve, on an advisory basis, our executive compensation as described in our proxy statement. The Compensation Committee believes this affirmed shareholders’ support of the Company’s approach to executive compensation.

Compensation Philosophy.  The fundamental objective of our executive compensation policies is to attract and maintain executive leadership that will execute the Company’s business strategy, uphold the Company’s mission, vision, and values, and deliver results and long-term value to the Company’s shareholders.  Accordingly, the Compensation Committee seeks to develop and maintain a compensation structure that will attract, retain, and motivate highly qualified and high-performing executives through compensation that is fair, balanced, aligned with shareholder interests, and linked to overall financial performance.

We believe we have a strong “pay for performance” philosophy designed to reward executive officers for maximizing our success, as determined by our performance relative to our financial and operational goals. The Compensation Committee’s compensation philosophy for the executive team emphasizes an overall analysis of the executive’s performance for the past year, projected role and responsibilities for the coming year, required impact on execution of the Company’s strategy, total cash and equity compensation and other factors the Compensation Committee deems appropriate. In addition, while the Compensation Committee may consider information regarding executive compensation paid at companies comparable to the Company as part of a “market check” with the goal of ensuring that the compensation paid to our named executive officers is reasonably competitive in comparison to compensation at such comparable companies, the Compensation Committee does not target or benchmark any element of compensation or the total compensation paid to our named executive officers based on compensation surveys or data or the executive compensation practices of other public companies.  Our philosophy also considers employee retention, vulnerability to recruitment by other companies and the difficulty and costs associated with replacing executive talent.  Based on these objectives, the Compensation Committee has determined that our Company should provide its executives compensation packages comprised of three primary elements: (i) base salary, which reflects individual performance and is designed to provide a secure level of guaranteed cash compensation; (ii) annual cash bonuses based on the overall financial performance of the Company, and, in the case of Mr. Sousa, the performance of the business segment for which the applicable executive is most directly responsible, in accordance with annual goals established by the Compensation Committee; and (iii) long-term equity-based incentive awards which strengthen the mutuality of interest between executive officers and our shareholders.

The specific analysis regarding the components of total executive compensation for 20182019 are described below.  The primary components of the 20182019 program were cash compensation, consisting of a base salary and bonuses, and equity incentives, consisting of RSUs.

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Base Salary. We seek to provide base salaries for our executive officers that provide a secure level of guaranteed cash compensation in accordance with their experience, professional status, and job responsibilities.  Each year the Compensation Committee reviews and approves a revised annual salary plan for executive officers, taking into account several factors, including prior year salary, responsibilities, tenure, performance, salaries paid by similar companies for comparable positions solely for purposes of a “market check” with the goal of ensuring that the Company’s base salary levels are reasonably competitive compared to base salary levels at similar companies, and the Company’s recent financial performance. The Compensation Committee also made a determination that Messrs. Pearson and Sousa merited a higher percentage increase in base salary in comparison to 2017 in recognition of their significant leadership responsibilities with the Company (and Verity, in the case of Mr. Sousa).  Taking these factors into account, the Compensation Committee approved base salaries for the Named Executive Officers in the amounts in the following amounts:table.

Cash Bonuses.  In addition to base salary, our cash bonus plan compensation provides our executive officers with the potential for enhanced cash compensation based on the financial performance of the Company and, in the case of Mr. Sousa, based on the financial performance of the business unit for which the applicable executive is most responsible. In March 2018,2019, the Compensation Committee established two cash bonus plans, the “Primary Bonus Plan,” which was for each Named Executive Officer and certain other vice presidents and directors of the Company, and the “Verity“VerityStream Bonus Plan,” which was for certain members of management of Verity,VerityStream, including Mr. Sousa. For the Primary Bonus Plan, the Compensation Committee established performance objectives that would reward certain Named Executive Officers and certain other vice presidents and directors of the Company for achieving non-GAAP operating income goals for 20182019 (as defined below). For purposes of this bonus calculation, “non-GAAP operating income” was defined as our consolidated GAAP income from operations before bonuses, excluding acquisition and divestiture expenses for transactions within the calendar year and operating income (loss) from acquisitions and divestitures consummated during the calendar year. The Compensation Committee chose non-GAAP operating income as the measure under the Primary Bonus Plan because it believed that this was a key measure of our operating performance during 20182019 and because it believes that this measure correlates over time with long-term shareholder value. Mr. Hayden was not included in any cash incentive plans for 2019 as the result of his resignation on February 26, 2019, prior to the time at which such cash bonus plans were established.

