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PROXY STATEMENT

 

This Proxy Statement and the accompanying proxy card are furnished in connection with the solicitation by the Board of Directors (the “Board” or the “Board of Directors”) of Chemed Corporation (the “Company” or “Chemed”) of proxies to be used at the Annual Meeting of Stockholders of the Company to be held virtually via webcast at 11:00 a.m. Eastern Time on May 17, 2021 (the “Annual Meeting”), and any adjournments or postponements thereof.  To attend the virtual Annual Meeting, stockholders must preregister at register.proxypush.com/che.  The Company’s mailing address is Suite 2600, 255 East Fifth Street, Cincinnati, Ohio 45202-4726.  The approximate date on which this Proxy Statement and the enclosed proxy card are first being given or sent to stockholders is April 9, 2021.

 

The Board unanimously recommends that you vote FOR the election of each of the Board’s nominees named on the proxy card accompanying this Proxy Statement.  Please read “How to Vote” for more information on how to vote your proxy.

STOCKHOLDERS ENTITLED TO VOTE

Stockholders as recorded in the Company’s stock register on March 24, 2021, will be entitled to notice of and may vote at the virtual Annual Meeting or any adjournments or postponements thereof.  On such date, the Company had outstanding 15,975,034 shares of capital stock, par value $1 per share (“Capital Stock”), entitled to one vote per share.  The list of stockholders entitled to vote at the meeting will be open to the examination of any stockholder for any purpose relevant to the meeting during normal business hours for 10 days before the meeting at the Company’s office in Cincinnati.  Please understand that we are complying with COVID-19 rules and guidelines promulgated by the state of Ohio.  Stockholders examining the list will need to comply with our COVID-19 protocols for these rules, including that they do not have symptoms of COVID-19 or any recent exposure to it, and that they wear masks and adhere to social distancing requirements.  The list will also be available during the meeting for inspection by stockholders through request made via a link in the virtual meeting room.

 

QUORUM

The Company’s bylaws provide that at all meetings of stockholders, the holders of record, present in person or by proxy, of shares of Capital Stock having a majority of the voting power entitled to vote thereat, is necessary and sufficient to constitute a quorum for the transaction of business.  Abstentions and shares held of record by a broker or its nominee that are voted on any matter are included in determining the number of votes present.  Broker shares that are not voted on any matter at the Annual Meeting will not be included in determining whether a quorum is present.

Your vote is important – we urge you to vote by proxy even if you plan to attend the virtual Annual Meeting.

VOTE REQUIREMENTS

HOW TO VOTE; SUBMITTING YOUR PROXY; REVOKING YOUR PROXY

We urge you to vote by doing one of the following:

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Vote by Mail:  You can vote your shares by mail by completing, signing, dating and returning your proxy card in the postage-paid envelope provided.  In order for your proxy to be validly submitted and for your shares to be voted in accordance with your instructions, we must receive your mailed proxy card by May 14, 2021.

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Vote by Telephone:  You can also vote your shares by calling the number (toll-free in the United States and Canada) indicated on your proxy card at any time and following the recorded instructions.  If you submit your proxy by telephone, then you may submit your voting instructions up until 11:59 p.m. Central Time on May 16, 2021.  If you are a beneficial owner, or you hold your shares in “street name” as described below, please contact your bank, broker or other holder of record to determine whether you will be able to vote by telephone.

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Vote via the Internet:  You can vote your shares via the Internet by going to the Web site address for Internet voting indicated on your proxy card and following the steps outlined on the secure Web site.  If you submit your proxy via the Internet, then you may submit your voting instructions up until 11:59 p.m. Central Time on May 16, 2021.  If you are a beneficial owner, or you hold your shares in “street name”, please contact your bank, broker or other holder of record to determine whether you will be able to vote via the Internet.

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Vote at the Virtual Annual Meeting:  Stockholders, whether of record or beneficial, who have registered to attend the Annual Meeting may vote online while attending the meeting virtually and following the instructions there for stockholder voting.  In order to attend, you must preregister at register.proxypush.com/che, where you will be asked to provide your control number located on your proxy card, notice, or voting instruction card.  Upon completing your registration, you will receive further instructions via email including a unique link that will allow you access to the meeting and will permit you to submit questions.

 

If your shares are not registered in your name but in the “street name” of a bank, broker or other holder of record (a “nominee”), then your name will not appear in the Company’s register of stockholders.  Those shares are held in your nominee’s name, on your behalf, and your nominee will be entitled to vote your shares.  Your nominee is required to vote your shares in accordance with your instructions.  If you do not give instructions to your nominee, your nominee will be entitled to vote your shares with respect to “discretionary” items but will not be permitted to vote your shares with respect to “non-discretionary” items (your shares are treated as “broker non-votes”).

 

As discussed above, due to the ongoing pandemic, and to support the health and well-being of our employees and our stockholders, the Annual Meeting will be held exclusively online, with no option to attend in person.  To attend, you will need to have preregistered for the meeting by visiting register.proxypush.com/che, where you will be asked to provide your control number located on your proxy card, notice, or voting instruction card to be provided a unique link and instructions that will allow you to attend, vote and ask questions during the virtual Annual Meeting.  We encourage stockholders to log into the virtual meeting early, beginning approximately 15 minutes before the scheduled start time.

Only stockholders who have preregistered will be allowed to ask questions.  Questions pertinent to meeting matters will be answered during the meeting as time allows.  If we receive substantially similar written questions, we may group such questions together and provide a single response to avoid repetition.

