Corporate Governance Guidelines
Director Qualifications
The Board will have a majority of directors who meet the criteria for independence required by the New York Stock Exchange (“NYSE”) or such other exchange upon which the Company’s securities are principally traded. The Nominating and Governance Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of new Board members as well as the composition of the Board as a whole. This assessment will include, among other things, members’ qualification as independent, as well as consideration of diversity, age, skills, expertise and experience in the context of the needs of the Board. The Board's determination of each director's independence shall be on a case-by-case basis in which the Board considers any matters that could affect the ability of a director to exercise independent judgment in carrying out his or her responsibilities as a director. Nominees for directorship will be selected and approved by the Nominating and Governance Committee in accordance with the policies and principles in its charter. The invitation to join the Board should be extended by the Board itself, by the Chairman of the Nominating and Governance Committee or the Chairman of the Board.
It is the sense of the Board that a size of seven to nine is appropriate. However, the Board may support a somewhat larger size in order to accommodate the availability of an outstanding candidate.
It is the sense of the Board that individual directors whose principal occupation or business association has changed substantially from the time that they were elected to the Board should volunteer to resign from the Board. It is not the sense of the Board that in every instance the directors who retire or change from the position they held when they came on the Board should necessarily leave the Board. There should, however, be an opportunity for the Board through the Nominating and Governance Committee to review the continued appropriateness of Board membership under the circumstances.
In addition to the Company’s Board, no director may serve on more than three other public company boards and a director serving on the Audit Committee may not serve on the audit committee of more than two other public companies. In addition, the Chief Executive Officer may not serve on more than two other public company boards. Directors should advise the Chairman of the Board and the Chairman of the Nominating and Governance Committee in advance of accepting an invitation to serve on another public company board.
No Term Limits; Retirement Age. Each director’s term expires
when his or her successor is elected, and he or she may be re-elected.
There is no limit on the number of terms, consecutive or not, for which
a director may be elected. However, in general the expectation is that
a director will serve no more than 10 years, at which time he or she will
be expected to resign or not stand for re-election.
Any person who is 72 years of age or more shall not be eligible to be
elected as a director or to hold a directorship; provided, however, that
any person who reaches the age of 72 while a director may serve the remainder
of his or her term. Notwithstanding the above, the Board of Directors,
in its sole discretion, may waive the mandatory retirement and request
that the director serve one additional term if it determines that the
impending retirement of such director would cause a substantial hardship
on the Company or the Board of Directors.
Director Elections
In accordance with the Company’s By-Laws, if none of the Company’s shareholders provides the Company notice of an intention to nominate one or more candidates to compete with the Board’s nominees in a director election, or if shareholders have withdrawn all such nominations by the tenth day before the Company mails its notice of meeting to shareholders, a nominee must receive more votes cast for than against his or her election or re-election in order to be elected or re-elected to the Board. The Board expects a director to tender his or her resignation if he or she fails to receive the required number of votes for re-election. The Board shall nominate only a candidate who agrees to tender or has tendered an irrevocable resignation that will be effective upon (i) the failure to receive the required vote at any meeting at which he or she faces re-election in an uncontested election; and (ii) Board acceptance of such resignation. In addition, the Board shall fill a director vacancy and a new directorship only with a candidate who agrees to tender, promptly following his or her appointment to the Board, the same form of resignation tendered by other directors in accordance with this provision.
If an incumbent director fails to receive the required vote for re-election, the Nominating and Governance Committee will act on an expedited basis to determine whether or not to accept the director’s resignation and will submit such recommendation for prompt consideration by the Board. The Board expects any director whose resignation is under consideration to abstain from participating in the Board’s deliberation of any director resignations at that time. The Nominating and Governance Committee and the Board may consider any factors they deem appropriate and relevant in deciding whether or not to accept a director’s resignation due to his or her failure to receive the required vote for re-election.
Director Responsibilities
The basic responsibility of the directors is to exercise their business judgment to act in what they reasonably believe to be in the best interests of the Company and its shareholders. In discharging that obligation, directors should be entitled to rely on the honesty and integrity of the Company’s senior executives and its outside advisors and auditors. The directors also shall be entitled to have the Company purchase reasonable directors’ and officers’ liability insurance on their behalf, to the benefits of indemnification to the fullest extent permitted by law and the Company’s charter, By-Laws and any indemnification agreements and to exculpation as provided by state law and the Company’s charter.
Directors are expected to attend Board meetings and meetings of committees on which they serve, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Information and data that are important to the Board’s understanding of the business to be conducted at a Board or committee meeting generally should be distributed in writing to the directors before the meeting, and directors should review these materials in advance of the meeting.
The Board has no policy with respect to the separation of the offices of Chairman of the Board and the Chief Executive Officer. The Board believes that this issue is part of the succession planning process and that it is in the best interests of the Company for the Board to make a determination when it elects a new chief executive officer.