In addition, as previously disclosed, in June 2019, Robert A. Frist, Jr. contributed 78,520 of his personally-owned shares of common stock to the Company, without any consideration paid to Mr. Frist, and the Company approved the grant of the same number of shares under our 2016 Omnibus Incentive Plan to approximately 820 employees (Mr. Frist also contributed an additional 7,852 of his personally owned shares to cover the Company’s costs associated with such grants), which grants resulted in the Company recognizing approximately $2.0 million stock-based compensation expense and $0.2 million payroll tax expense.  In connection with these transactions, the Compensation Committee determined to exclude the financial impact of these transactions on non-GAAP operating income under our Primary Bonus Plan (as well as the impact on non-GAAP operating income under our VerityStream Bonus Plan) as the result of the fact that the inclusion of such expense in non-GAAP operating income for purposes of

these plans would not appropriately reflect the underlying operating performance of the Company taking into account the countervailing impact of Mr. Frist’s contribution in relation to the associated grant under our 2016 Omnibus Incentive Plan, as well as the nature of these grants outside of the ordinary course of business.

The Primary Bonus Plan for the Named Executive Officers who participate in this plan was structured to pay bonuses in a maximum amount of 8 percent of base salary for Mr. Sousa, 30 percent of base salary for Messrs. HaydenCollier and Cunningham,Roberts (provided, Mr. Roberts became eligible to participate at this level on a prorated basis as of September 20, 2019, when he was promoted to Senior Vice President and Chief Financial Officer), and 40 percent of base salary for Messrs. Frist and Pearson. Mr. Frist’sThe maximum cash bonus opportunity under the Primary Bonus Plan increased from 30 percent of base salary in 2017 to 40 percent of base salary in 2018 in recognition of Mr. Frist’s significant leadership responsibilities as the Chief Executive Officer of the Company. In addition, in connection with Mr. Pearson’s promotion to President in May 2018, the Compensation Committee made a determination to increase Mr. Pearson’s maximum bonus opportunity to 40% from 30% (which was his bonus opportunity for 2017 and the 2018 bonus opportunity initially established for him in 2018). Mr. Sousa’s maximum cash bonus opportunity under the Primary Bonus Plan increased from zero percent of base salary in 2017 to 8 percent of base salary in 2018 while his total maximum bonus opportunity remained at 40 percent (his maximum bonus opportunity under the Verity Bonus Plan was 40 percent in 2017 and 32 percent in 2018). Messrs. Hayden and Cunningham’s maximum cash bonus opportunityopportunities under the Primary Bonus Plan was the same in both 2018 and 2019 for all Named Executive Officers, other than Mr. Roberts, who was not an executive officer in 2018.

Mr. Roberts was eligible to receive a cash bonus under the Primary Bonus Plan (based on full-year 2019 Company performance) at an amount equal to 16 percent of his base salary, which percentage amount was increased to 30 percent effective as of his appointment as Chief Financial Officer and Senior Vice President on September 20, 2019, which bonus opportunities in both 2017each case were prorated for the applicable portion of the year.  In addition, in respect of the period of time in 2019 that preceded Mr. Roberts’ appointment as Chief Financial Officer and 2018.Senior Vice President on September 20, 2019, Mr. Roberts was eligible to receive a cash bonus in under a different cash incentive plan of the Company under which payment was based on the achievement of departmental goals (Mr. Roberts ultimately received a payment of $8,551 under such bonus plan).