Additional information regarding the rules and procedures for participating in the virtual Annual Meeting will be provided in our meeting rules of conduct, which stockholders can view during the meeting at the meeting website.

If you have questions or require any assistance with voting your shares, please contact the Board’s proxy solicitor, Innisfree M&A Incorporated:  stockholders toll-free (877) 800-5194; banks and brokers (212) 750-5833.

ELECTION OF DIRECTORS

 

In the election of directors, every stockholder has the right to vote each share of Capital Stock owned by such stockholder on the record date for as many persons as there are directors to be elected.  Ten directors are to be elected at the Annual Meeting to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified in accordance with our bylaws.  Cumulative voting is not permitted.  To be elected in an uncontested election, each director must receive the affirmative vote of the majority of the votes cast at the Annual Meeting.  The number of votes cast “FOR” a nominee’s election must exceed the number of votes cast “AGAINST” his or her election.  Abstentions and broker non-votes shall not be counted as votes cast.

 

As required by the Company’s bylaws, each incumbent director nominee has submitted an irrevocable letter of resignation as director that becomes effective if he or she does not receive the affirmative vote of the majority of the votes cast at the Annual Meeting and the Board of Directors accepts the resignation.  If an incumbent director is not re-elected, the Nominating Committee will consider the director’s resignation and recommend to the Board of Directors the action to be taken with respect to such resignation.  The Board of Directors will decide the action to be taken with respect to such resignation no later than 90 days following the certification of the voting results.  The Company will publicly disclose the Board of Directors’ decision within four business days, providing an explanation of the process by which the Board reached their decision and, if applicable, the reason for not accepting the director’s resignation.  Any director whose resignation is so evaluated and decided upon will not participate in the Nominating Committee’s recommendation or Board of Directors’ action regarding whether to accept the resignation offer.

 

 

NOMINEES

 

Unless otherwise indicated by your proxy card, if you return a validly completed and executed proxy card or vote your proxy card by telephone or via the Internet, your shares will be voted FOR the nominees named below.  The ten nominees named below are current directors standing for re-election who were elected at the Annual Meeting of Stockholders held on May 18, 2020.  As of the date of this Proxy Statement, the Board has no reason to believe that any of the nominees named below will be unable or unwilling to serve.  Each nominee named below has consented to being named in this Proxy Statement and to serve if elected.

 

The following paragraphs provide information as of the date of this proxy statement about each nominee.  As discussed more fully in “Corporate Governance – Committees and Meetings of the Board – Nominating Committee” below, the Board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions.  Candidates shall have substantial experience or shall have achieved a high level of distinction in their fields.  Certain individual qualifications and skills of our nominees that contribute to the Board’s effectiveness as a whole in performing its oversight responsibilities are described below.

 

 

The Board unanimously recommends that you vote FOR the election of each of the above-named nominees.

CORPORATE GOVERNANCE

 

Director Compensation

 

The Company’s compensation program for directors who are not employees of the Company consists of annual cash fees and fully vested stock awards granted pursuant to the Chemed Corporation 2010 Stock Incentive Plan (as amended, supplemented or otherwise modified as of the date hereof, the “2010 Incentive Plan”), the Chemed Corporation 2015 Stock Incentive Plan (as amended, supplemented or otherwise modified as of the date hereof, the “2015 Incentive Plan”) and the Chemed Corporation 2018 Stock Incentive Plan (as amended, supplemented or otherwise modified as of the date hereof, the “2018 Incentive Plan”).  Directors who are not employees of the Company may also participate in the Chemed Corporation Deferred Compensation Plan for Non-Employee Directors (the “Director Deferred Compensation Plan”), which is described below.  Directors who are employees of the Company do not receive cash compensation for their service as directors, and do not receive annual fully vested stock awards for such service.

 

The Board reviews and sets the cash compensation and fully vested stock awards for non-employee directors based on recommendation of the Compensation/Incentive Committee (the “Compensation Committee”).  In making its determination, the Board seeks input from the Compensation Committee’s independent compensation consultant, Compensation Strategies, Inc., as well as certain executive officers of the Company, and considers any such input, including as to the level of compensation necessary to attract and retain qualified directors, among the factors it reviews in setting the amount of compensation.  Director compensation is reviewed annually and from time to time the Board requests and receives input from Compensation Strategies, Inc., in light of current peer group constituency and market data.

 

Each member of the Board of Directors who is not an employee of the Company is paid an annual fee of $65,000, increased from $55,000 on May 18, 2020.  Directors also receive a fee of $3,000 for each Board meeting attended.  Non-employee directors also received annual fully vested stock awards in the amount of approximately $130,000, increased from $85,000 on May 18, 2020.  Mr. Walsh is paid an additional annual fee of $145,000 for his service as Chairman of the Board.  Each member of the Board’s Audit Committee (other than its chairman), Compensation Committee (other than its chairman) and Nominating Committee (other than its chairman) is paid an additional annual fee of $10,000, $7,000 and $7,000, respectively, for his or her service on that Committee.  The chair of the Audit Committee is paid $25,000 per year, the chair of the Compensation Committee is paid $15,000 per year and the chair of the Nominating Committee is paid $10,000.  A Committee member also is paid $1,000 for each Committee meeting attended unless the Committee meeting is on the same day as a meeting of the Board of Directors, in which case Committee members are paid $500 for attendance at the Committee meeting.  Messrs. McNamara and Hutton, who are employees of the Company, do not receive compensation for their service as directors.  Each member of the Board of Directors and of a Committee is additionally reimbursed for continuing education expenses and reasonable travel expenses incurred in connection with attendance at Board and Committee meetings.  No Compensation Committee member received any compensation from the Company other than as a director.