The Chairman will establish the agenda for each Board meeting. Each director is free to suggest the inclusion of items on the agenda. Each director is free to raise at any Board meeting subjects that are not on the agenda for that meeting. The Board will review the Company’s long-term strategic plans and the principal issues that the Company will face in the future during at least one Board meeting each year.
The non-management directors will meet in executive session at least quarterly. The director who presides at these meetings will be chosen by the non-management directors, and his or her name and contact information will be disclosed in the annual proxy statement.
The Board believes that management speaks for the Company. Individual directors may, from time to time, meet or otherwise communicate with various constituencies that are involved with the Company. But it is expected that directors would make such communication with the prior knowledge of management and, absent unusual circumstances or as contemplated by the committee charters, only at the request of management.
Board Committees
The Board will have at all times an Audit Committee, a Compliance and Quality Committee, an Executive Compensation Committee and a Nominating and Governance Committee. All of the members of these committees will be independent directors under the criteria established by the NYSE or such other exchange upon which the Company’s securities are principally traded. Committee members will be appointed by the Board upon recommendation of the Nominating and Governance Committee with consideration of the desires of individual directors. It is the sense of the Board that consideration should be given to rotating committee members periodically, but the Board does not feel that rotation should be mandated as a policy.
Each committee will have its own charter. The charters will set forth the purposes, goals and responsibilities of the committees as well as procedures for committee member appointment and removal, committee structure and operations and committee reporting to the Board. The charters also will provide that each committee will annually evaluate its performance.
The Chairman of each committee, in consultation with the committee members, will determine the frequency and length of the committee meetings consistent with any requirements set forth in the committee’s charter. The Chairman of each committee, in consultation with the appropriate members of the committee and management, will develop the committee’s agenda.
The Board and each committee have the power to hire independent legal, financial or other advisors as they deem necessary without consulting or obtaining the approval of any officer of the Company in advance.
The Board may, from time to time, establish or maintain additional committees (including temporary or ad hoc committees) as necessary or appropriate.
Director Access to Officers and Employees
Directors have full and free access to officers and employees of the Company. Any meetings or contacts that a director wishes to initiate may be arranged through the chief executive officer or the corporate secretary or directly by the director. The directors will use their judgment to ensure that any such contact is not disruptive to the business operations of the Company and will, to the extent appropriate, copy the chief executive officer on any written communications between a director and an officer or employee of the Company.
The Board generally welcomes regular attendance at each Board meeting of the senior officers of the Company. If the chief executive officer wishes to have additional Company personnel attend on a regular basis, this suggestion should be brought to the Board for approval.
Director Compensation
The form and amount of director compensation will be determined by the Executive Compensation Committee in accordance with the policies and principles set forth in its charter, and the Executive Compensation Committee will conduct an annual review of director compensation. The Executive Compensation Committee will consider that directors’ independence may be jeopardized if director compensation and perquisites exceed customary levels, if the Company makes substantial charitable contributions to organizations with which a director is affiliated, or if the Company enters into consulting contracts with (or provides other indirect forms of compensation to) a director, a member of a director's immediate family, or an organization with which the director or a member of the director's immediate family is affiliated.
Director Orientation and Continuing Education
The Company’s Chairman, Chief Executive Officer, Chief Financial Officer, and Corporate Secretary, with assistance from the Nominating and Corporate Governance Committee, shall be responsible for providing an orientation for new directors and for periodically providing materials and briefings to all directors on subjects that would assist them in discharging their duties. The orientation of new directors shall include visits to key sites and, to the extent not provided at meetings of the Board, briefings by senior management on subjects that would assist them in discharging their duties. All directors are encouraged to participate in accredited director education programs. All other directors also are invited to attend the orientation program.
CEO Evaluation and Management Succession
The Executive Compensation Committee will conduct an annual review of the chief executive officer’s performance as set forth in its charter. The Executive Compensation Committee should solicit input from all directors regarding the performance of the chief executive officer. The Board of Directors will review the Executive Compensation Committee’s report in order to ensure that the chief executive officer is providing the best leadership for the Company in the long-term and short-term.
The Nominating and Governance Committee should make an annual report to the Board on succession planning. The entire Board will work with the Nominating and Governance Committee to nominate and evaluate potential successors to the chief executive officer. The chief executive officer should at all times make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.
Annual Performance Evaluation
The Board of Directors will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Nominating and Governance Committee will receive comments from all directors and report annually to the Board with an assessment of the Board’s performance, the performance of the committees of the Board and each individual director’s performance. This will be discussed with the full Board. The assessment will focus on the Board’s contribution to the Company and specifically focus on areas in which the Board or management believes that the Board could improve.