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In order to receive any payout, the Primary Bonus Plan required achievement by the Company of non-GAAP operating income during 20182019 of $11.2$11.0 million, with a maximum payout requiring achievement of non-GAAP operating income during 20182019 of $12.7$12.8 million. Named Executive Officers were (i) not eligible to receive cash bonuses under the Primary Bonus Plan if the Company achieved non-GAAP operating income of less than $11.2$11.0 million, (ii) eligible to receive a cashthe maximum bonus of 8(8 percent for Mr. Sousa, 30 percent for Messrs. HaydenCollier and Cunningham,Roberts, and 40 percent for Messrs. Frist and Pearson of base salarysalary) if the Company achieved at least $12.7$12.8 million of non-GAAP operating income and (iii) eligible to receive an incremental payout between zero and 8 percent for Mr. Sousa, between zero and 30 percent for Messrs. HaydenCollier and Cunningham,Roberts, and between zero and 40 percent for Messrs. Frist and Pearson, of base salary on a straight-line interpolation basis to the extent the Company achieved non-GAAP operating income between $11.2$11.0 million and $12.7$12.8 million. The bonus payment scale was established with the intent of aligning the interests of our Named Executive Officers with our shareholders, and to incentivize our Executive Officers by funding the bonus pool incrementally based on the amount of non-GAAP operating income exceeding the Company’s threshold non-GAAP operating income.  While the target figures set forth above were originally established by the Compensation Committee utilizing the revenue recognition standard under ASC 605, the Compensation Committee subsequently determined that ASC 606, instead of ASC 605, was the optimal metric for determining whether the target figures set forth above were achieved based on the fact that (following the time at which such target figures were set) the Company reported its 2018 financial results under ASC 606 and provided guidance under ASC 606 beginning with the Company’s first quarter 2018 earnings release, as well as the fact that senior management of the Company had been assessing the Company’s 2018 financial performance as reported under ASC 606.  The dollar amounts of the targets, as set forth above, remained unchanged by this determination.

The Company’s non-GAAP operating income in 2018,2019, as defined above, was approximately $16.8$18.6 million, which was above the maximum level of $12.7$12.8 million, and therefore the Company paid the maximum cash bonuses to the Named Executive Officers set forth above under the Primary Bonus Plan.

The Compensation Committee established performance objectives under the VerityVerityStream Bonus Plan that would reward Mr. Sousa and certain members of management of VerityVerityStream for exceeding financial targets with respect to VerityVerityStream established by the Compensation Committee. The VerityVerityStream Bonus Plan was structured to provide bonus payouts (as a percentage of base salary) for achieving non-GAAP operating income goals for 20182019 for VerityVerityStream (as defined below).  In order to receive any payout, the VerityVerityStream Bonus Plan required achievement of VerityVerityStream non-GAAP operating income of $2.0$3.4 million with a maximum payout requiring achievement of $2.6$4.0 million. Non-GAAP operating income for purposes of the VerityVerityStream Bonus Plan was the VerityVerityStream business unit’s GAAP operating income before bonuses excluding acquisition related expenses with respect to VerityVerityStream incurred during the year and operating income (loss) from acquisitions consummated during the year with respect to Verity.VerityStream (as noted above, the expenses associated with the June 2020

contribution of stock by Mr. Frist and associated stock grants under our 2020 omnibus incentive plan were also excluded from this calculation). Mr. Sousa was (i) not eligible to receive a cash bonus if VerityVerityStream achieved non-GAAP operating income of less than $2.0$3.4 million, (ii) eligible to receive a cash bonus of 32 percent of base salary if VerityVerityStream achieved at least $2.6$4.0 million of non-GAAP operating income, and (iii) eligible to receive an incremental payout between zero and 32 percent of base salary based on straight-line interpolation to the extent that VerityVerityStream achieved non-GAAP operating income between $2.0$3.4 million and $2.6$4.0 million.

The target figures for the Verity Bonus Plan set forth above, like those for the Primary Bonus Plan, were originally established by the Compensation Committee utilizing the revenue recognition standard under ASC 605, and, for the same reasons as reflected above regarding the Primary Bonus Plan, the Compensation Committee subsequently determined that ASC 606, instead of ASC 605, was the optimal metric for determining whether the target figures for the Verity Bonus Plan set forth above were achieved. The dollar amounts of the targets, as set forth above, remained unchanged by this determination.