 

In May 2020, Messrs. DeLyons, Gemunder, Grace, Heaney, Rice, Saunders, and Walsh and Ms. Lindell each received approximately $130,000 in the form of a fully vested stock award of 279 shares of Capital Stock.

 

In addition, the Company maintains the Director Deferred Compensation Plan in which directors who are not employees of the Company or of a subsidiary of the Company participate.  Under such plan, which is not a tax-qualified plan, an account is established for each participant to whom amounts are credited quarterly at the rate of $6,000 per year.  These amounts are used to purchase shares of Capital Stock, and all dividends are reinvested in Capital Stock.  Each participant is entitled to receive the balance in his or her account within 90 days following the date he or she ceases to serve as a director.  In 2020, each of Messrs. DeLyons, Gemunder, Grace, Heaney, Rice, Saunders, and Walsh and Ms. Lindell received contributions of $6,000, in each case in his or her respective account in the Director Deferred Compensation Plan.

 

Directors may participate in the Company’s health insurance plans by paying rates offered to former employees under COBRA, and may use available space, on a non-exclusive basis, in the Company’s New York office.

 

 

In 2020, the Company provided the following compensation to directors and directors emeriti for their service to the Company:

 

	Fees Earned
	or Paid in		Stock		All Other
	Cash		Awards		Compensation	Total
Name	($)		($)(b)		($)	($)
Ron DeLyons	58,073		136,134		-	194,207
Joel F. Gemunder	84,667		136,134		-	220,801
Patrick P. Grace	118,167		136,134		-	254,301
Christopher J.Heaney	55,710		136,134		-	191,844
Sandra E. Laney	20,500		136,134		-	156,634
Andrea R. Lindell	86,667		136,134		-	222,801
Thomas P. Rice	92,167		136,134		-	228,301
Donald E. Saunders	93,167		136,134		-	229,301
George J. Walsh III	248,667		136,134		-	384,801
Walter L. Krebs	32,833		-		-	32,833
Frank E. Wood	38,000		-		-	38,000

(a)	The Director Compensation Table excludes executive compensation figures for Messrs. McNamara and Hutton who are employees of the Company.
(b)	Amounts for each of Messrs. DeLyons, Gemunder, Grace, Heaney, Rice, Saunders, Walsh, Ms. Lindell and Ms. Laney include contributions of $6,000 of Capital Stock held in the Chemed Director Deferred Compensation Plan.

 

Directors Emeriti

 

The Board of Directors has a policy of conferring the honorary designation of Director Emeritus upon former directors who made valuable contributions to the Company and whose continued advice is believed to be of value to the Board of Directors.  The designation as Director Emeritus is customarily conferred by the Board on an annual basis but may be conferred at such other times and for such other periods as the Board may determine.  Each Director Emeritus is furnished with a copy of all agendas and other materials furnished to members of the Board of Directors generally, and is invited to attend all meetings of the Board; however, a Director Emeritus is not entitled to vote on any matters presented to the Board.  A Director Emeritus is paid an annual fee of $18,000 and $500 for each meeting attended.

 

Ms. Laney, who served as a director of the Company from 1986-2009, was initially designated a Director Emeritus in May 2009 and has been so designated in each subsequent May.  In 2020, the Company paid Ms. Laney $20,500 in cash fees, $6,000 in Capital Stock deposited to the Director Deferred Compensation Plan, and granted her approximately $130,000 in the form of a fully vested stock award of 279 shares of Capital Stock in her capacity as a Director Emeritus.

 

Majority Voting in Director Elections

 

The Company’s bylaws require a majority voting standard for uncontested elections of directors.  As described above under “Election of Directors,” each director must receive the affirmative vote of the majority of the votes cast to be elected in an uncontested election.  Each incumbent director nominee has submitted an irrevocable letter of resignation as director that becomes effective if he or she does not receive the affirmative vote of the majority of the votes cast in an uncontested election and the Board of Directors accepts the resignation.  In contested elections, each director must receive a plurality of the votes cast.  An election is contested if (a) a stockholder has nominated any person(s) for election to the Board of Directors in compliance with our bylaws or otherwise in accordance with applicable law and (b) such nomination has not been withdrawn on or prior to the fourteenth day prior to the date the Company first mails its notice of meeting.

 

Committees and Meetings of the Board

 

The Company has the following Committees of the Board of Directors: Audit Committee, Compensation Committee and Nominating Committee.

 

Audit Committee   The Audit Committee (a) is directly responsible for the appointment, compensation and oversight of a firm of independent registered accountants to audit the consolidated financial statements of the Company, (b) reviews and reports to the Board of Directors on the Company’s annual financial statements and the independent accountants’ report on such financial statements, (c) meets with the Company’s senior financial officers, internal auditors and independent accountants to review audit plans and work regarding the Company’s accounting, financial reporting and internal control systems and other non-audit services, and (d) confers quarterly with senior management, internal audit staff and the independent accountants to review quarterly financial results.  Each member of the Audit Committee is independent as defined under the listing standards of the New York Stock Exchange.  The Committee conducts an annual self-evaluation that is shared with the Board.  A copy of the Audit Committee Charter is available on the Company’s Web site at ir.chemed.com/corporate-governance/highlights.