Stock Ownership Guidelines
Guidelines for Directors
Each non-employee director is required to own shares of the Company’s
common stock valued at three times his or her annual cash retainer. Existing
directors will have four years from June 30, 2008 to attain such level
of ownership. Directors elected or appointed after June 30, 2008 will
have four years from the date of election or appointment to the Board
to attain such level of ownership. The minimum number of shares to be
held by directors will be calculated on June 30 of each calendar year
based on the average of the high and low price of the Company common stock
on the NYSE on that date. In the event that June 30 is not a date on which
the NYSE is open for trading, this calculation will occur on the first
trading day immediately following June 30. Any subsequent change in the
value of the shares will not affect the amount of stock directors should
hold during that year. In the event the annual cash retainer is increased,
the non-employee directors will have four years from the time of increase
to acquire any additional shares needed to meet the stock ownership guidelines.
Guidelines for Executive Officers
Stock ownership guidelines for the Company’s executive officers
are determined as a multiple of the executive’s base salary as follows:
Level |
Multiple of Base
Salary |
Chief Executive Officer |
2.5x |
Chief Financial Officer |
1.5x |
Chief Operating Officer |
1.5x |
Other Executive Officers |
1x |
Existing executive officers will have four years from June 30, 2008 to
attain such level of ownership. Executive officers appointed after June
30, 2008 will have four years from the date of such appointment to attain
such level of ownership. The minimum number of shares to be held by executive
officers will be calculated on June 30 of each calendar year based on
the average of the high and low price of the Company common stock on the
NYSE on that date. In the event that June 30 is not a date on which the
NYSE is open for trading, this calculation will occur on the first trading
day immediately following June 30. Any subsequent change in the value
of the shares will not affect the amount of stock executive officers should
hold during that year. In the event an executive officer’s base
salary is increased, the executive officer will have four years from the
time of increase to acquire any additional shares needed to meet the stock
ownership guidelines. Officers who are subsequently promoted to a higher
office level will have four years from the date of promotion to acquire
any additional shares needed to meet these stock ownership guidelines.
If the applicable guideline is not achieved, the director or executive
officer is required to retain an amount equal to 60% of net shares received
under any equity awards. “Net shares” are those shares that
remain after shares are sold or netted to pay the exercise price of stock
options or to pay applicable withholding taxes upon the exercise of stock
options or the vesting of restricted stock awards.
Stock Ownership
The following may be used in determining stock ownership for purposes
of these guidelines:
- shares owned separately by the executive officer or director or owned
either jointly with, or separately by, his or her immediate family members
residing in the same household;
- shares held in trust for the benefit of the executive officer or
director or his or her immediate family members;
- shares purchased on the open market;
- shares held through the Company’s 401(k) plan, if any;
- shares obtained through stock option exercise; and
- vested shares of restricted stock awards.
Stock ownership does not
include unexercised stock options, stock appreciation rights, or the
non-vested portion of any restricted stock awards or performance units.
There may be circumstances which cause these stock ownership guidelines to place a substantial hardship on a director or executive officer. Such circumstance may apply to the Company as a whole or be particular to an individual director or executive officer. The Board may, at its discretion, waive the stock ownership guidelines if compliance would create a substantial hardship or prevent an executive officer or director from complying with a court order, as in the case of a divorce settlement. In such instances, the Board will make the final decision as to developing an alternative stock ownership guideline for such director or executive officer that reflects the intention of these stock ownership guidelines.
Charters
CHARTER FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF KINDRED HEALTHCARE, INC.
The Committee is appointed to assist the Board of Directors in monitoring (1) the adequacy of the Company’s system of internal controls, accounting policies, financial reporting practices, and the quality and integrity of the Company’s financial reporting; (2) the independent auditor’s qualifications and independence; and (3) the performance of the Company’s internal audit function and independent auditors.
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CHARTER FOR THE COMPLIANCE AND QUALITY COMMITTEE OF THE BOARD OF DIRECTORS OF KINDRED HEALTHCARE, INC.
The Compliance and Quality Committee is appointed to assist the Board of Directors in monitoring (1) the Company’s compliance with applicable laws, regulations, and policies; (2) the Company’s compliance with its Code of Conduct; and (3) the Company’s programs, policies and procedures that support and enhance the quality of care provided by the Company.
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CHARTER FOR THE EXECUTIVE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF KINDRED HEALTHCARE, INC.
The Executive Compensation Committee (the “Committee”) is appointed to fulfill the Board of Directors’ responsibility to the shareholders, potential shareholders, and investment community to ensure that the Company’s key executives, officers and Board members are compensated in accordance with the Company’s overall compensation policies and executive compensation policy. The Committee shall recommend, and approve compensation policies, programs, and pay levels that are necessary to support the Company’s objectives and that are rational and reasonable to the value of the services rendered.
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CHARTER FOR THE NOMINATING AND GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS OF KINDRED HEALTHCARE, INC.
The Nominating and Governance Committee (the “Committee”) is appointed by the Board of Directors: (1) to assist the Board by identifying individuals qualified to become Board members, and to approve the Director nominees for the next annual meeting of shareholders and nominees to fill vacancies on the Board; (2) to recommend to the Board Director nominees and chairperson(s) for each committee; (3) to lead the Board in its annual review of the performance of the Board and senior management; and (4) to recommend to the Board the Corporate Governance Guidelines applicable to the Company.
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