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The VerityVerityStream non-GAAP operating income in 20182019, as defined above, was approximately $2.4 million. Therefore,$4.8 million, which was above the maximum level of $4.0 million, and therefore the Company paid athe maximum cash bonus of approximately 21 percent to Mr. Sousa under the VerityVerityStream Bonus Plan.

Separate and apart from the Verity Bonus Plan, the Compensation Committee awarded Mr. Sousa a discretionary cash incentive and retention bonus of $75,000 paid in May 2018 at the same time that he (along with Mr. Pearson) were awarded 35,000 performance-based RSUs as noted below to recognize their roles as president and to incentivize these executives over a five-year performance period. The Compensation Committee awarded this bonus to Mr. Sousa for retention and incentive purposes in recognition of the importance of Mr. Sousa to the performance and growth of Verity over this future time horizon.

Long-Term Stock-Based Incentive Compensation. As described above, one of our key compensation philosophies is that long-term stock-based incentive compensation strengthens the alignment of the interests of our executive officers with our shareholders.  The Compensation Committee believes that the strategy of granting time-based vesting stock awards is in the best interest of the Company and its shareholders, as the value of such awards is tied to the stock price of the Company, and executive officers only receive the benefit from these awards to the extent they continue their employment with the Company through the vesting period.  In addition, the Compensation Committee has approved the grant of performance-based vesting stock awards to certain of our executive officers from time to time (including in 2018)2019).

Equity incentive awards are generally granted to our executive officers on an annual basis.  Award levels in 20182019 were consistent with the objectives and approaches discussed above, and consistent with the Company’s retention, performance, and shareholder alignment objectives. The Compensation Committee typically approves these awards at its first quarter committee meeting and followed this process in 20182019 as well.  Awards are granted on the date of the committee meeting. The Compensation Committee may also approve additional equity incentive awards in certain special circumstances, such as promotion of an executive officer to a new position, the addition of new executive team members, or in recognition of special contributions or achievements by an executive officer.  In March 2018,The time-based RSUs reflected in the following time-based RSUschart below were granted to our Named Executive Officers pursuant to the 2016 Plan:Plan in March 2019. Mr. Hayden did not receive any time-based RSUs in 2019 as the result of his resignation on February 26, 2019, prior to the time at which such time-based RSUs were granted. In addition, in September 2019, Mr. Roberts was granted 3,500 RSUs in connection with his appointment as Chief Financial Officer and Senior Vice President, and Mr. Collier was granted 2,500 RSUs to recognize past performance and further incentivize future performance and retention.

In recent years, the Compensation Committee has reviewed and approved a long-term equity grant for executive officers, taking into account several factors, including prior year grant date value,

responsibilities, tenure, performance, long-term equity incentives awarded by similar companies for comparable positions solely for purposes of a “market check” with the goal of ensuring that the Company’s long term incentive levels are reasonably competitive compared those at similar companies, and the Company’s recent financial performance. The Committee took these factors into account in determining the appropriate long-term equity grants for executive officers.  The grant date fair value of the time-based awards made to each of the Named Executive Officers as set forth in the chart above reflected an increase of ten to fifteen percent ofwas the same as the grant date fair value of time-based awards made to such executive officers in 2017.2018  (except in the case of Mr. Roberts, who was not an executive officer in 2018), excluding the grant date fair value of the 3,500 RSUs granted to Mr. Roberts and the 2,500 RSUs granted to Mr. Collier in September 2019 as described above.

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Each time-based RSU described above represents the contractual right to receive one share of the Company’s common stock. The RSUs are subject to the terms of the 2016 Plan and the individual grant award agreements.  TheThese time-based RSUs vest annually in four increasing increments of 15%, 20%, 30% and 35% as of the first, second, third, and fourth anniversaries of the grant date, respectively, provided that the grantee is employed on such vesting date. Further, vesting is subject to acceleration under certain circumstances as contemplated in the 2016 Plan and/or the individual grant agreement.