 

Compensation Committee   The executive compensation program is administered by the Compensation Committee.  The Compensation Committee makes recommendations to the Board of Directors concerning (a) base salary and annual cash incentive compensation for executives of the Company, (b) establishment of incentive compensation plans and programs generally, (c) adoption and administration of certain employee benefit plans and programs, (d) additional year-end contributions by the Company under the Chemed/Roto-Rooter Savings & Retirement Plan (as amended, supplemented or otherwise modified as of the date hereof, the “Retirement Plan”), and (e) non-employee director compensation.  In addition, the Compensation Committee administers the 2010 Incentive Plan, the 2015 Incentive Plan, and the 2018 Incentive Plan (the “Stock Incentive Plans”), under which it reviews and approves the granting of stock, stock options and performance share units.  The Compensation Committee determines annually whether to retain or terminate any compensation advisor, after considering specific independence factors.  It is directly responsible for the appointment, compensation and oversight of such advisor.  Each member of the Compensation Committee is independent as defined under the listing standards of the New York Stock Exchange.  The Committee conducts an annual self-evaluation that is shared with the Board.  A copy of the Compensation Committee Charter, as revised in 2018, is available on the Company’s Web site at ir.chemed.com/corporate-governance/highlights.

 

Nominating Committee   The Nominating Committee (a) recommends to the Board of Directors the candidates for election to the Board at each Annual Meeting of Stockholders of the Company, (b) recommends to the Board of Directors candidates for election by the Board to fill vacancies on the Board, (c) considers candidates submitted to the Nominating Committee by directors, officers, employees, stockholders and others, and (d) performs such other functions as may be assigned by the Board.  The Nominating Committee Chair leads the annual Board evaluation and the self-evaluation of the Nominating Committee, which is shared with the Board.

 

Procedures Regarding Director Candidates   In identifying and evaluating nominees for director, the Nominating Committee considers candidates with a wide variety of academic backgrounds and professional and business experiences.  After reviewing the candidates’ backgrounds and qualifications, the Nominating Committee personally interviews those candidates it believes merit further consideration.  Once it has completed this process, the Nominating Committee makes its final recommendations to the Board.  Stockholders wishing to submit a candidate for election to the Board should submit the candidate’s name and a supporting statement to the Company’s Secretary at Suite 2600, 255 East Fifth Street, Cincinnati, Ohio 45202-4726.  The Nominating Committee has no formal policy with regard to the consideration of director candidates recommended by stockholders because it believes such recommendations are sufficiently rare that they may be effectively considered on a case-by-case basis.  The Nominating Committee considers diversity in identifying nominees.  It assesses the effectiveness of the Company’s diversity policy every year as part of the nomination process for the annual election of directors by the Company stockholders.  The Committee is committed to including, in the initial list of candidates from which new director nominees are chosen by the Board, candidates with a diversity of race, ethnicity and gender.  Having reviewed the collective background and experience of all nominees, the Board has concluded they provide significant diversity.  Its policy is to select the most appropriate candidates for election.  Board membership should reflect diversity in its broadest sense, including geography, gender, race, experience, professions, skills and backgrounds.  The Nominating Committee does not assign specific weights to particular criteria.  The background and qualifications of all directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that allow the Board to fulfill its responsibilities.  Each member of the Nominating Committee is independent as defined under the listing standards of the New York Stock Exchange.  A copy of the Nominating Committee Charter is available on the Company’s Web site at ir.chemed.com/corporate-governance/highlights.

 

The following table shows the current membership of each committee and the number of meetings held by each committee during 2020:

Board Meetings   The Board of Directors has five scheduled meetings a year, at which it reviews and discusses reports by management on the performance of the Company and its operating subsidiaries, its plans and properties, as well as immediate issues facing the Company.  The Board also meets during its meetings in executive session, without executives or management directors present.  Such sessions are presided over by the Chairman of the Board.

During 2020, there were five meetings of the Board of Directors and one meeting of the Executive Committee.  All directors attended greater than 80% of such meetings and his or her applicable Committee meetings.  While the Company does not have a formal policy with regard to Board members’ attendance at the Annual Meeting of Stockholders, all members of the Board are encouraged to attend.  All members of the Board attended last year’s Annual Meeting of Stockholders held virtually on May 18, 2020.

 

Director Independence   The Board and the Nominating Committee undertake an annual review of director and nominee independence.  They consider transactions and relationships between each director or nominee or any member of such director’s or nominee’s immediate family or any other person sharing such director’s or nominee’s home and the Company and its subsidiaries and affiliates, including those reported under the heading “Transactions With Related Persons” below.  The Board and the Nominating Committee also examine transactions and relationships between directors and nominees and their respective affiliates and members of the Company’s senior management and their affiliates.  The purpose of this review is to determine whether any such relationships or transactions are inconsistent with a determination that the director or nominee is independent under the New York Stock Exchange corporate governance listing standards.

 

As a result of its most recent review, the Board and the Nominating Committee affirmatively determined that, under the New York Stock Exchange listing standards, the following directors and nominees, constituting a majority of the individuals nominated for election as directors at the Annual Meeting, are independent of the Company and its management: Messrs. DeLyons, Gemunder, Grace, Heaney, Rice, Saunders, and Walsh and Ms. Lindell.

 

Risk Oversight   The Board receives periodic reports from management on matters involving risk exposures such as regulatory changes, material litigation, cybersecurity, and recommended policy revisions.

 

Management maintains a formal Enterprise Risk Management (“ERM”) program that monitors management’s actions in response to the key risks facing the Company.  The Audit Committee reviews various aspects of the ERM program periodically throughout the year.  It oversees our risk identification and mitigation process.  It reviews material financial risk exposures including regulatory matters, acquisitions, cybersecurity, economic conditions and interest rate exposures.  Members of our management, including our Chief Financial Officer, Chief Legal Officer, Vitas Compliance Officer, and our Director of Internal Audit, report to the Audit Committee regarding on-going risk management process activities.  The Audit Committee also reviews legal matters that may have a material impact on the Company’s financial statements.  These Audit Committee reviews are conducted on at least an annual basis, or more frequently if a significant risk exposure matter develops.

 

While the Board has responsibility for the Company’s risk oversight, management is responsible for day-to-day risk management processes.  We believe this division of responsibilities most effectively addresses the risks we face and that our Board leadership structure supports this approach.

 

Compensation Risk   Management has reviewed the compensation policies and practices for our employees and has concluded that they do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

The Compensation Committee oversees our risks related to compensation programs and philosophy.  It ensures our compensation programs do not encourage excessive risk taking.  Determining incentive awards based on a variety of performance metrics diversifies the risk associated with any one performance indicator.  The mix of fixed and variable, annual and long-term, and cash and equity compensation is also designed to encourage actions in the Company’s long-term best interests.  The Committee works periodically with our independent compensation consultant to ensure our executive compensation plans are appropriately balanced and incentivize management to act in the best interests of our stockholders.

 

As described in more detail below under “Compensation Discussion and Analysis”, long-term compensation programs for our named executive officers have been structured such that long-term compensation is linked to our long-term relative and absolute performance.  This model of linking long-term compensation to our performance applies not only to our named executive officers, but has also been applied to other senior corporate personnel.  We believe that our compensation plans reflect sound risk management practices and do not encourage excessive or inappropriate risk taking.

 

Compensation Committee Interlocks and Insider Participation   The Compensation Committee is currently comprised of Messrs. Walsh and Heaney and Ms. Lindell.  No member of the Compensation Committee has any direct or indirect material interest in or relationship with the Company, other than holdings of Capital Stock as set forth under the heading “Security Ownership of Certain Beneficial Owners and Management” below and as related to his or her position as a director.  During 2020, no executive officer of the Company served on the compensation committee of any other entity where an executive officer of such entity also served on the Board of Directors, and no executive officer of the Company served on the board of directors of any other entity where an executive officer of such entity also served on the Compensation Committee.

 

Board Leadership Structure   The Board has separated the functions of Chief Executive Officer and Chairman of the Board.  Mr. Walsh currently serves as Chairman.  The Board believes this separation of function promotes independence and enhances corporate governance.

 

Related Person Policies and Procedures   The Audit Committee reviews all material transactions with related persons as identified by management.  In February 2007, the Audit Committee adopted a written policy and set of procedures for reviewing transactions between the Company and related persons, who include directors, nominees, executive officers and any person known to be the beneficial owner of more than 5% of the Company’s voting securities (each, a “related person”), any immediate family member of a related person and any person sharing the household of a related person.  The policy also covers any firm, corporation or other entity in which any related person is employed or is a partner or principal, or in which such related person has a 5% or greater beneficial ownership interest.  Prior to entering into a transaction with a related person, notice must be given to the Secretary of the Company containing (a) the related person’s relationship to the Company and interest in the transaction, (b) the material facts of the transaction, (c) the benefits to the Company of the transaction, (d) the availability of any other sources of comparable products or services, and (e) an assessment of whether the transaction is on terms comparable to those available to an unrelated third party.  If the Company’s Secretary and Chief Financial Officer determine that it is a related party transaction exceeding $100,000, the proposed transaction is submitted to the Audit Committee for its approval.  The policy also provides for the quarterly review of related person transactions which have not previously been approved or ratified and any other such transactions which come to the attention of the Company’s Chief Executive Officer, Chief Financial Officer, Controller or Secretary.  If the transaction is pending or ongoing, it will be promptly submitted to the Audit Committee for approval.  If the transaction is completed, it will be submitted to the Audit Committee to determine if ratification or rescission is appropriate.  This policy also covers charitable contributions or pledges by the Company to non-profit organizations identified with a related person.

 

Code of Ethics   The Board of Directors has adopted Corporate Governance Principles and Policies on Business Ethics, which, along with the charters of the Audit, Compensation and Nominating Committees, are available on the Company’s Web site under Corporate Governance — Governance Documents (www.chemed.com).  Printed copies may be obtained from the Company’s Secretary at Suite 2600, 255 East Fifth Street, Cincinnati, Ohio 45202-4726.

 

Stockholder Communications   Stockholders and others wishing to communicate with members of the Board should mail such communications to the Company’s Secretary at Suite 2600, 255 East Fifth Street, Cincinnati, Ohio 45202-4726.  The Secretary will forward these communications to the Board and, if applicable, to specified individual directors.

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis explains the material elements of the compensation of the Company’s named executive officers.  The Company’s named executive officers for 2020 are Kevin J. McNamara, President and Chief Executive Officer; David P. Williams, Executive Vice President and Chief Financial Officer; Nicholas M. Westfall, Executive Vice President; Spencer S. Lee, Executive Vice President; and Michael D. Witzeman, Vice President and Controller.