TheIn addition, the Compensation Committee made a determination to grant Mr. Pearson performance-based RSUs in May 2018 in connection with Mr. Pearson’s promotion to President in recognition of Mr. Pearson’s increased responsibilities and to incentivize Mr. Pearson in connection with the Company’s achievement of key annual performance objectives over a five-year time horizon. In connection with this grant, Mr. Pearson received 35,000 performance-based RSUs, which are eligible for vesting in five increments of 10%, 15%, 20%, 25%, and 30% on March 15, 2019, 2020, 2021, 2022, and 2023, based on whether the Company has achieved certain annual financial performance targets (which may include, among other things, operating income, EBITDA and revenue thresholds) for the fiscal year preceding such vesting as determined by the Compensation Committee on an annual basis, subject to Mr. Pearson’s continuing employment as of any such vesting date.

The Compensation Committee also made a determination to grant Mr. Sousa performance-based RSUs in May 2018 to recognize and to promote parity among President roles and to incentivize Mr. Sousa in connection with the attainment by VerityVerityStream of key annual performance objectives over a five-year time horizon. As part of the Compensation Committee’s determination with respect to this grant (including in connection with determining the amount of the performance-based RSUs to be made to Mr. Sousa), the Compensation Committee took into account Mr. Sousa’s surrender for cancellation of 20,500 performance-based RSUs as noted in greater detail below (which represented all of the outstanding performance-based RSUs held by Mr. Sousa).  In addition, the Compensation Committee desired to incentivize Mr. Sousa in his position as President of Verity over a longer time period than the vesting period for the outstanding performance-based RSUs held by Mr. Sousa surrendered for cancellation, which had various performance periods, extending at the latest through December 31, 2020, whereas the newly-granted performance-based RSUs had performance periods extending at the latest through December 31, 2022.In connection with this grant, Mr. Sousa received 35,000 performance-based RSUs in May 2018 which are eligible for vesting in five increments of 10%, 15%, 20%, 25% and 30% on March 15, 2019, 2020, 2021, 2022 and 2023 based on whether the business unit over which Mr. Sousa is President (currently, Verity)VerityStream) has achieved annual financial performance targets (which may include, among other things, operating income, EBITDA and revenue thresholds for Verity)VerityStream) for the fiscal year preceding such vesting as determined by the Compensation Committee on an annual basis, subject to Mr. Sousa’s continuing employment as of any such vesting date.  Pursuant to this award agreement, Mr. Sousa surrendered the following performance-based RSUs: (i) all of the remaining outstanding 25,000 performance-based RSUs granted to Mr. Sousa in September 2015 (11,250 of which RSUs remained outstanding prior to such cancellation, 5,000 of which RSUs would have been subject to vesting based on 2019 performance and 6,250 of which RSUs would have been subject to vesting based on 2020 performance); (ii) 5,000 performance-based RSUs granted to Mr. Sousa in September 2015, which had a performance period for the five-year period ending December 31, 2019 (all of which RSUs remained outstanding prior to such cancellation); and (iii) 4,250 performance-based RSUs granted to Mr. Sousa in December 2016, which had a performance period for the three-year period ending December 31, 2019 (all of which RSUs remained outstanding prior to such cancellation).

During 2018, the performance criteria was established for 3,500 of the performance-based RSUs granted to each of Messrs. Pearson and Sousa, the vesting of which was based on the achievement of performance criteria for 2018 as described in greater detail below.  In accordance with SEC guidance, the

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Summary Compensation Table set forth below for 2018 reflects the grant date fair value of these 3,500 performance-based RSUs for each of Messrs. Pearson and Sousa.

The performance criteria for Mr. Pearson’s 3,500 RSUs granted in 2018 which were eligible for vesting based on the performance period in 2018 and for which performance criteria was established in 2018, was based upon the achievement of adjusted EBITDA from continuing operations for the Company, defined as income from continuing operations before interest, income taxes, stock based compensation, depreciation and amortization, and changes in fair value of cost method investments. The performance criteria for these awards was structured to provide (i) 100% vesting of RSUs for achieving adjusted EBITDA from continuing operations for 2018 greater than or equal to $38.8 million, and (ii) no vesting of RSUs for achieving adjusted EBITDA from continuing operations for 2018 below $38.8 million. The Company achieved adjusted EBITDA from continuing operations of $41.5 million during 2018. Therefore 100% of these 3,500 RSUs vested for Mr. Pearson for the performance period of 2018.  