 

Consideration of the 2020 Say On Pay Vote

 

Following our 2020 Annual Meeting of Stockholders, the Compensation Committee and the Board of Directors reviewed the results of the non-binding stockholder advisory vote on our executive compensation (“2020 Say On Pay Vote”).  Stockholders voted in favor of Say On Pay, with 95.76% positive votes, 4.02% negative votes and .22% abstentions (percentages rounded to nearest hundredth of a percent).  Based on the strong favorable vote and with input solicited from Company stockholders, the Compensation Committee and Board maintained its executive compensation policies and practices, that include the following changes from earlier practices (abbreviated terms are defined below):

 

●	Replacement of the previous annual incentive program, which was based on a multiple of historical growth rates in Adjusted EPS applied to prior year actual payouts, with a target bonus plan based on achieving goals related to Adjusted EPS and Return on Assets;

●	Replacement of the previous long-term incentive plan with performance share units subject to performance-based vesting related to a cumulative three-year Adjusted EPS target and a three-year relative TSR performance metric;

●	A policy that stock incentive compensation is subject to a “double trigger” in the event of a change in control of the Company.  New incentives vest only upon employment termination without good cause or for good reason after a change in control; and

●

A clawback policy such that the Compensation Committee will review all performance-based compensation awarded to, or earned by, certain officers during the three-year period prior to any restatement of the Company’s financial results.  If the Compensation Committee determines such compensation would have been lower had it been calculated based on the restated financial statement, the Compensation Committee may seek to recover the excess amount.

●	Additionally, in 2018, the Board of Directors amended The Senior Executive Severance Policy and the Change in Control Plan to limit any gross-up payments payable under the plans to the then-existing participants in the plans.

 

Overview of Compensation Program

 

The executive compensation program is administered by the Compensation Committee.  The membership of the Compensation Committee is comprised of three independent directors.  The Compensation Committee is responsible for the review, approval and recommendation to the Board of Directors of matters concerning (a) base salary and annual cash incentive compensation for executives of the Company, (b) establishment of incentive compensation plans and programs generally, (c) adoption and administration of certain employee benefit plans and programs, and (d) additional year-end contributions by the Company under the Retirement Plan.  The recommendations of the Compensation Committee on such matters must be approved by the non-employee members of the Board of Directors.  The employee members of the Board of Directors are not present when compensation recommendations are presented to the Board of Directors and discussed, and such members do not vote on compensation issues.  The Compensation Committee also administers the Stock Incentive Plans.  Under authority granted it by those plans, it reviews and approves the granting of stock options and performance share units.  The Compensation Committee also annually determines whether to retain or terminate the services of independent compensation consultants to assist and advise it in administering the executive compensation program after considering certain independence factors.  Currently, Compensation Strategies, Inc., an independent compensation advisory firm, has been retained by, and reports directly and exclusively to, the Compensation Committee.  The scope of these consulting services is limited to (a) advising the Compensation Committee regarding executive compensation, (b) performing studies of general market and peer group compensation levels, and (c) advising the Board on director compensation, all upon request of the Compensation Committee.  Compensation Strategies, Inc. does no other work for the Company outside of providing these compensation advisory services.

 

How Compensation Decisions Are Made

 

Generally, in February of each year, certain senior executives of the Company, including the Chief Executive Officer, prepare recommendations for annual cash incentives to be made to Company employees, based on the performance of the Company and its subsidiaries during the past year.  The Compensation Committee traditionally granted stock option awards in November, to more fully reflect the Company’s financial and stock price performances during that year.  Beginning in 2019, the Compensation Committee began granting stock option awards on the day of the release of the Company’s third quarter earnings results.  The recommendations made by the Chief Executive Officer and other senior executives to the Compensation Committee, which include detailed memoranda and tally sheets, take into consideration historical compensation, including base salaries, annual incentive compensation and long-term equity awards, performance of the Company as a whole, both on an absolute basis and relative to its peer group, and performance of the individual business unit for which the employee is responsible, if applicable.  The Compensation Committee then meets to determine the long-term equity awards for each executive and to review and consider the recommendations prepared by the Company’s senior executives in order to determine the amount of incentives for each executive.  In finalizing their grants of stock option awards, the Compensation Committee considers the recommendation of the senior executives and the factors presented by them listed above, the compensation of the Company’s senior executives compared to its peer group and other industry data, the overall mix of compensation for senior executives (as a whole and individually), and the performance of the Company and its business units for the current year.  Because stock options are granted after a considerable amount of the year has elapsed and after base salary and performance share units have been granted, option grants may increase or decrease materially in order to help reflect management’s or any member of management’s performance during the year, in the context of the entire executive compensation program.  Additionally, the Black-Scholes valuation model used to value stock options granted is highly dependent on the Company’s stock price.  Significant variation in the stock price can lead to significant changes in the ascribed value of the grant date fair value of option awards.  The Compensation Committee makes compensation recommendations to the non-employee members of the Board of Directors regarding the compensation of the Chief Executive Officer without the input of any Company employees.  The Compensation Committee can modify any recommendations of the Company’s senior executives.

 

Base salaries of executives are periodically reviewed by the Compensation Committee and approved by the non-employee members of the Board of Directors.  As a component of the review and approval process, the Compensation Committee and the non-employee members of the Board consider the recommendations of the Chief Executive Officer and certain senior executives of the Company as to the base salaries of Company executives, other than the Chief Executive Officer.  The Chief Executive Officer’s base salary is reviewed and determined without the input of Company employees.  In determining recommended base salaries for the Company’s executives, as more fully discussed under “Base Salaries” below, the Compensation Committee also considers each executive’s then-current base salary and their individual performance.