The performance criteria for Mr. Sousa’s 3,500 RSUs granted in 2018, which were eligible for vesting based on the performance period in 2018 and for which performance criteria was established in 2018, was based upon achievement of adjusted EBITDA for Verity, defined as income from continuing operations before interest, income taxes, stock based compensation, depreciation and amortization, and changes in fair value of cost method investments. The performance criteria for these awards was structured to provide (i) 100% vesting of RSUs for achieving adjusted EBITDA for 2018 greater than or equal to $13.6 million, and (ii) no vesting of RSUs for achieving adjusted EBITDA for 2018 below $13.6 million. Verity achieved adjusted EBITDA of $12.6 million during 2018, therefore none of these 3,500 RSUs vested for Mr. Sousa for the performance period of 2018.  The performance criteria for the remaining 31,500 performance-based RSUs granted to Messrs. Pearson and Sousa in May 2018 will be determined based on the achievement of financial performance criteria on an annual basis as follows: 5,250 shares in 2019, 7,000 shares in 2020, 8,750 shares in 2021, 10,500 shares in 2022. Moreover, Messrs. Pearson and Sousa’s award agreements provide that, to the extent that any RSUs do not vest in any year (based on the failure to fully achieve the performance criteria for any such year) (the “Catch-Up RSUs”), any such Catch-Up RSUs that do not vest will be eligible for vesting in connection with the achievement of performance criteria in the next year (but not in succeeding years) as determined by the Compensation Committee (which performance criteria for the Catch-Up RSUs may require the overachievement of the applicable performance metric(s) for such year). For

During 2019, the performance criteria was established for 5,250 of the performance-based RSUs granted to each of Messrs. Pearson and Sousa, the vesting of which was based on the achievement of performance criteria for 2019 as described in greater detail below.  In accordance with SEC guidance, the Summary Compensation Table set forth below for 2019 reflects the grant date fair value of these 5,250 performance-based RSUs for each of Messrs. Pearson and Sousa, as well as the grant date fair value of

3,500 performance-based RSUs for Mr. Sousa which vested in 2019 as Catch-Up RSUs as described in greater detail below.

The performance criteria for Mr. Pearson’s 5,250 RSUs granted in 2019 which were eligible for vesting based on the performance period in 2019 and for which performance criteria was established in 2019, was based upon the achievement of adjusted EBITDA from continuing operations for the Company, defined as income from continuing operations before interest, income taxes, stock based compensation, depreciation and amortization, and changes in fair value of non-marketable equity investments. The performance criteria for these awards was structured to provide (i) 100% vesting of RSUs for achieving adjusted EBITDA from continuing operations for 2019 greater than or equal to $41.9 million, and (ii) no vesting of RSUs for achieving adjusted EBITDA from continuing operations for 2019 below $41.9 million. The Company achieved adjusted EBITDA from continuing operations of $46.9 million during 2019. Therefore 100% of these 5,250 RSUs vested for Mr. Pearson for the performance period of 2019.  

The performance criteria for Mr. Sousa’s 5,250 RSUs granted in 2019, which were eligible for vesting based on the performance period in 2019 and for which performance criteria was established in 2019, was based upon achievement of adjusted EBITDA for VerityStream, defined as income from continuing operations before interest, income taxes, stock based compensation, depreciation and amortization, and changes in fair value of non-marketable equity investments. The performance criteria for these awards was structured to provide (i) 100% vesting of RSUs for achieving adjusted EBITDA for 2019 greater than or equal to $14.5 million, and (ii) no vesting of RSUs for achieving adjusted EBITDA for 2019 below $14.5 million. VerityStream achieved adjusted EBITDA of $15.9 million during 2019, therefore 100% of these 5,250 RSUs vested for Mr. Sousa for the performance period of 2019.  