 

The Compensation Committee directly grants compensation under the Stock Incentive Plans.

 

Role of Executive Officers

 

The Chief Executive Officer and certain other senior executives of the Company provide recommendations to the Compensation Committee concerning compensation of Company executives, other than the Chief Executive Officer.  Additionally, as part of its process, the Compensation Committee meets with the Chief Executive Officer to obtain input with respect to compensation decisions, including the performance of the Company’s senior executives other than the Chief Executive Officer.  In addition to meeting with the Chief Executive Officer, the Compensation Committee meets in executive session without any Company employees present.

 

Objectives of Compensation Program

 

The Company’s executive compensation program is intended to achieve the objectives of aligning executives’ interests with those of its stockholders by (i) rewarding the executives for long-term growth in the value of the Capital Stock and encouraging them to hold a significant amount of the Company’s equity; (ii) paying for performance through both cash and equity-based incentives that, in turn, provide greater rewards for stronger performance of the Company as a whole and the Company’s business units; (iii) paying competitively in order to attract and retain senior executives; and (iv) creating incentive to maximize the long-term growth of the Company’s business.  To achieve these objectives, the elements of executive compensation are designed to reward past performance and establish incentive for future growth.

 

Elements of Compensation

 

The elements of the Company’s executive compensation program are: base salary, annual cash incentive compensation and long-term incentive compensation in the forms of stock option awards, restricted share awards, performance share units, and certain perquisites.  Components of compensation that are available generally to all Company employees, including the Company’s named executive officers, are defined contribution plans and welfare benefit plans (including life insurance, health insurance, dental insurance and long-term disability benefits).  In addition, the Chemed Corporation Excess Benefit Plan (as amended, supplemented or otherwise modified as of the date hereof, the “Excess Benefit Plan”), the Chemed Corporation Long Term Care Insurance Plan, the Chemed Corporation Supplemental Pension and Life Insurance Plan (as amended, supplemented or otherwise modified as of the date hereof, the “Supplemental Pension Plan”), and the Roto-Rooter Deferred Compensation Plan (as amended, supplemented or otherwise modified as of the date hereof, the “Deferred Compensation Plan”) are available as components of compensation to executives and other highly compensated individuals.  Base salary, annual cash incentive compensation and pension and welfare benefit plans are established by the non-employee members of the Board based on the levels that the Compensation Committee and such Board members determine are competitive and are intended to reward executives for current and past performance, while longer-term incentives, such as stock option awards and performance share unit awards are intended to create incentive for future growth.  The Company’s executive compensation program also offers perquisites commonly available to senior executives.

 

Executive Compensation Consultant

 

The Compensation Committee’s charter grants it sole authority regarding the appointment, compensation and oversight of the Company’s executive compensation consultant.  The Compensation Committee retained Compensation Strategies, Inc., after considering specific independence factors, as its consultant to assist the Compensation Committee with its responsibilities related to the Company’s compensation program for its executives and Board of Directors.  During 2013, Compensation Strategies, Inc. advised the Compensation Committee and assisted in the development of the Company’s revised management compensation program.  The consultant was instrumental in (i) establishing a new peer group against which to benchmark executive compensation, (ii) developing annual incentive compensation target goals and target bonus percentages by executive, (iii) setting Adjusted EPS and Return on Assets payout percentages by performance level, (iv) establishing  three-year goals for Adjusted EPS CAGR and relative TSR performance share units, and (v) implementing the Company’s clawback provision and “double trigger” regarding incentives in the event of a change in control of the Company.  On a periodic basis, the Company’s executive compensation consultant provides the Compensation Committee with a review of executive compensation.  The most recent review, in 2019, included base salary, annual bonus, and long-term incentives for 12 individuals and the Chief Executive Officer.

The Compensation Committee assessed the independence factors set forth in applicable SEC rules and other facts and circumstances in February 2021 and concluded that the services performed by Compensation Strategies, Inc. did not raise any conflicts of interest.

 

Peer Group

 

In conjunction with its review of the management compensation program, and in consultation with Compensation Strategies, Inc., the Compensation Committee reviewed the peer group used to benchmark executive compensation.  Based on changes to our previous Peer Group and increases in the Company’s annual revenues and market capitalization, the Compensation Committee selected a new Peer Group.  The new Peer Group, adopted in early 2020, is as follows:

 

ABM Industries, Inc.	MEDNAX, Inc.
Acadia Healthcare Co., Inc.	National HealthCare Corp
Amedisys, Inc.	RadNet, Inc.
Brookdale Senior Living, Inc.	Rollins, Inc.
Clean Harbors, Inc.	Select Medical Holdings Corp.
Comfort Systems USA, Inc.	ServiceMaster Global Holdings, Inc.
Covanta Holding Corp.	Stericycle, Inc.
Encompass Health Corp	Team, Inc.
Hanger, Inc.	Tetra Tech, Inc.
Healthcare Services Group, Inc.	The Ensign Group, Inc.
LHC Group, Inc.	Tivity Health, Inc.

The Compensation Committee will track the Company’s relative TSR performance against the new Peer Group going forward including for performance share units granted in 2021.  With respect to performance stock units that were granted prior to 2020, the determination of relative TSR performance will be made against our previous Peer Group.