Additionally, since the 3,500 performance-based RSUs awarded to Mr. Sousa in May 2018 which were eligible for vesting based on 2018 performance did not vest, these RSUs will bewere eligible for vesting based on 2019 performance based on criteria established in 2019 by the Compensation Committee.Committee per the catch-up provisions discussed above. The performance criteria for these awards was structured to provide (i) 100% vesting of RSUs for achieving adjusted EBITDA for 2019 greater than or equal to $15.5 million, (ii) 75% vesting of RSUs for achieving adjusted EBITDA for 2019 between $15.3 million and $15.5 million,  (iii) 50% vesting of RSUs for achieving adjusted EBITDA for 2019 between $15.0 million and $15.3 million, (iv) 25% vesting of RSUs for achieving adjusted EBITDA for 2019 between $14.7 million and $15.0 million, and (v) no vesting of RSUs for achieving adjusted EBITDA for 2019 below $14.7 million. VerityStream achieved adjusted EBITDA of $15.9 million during 2019, therefore 100% of these 3,500 Catch-Up RSUs vested for Mr. Sousa for the performance period of 2019. In addition, the 3,500 performance-based RSUs awarded to Mr. Pearson in May 2018 which were based on 2018 performance vested in full, and as such Mr. Pearson did not have any performance-based RSUs eligible for catch-up vesting in 2019.

The performance criteria for the remaining 26,250 performance-based RSUs granted to Messrs. Pearson and Sousa in May 2018 are determined based on the achievement of financial performance criteria on an annual basis as follows: 7,000 shares in 2020, 8,750 shares in 2021, 10,500 shares in 2022. The performance-based RSUs for Messrs. Pearson and Sousa vesting based on performance in 20192020 and succeeding years will be reported in the applicable Summary Compensation Table during the year in which the performance criteria will be set by the Committee and the Company is able to determine the grant date fair value.                                      

The Compensation Committee determines the number of RSUs awarded to the executive officers in any year based upon, among other factors, the recommendations of the Chief Executive Officer, prior equity grants, individual and Company performance, our annual budget, retention considerations and the estimated annual financial accounting compensation expense associated with the awards. The weighting

of these and other relevant factors is determined on a case-by-case basis for each executive officer so as to reward and incentivize the executive officers for their long-term strategic management of the Company.

Perquisites and Other Benefits. Our executive officers are also eligible for benefits generally available to and on the same terms as the Company’s other employees, including a 401(k) Plan match, health insurance, disability insurance, dental insurance, and life insurance.

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Employment Agreement, Severance and Change In Control Agreements.  We entered into an employment agreement with Robert A. Frist, Jr., our Chief Executive Officer, on July 21, 2005, which continues to be in effect. The term of Mr. Frist’s employment agreement is automatically extended for successive one year periods unless, on or before a date that is 90 days prior to the expiration of the then current employment term, either the Company or Mr. Frist shall have given written notice to the other of its or his intention not to further extend the employment term, in which case the employment agreement shall expire and terminate at the end of the then current employment term.  Mr. Frist is also entitled to participate in any bonus program or stock option plan that is generally available to our officers or senior management.  Under his employment agreement, Mr. Frist has agreed not to compete with the Company and not to solicit our customers or employees for one year after his employment is terminated, with limited exceptions.  Mr. Frist is entitled to severance benefits if we terminate him without cause. He is also entitled to severance benefits if he resigns for good reason after a change in control, if he resigns upon the occurrence of a material change in the terms of his employment, or if he resigns upon the occurrence of a material breach of the employment agreement by the Company.  If any such termination occurs, Mr. Frist will be entitled to a severance benefit equal to 1.5 times the most recent salary recommended by our Compensation Committee for him. In addition, if Mr. Frist terminates his employment for good reason after the occurrence of a change in control, all options, shares, and other benefits will fully vest immediately.  We do not maintain employment, severance, or change in control agreements with any of our other executive officers.

Vesting of Equity Awards upon Change of Control.  Under the 2010 Plan and the 2016 Plan and the terms of the award agreements entered into in connection therewith, any outstanding equity awards, consisting of options and RSUs, become fully exercisable and immediately vested upon a change of control, as defined in the 2010 Plan and the 2016 Plan, respectively.