 

Amount of Each Element of Compensation; Decisions Concerning Payments

 

The Compensation Committee intends compensation to be linked directly to personal performance and to the Company’s overall results, as well as to the results of the specific business units for which executives are responsible.  The Company’s executive compensation program is focused on rewarding superior operating performance and long-term growth.

 

The Compensation Committee meets as often as necessary in order to carry out its duties.  In 2020, the Compensation Committee met three times and approved one matter in writing without a meeting.  The Compensation Committee periodically reviews each executive’s total compensation, including base salary, annual cash incentive compensation, stock option awards, restricted stock awards and stock performance unit awards, and perquisites and defined contribution plan holdings (including the amounts contributed to such plans by the Company), as well as such executive’s Capital Stock holdings, in recommending or setting, as applicable, each element of compensation.  The Compensation Committee balances the types of compensation for each executive between fixed compensation and performance-based compensation in such a way that less robust Company performance will result in a lower total compensation to the executive.  Additionally, because the Compensation Committee grants stock options later in the year than its decision on other compensation, it can take into account the overall mix of compensation for each senior executive based on the Company’s results for the current year, and issue options to appropriately balance the senior executives’ compensation.  Accordingly, grants of stock options often may vary more significantly from year to year, at times materially.  For 2020, about 77.4 percent of Mr. McNamara’s total compensation was performance-based, while the weighted average for the other named executive officers was about 73.6 percent.  “Performance-based” compensation includes non equity incentive awards, option awards and performance share units.

 

Base Salaries

 

In determining the base salaries it recommends to the non-employee members of the Board, the Compensation Committee considers recommendations by certain senior executives of the Company, except with respect to the Chief Executive Officer, for whom the Compensation Committee makes its determination without the input of Company employees.  In so doing, it considers each executive’s then-current base salary and evaluates the responsibilities held by each executive, current economic conditions, and his or her experience and performance.  Additionally, Compensation Strategies, Inc. reviews base salaries and provides advice to the Compensation Committee.  Positions are compared on the basis of job content and responsibility level to similar positions.  The Compensation Committee recommends base salaries at levels it believes will attract and retain qualified executives.  It believes that the base salaries as finally determined for each of the named executive officers were appropriate and competitive with salaries paid for similar positions by companies in the Peer Group referred to above and the Company’s industries.  Effective May 1, 2020, the Compensation Committee recommended base salary increases to Mr. McNamara, Mr. Williams, Mr. Witzeman, and Mr. Lee in respective percentages of 8.0%, 8.0%, 8.0% and 4.6%, respectively.  The Compensation Committee recommended Mr. Westfall receive a base salary increase of 7.0% effective June 1, 2020.

 

Annual Non Equity Incentive Compensation

 

Amounts of annual non equity incentive compensation are recommended by the Compensation Committee to the non-employee members of the Board.  The Company’s operating results as compared with historical results were previously the primary considerations in determining annual incentive compensation.  For the past seven years, in response to stockholder input and feedback from institutional proxy advisory firms, the Compensation Committee adopted a target bonus program based on achieving goals related to Adjusted EPS and Return on Assets.

 

The Company provides its named executive officers, other officers, and other key management employees an opportunity to earn an annual incentive award based on the Company’s, and its operating divisions’, financial performance each year.  Adjusted EPS targets and Return on Assets targets are used to determine incentive compensation for senior executives of the Company, including the Chief Executive Officer.  The Compensation Committee believes Adjusted EPS and Return on Assets are the most appropriate measurements of financial performance on an annual basis.  They are among the most well-known measures of overall financial performance, widely used by both financial analysts and the investing public.  The Compensation Committee believes using these measurements best aligns the interests of non equity incentive plan participants with those of the Company’s stockholders.  In March 2018, the Committee evaluated and revised the non equity compensation incentive target percentages to better align compensation with performance.

 

The detailed calculation of annual incentive compensation based on 2020 performance versus targets for the named executive officers is shown in the following narrative and tables.

 

 

The following table shows each named executive officer’s target non equity incentive compensation percentage as a percentage of base salary.

 

K. J. McNamara			125	%
D. P. Williams			105
N. M. Westfall			105
S. S. Lee			105
M. D. Witzeman			75

 

The Adjusted EPS target is weighted 75% of total non equity incentive compensation opportunity, and the Return On Assets target weighted 25% of total non equity incentive compensation opportunity.  Performance above target(s) results in incentive compensation greater than the target percentage of salary; performance below target(s) results in non equity incentive compensation lower than the target percentage of base salary.  The target multipliers are highly leveraged both above and below target performance.  The maximum multiplier of 200% is achieved at Adjusted EPS at 14% over target and the minimum multiplier of 0% is effective at Adjusted EPS 20% below target; for Return On Assets, the maximum multiplier of 200% is achieved at Return On Assets of 140% of target and the minimum multiplier of 0% is effective at Return On Assets of 60% of target.

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	3-Year Adjusted EPS CAGR	Percentage of Target Shares
Maximum	11%	200.0%
Target	7%	100.0%
Minimum	3%	0.0%

	3-Year TSR Percentile	Percentage of Target Shares
Maximum	Greater than 90th	200.0%
	75th	150.0%
	60th	125.0%
Target	50th	100.0%
	40th	75.0%
	25th	50.0%
Minimum	Less than 25th	0.0%

a)

termination of employment by the Company without cause; or

b)

termination of employment by the employee within 90 days of an event giving him or her good reason to so terminate.