Compensation Decisions for 2019.2020.  In March 2019,2020, the Compensation Committee reviewed the performance and compensation of the executive team and discussed the grant of equity-based awards to executive officers. The Compensation Committee also established the 20192020 Primary Cash Bonus Plan for each of the Named Executive Officers and certain other vice presidents and director level employees of the Company. In addition, the 2019 Verity2020 VerityStream Bonus Plan was established for certain members of management of Verity,VerityStream, including Mr. Sousa. Such bonus plans reflect tiered cash bonuses as a percentage of base salary for exceeding certain levels of performance noted below. Under these plans, consistent with our 20182019 bonus plans, Messrs. Frist and Pearson will be eligible to receive a maximum payout of 40 percent of base salary, Mr. CunninghamMessrs. Collier and Roberts will be eligible to receive a maximum payout of 30 percent of base salary, and Mr. Sousa will be eligible to receive a maximum payout of 8 percent of base salary under the 20192020 Primary Cash Bonus Plan based on the Company’s level of attainment of non-GAAP operating income. In addition, Mr. Sousa will be eligible to receive a maximum payout of 32 percent of base salary under the 2019 Verity2020 VerityStream Bonus Plan based on the level of attainment of Verity’sVerityStream’s non-GAAP operating income. For purposes of the 20192020 Primary Cash Bonus Plan, non-GAAP operating income is defined as our consolidated GAAP income from continuing operations, as adjusted for bonuses, acquisition-related expenses incurred during the year, and operating income (loss) from acquisitions consummated during the year. Non-GAAP operating income for purposes of the VerityVerityStream Bonus Plan is Verity’sVerityStream’s GAAP operating income, as adjusted for bonuses, acquisition-related expenses with respect to VerityVerityStream incurred during the year, and operating income (loss) from acquisitions consummated during the year with respect to Verity.VerityStream.

The Compensation Committee also approved the grant of time-based RSUs to management during the March 20192020 meeting in the amounts set forth below. Such RSUs will vest annually in increasing increments of 15%, 20%, 30%, and 35% as of the first, second, third and fourth anniversaries of the grant date, respectively.

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The table below summarizes the 20192020 base salary levels and 20192020 equity-based incentive awards for the Named Executive Officers.

Tax Deductibility of Compensation.  Section 162(m) of the Code generally disallows a corporate deduction for compensation over $1.0 million paid to the Company’s Chief Executive Officer and certain other executive officers.  Prior to the enactment of the Tax Cuts and Jobs Act (“TCJA”) that was signed into law on December 22, 2017, this limitation did not apply to “qualified performance-based compensation” within the meaning of Section 162(m). As the result of the enactment of the TCJA, the exception of allowing the full deductibility of “qualified performance-based compensation” no longer applies to compensation paid after January 1, 2018 unless paid pursuant to a written binding contract in effect prior to November 2, 2017.  

The Compensation Committee generally intends to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation to the extent applicable paid to our executive officers. However, the Compensation Committee believes that shareholder interests are best served if it retains discretion and flexibility in awarding compensation to our NEOs,Named Executive Officers, even where the compensation paid under such programs may not be fully deductible, and the Compensation Committee may approve the payment of compensation that is outside the deductibility limitations of Section 162(m).

Compensation CommitteeCommittee Report for 20182019

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with our management.  Taking this review and discussion into account, the undersigned Compensation Committee members recommended the inclusion of the Compensation Discussion and Analysis in our proxy statement on Schedule 14A for filing with the SEC.

Submitted by the Compensation Committee of the Board:

Frank Gordon, Compensation Committee Chairman

Jeffrey L. McLaren, Compensation Committee Member

Linda Rebrovick, Compensation Committee Member

The foregoing report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference the proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts.

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Summary CompensationCompensation Table

The following table sets forth information for the fiscal years set forth below regarding the compensation earned by the Named Executive Officers. Consistent with SEC guidance, the chart below does not set forth the compensation of Messrs. Roberts and Collier for 2018 and 2017 as the result of the fact that such individuals were not named executive officers of the Company for those years.