UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant þ
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Check the appropriate box:
| o | Preliminary Proxy Statement | |||||||
| o | Confidential, For Use of the Commission only (as permitted by Rule 14a- 6(e)(2)) | |||||||
| þ | Definitive Proxy Statement | |||||||
| o | Definitive Additional Materials | |||||||
| o | Soliciting Material Pursuant to §240.14a-2 | |||||||
(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):
| þ | No fee required | |||||||
| o | Fee paid previously with preliminary materials. | |||||||
| o | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||||||
THE PENNANT GROUP, INC.
1675 E. Riverside Drive, Suite 150
Eagle, Idaho 83616
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2024
| Meeting Information | How to Vote in Advance | |||||||||||||||||||
| When | Thursday, May 23, 2024 at 8:30 a.m. MDT | By Phone | You can vote your shares by calling 800-690-6903 | |||||||||||||||||
| Where | Capitol Hill Assisted Living & Memory Care 76 S. 500 E. Salt Lake City, UT 84102 | By Internet | You can vote your shares online at www.proxyvote.com | |||||||||||||||||
| Who Can Vote | Only owners of record of the Company's issued and outstanding common stock as of the close of business on April 1, 2024. Each share of common stock is entitled to one vote. | By Mail | Complete, sign, date and return your proxy card or voting instruction form in the postage-paid envelope provided | |||||||||||||||||
| Date of Mailing | We intend to mail a Notice of Internet Availability of Proxy Materials on or about April 11, 2024. | IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 2024 Pennant’s Proxy Statement for the 2024 Annual Meeting of Stockholders (the “Proxy Statement”) and 2023 Annual Report on Form 10-K (the “2023 Form 10-K”) are available at www.proxyvote.com. | ||||||||||||||||||
| Your vote is important. Please vote as soon as possible by one of the methods shown above. Be sure to have your proxy card, voting instruction form or notice of Internet availability in hand and follow the instructions above. | ||||||||||||||||||||
| Proposals | Board Recommendations | Page | ||||||||||||
| 1 | Election of three nominees named in the proxy statement to serve on Pennant’s Board of Directors | ü | FOR each nominee | |||||||||||
| 2 | Ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for 2024. | ü | FOR | |||||||||||
| 3 | Advisory approval of the Company's named executive officer compensation | ü | FOR | |||||||||||
| We will also address any other business which may properly come before the annual meeting or any adjournment or postponement. Following the formal meeting, management will speak on our developments of the past year and respond to questions of general interest to stockholders. | ||||||||||||||
In accordance with rules and regulations adopted by the Securities and Exchange Commission, we have elected to furnish our proxy materials to stockholders by providing access to the materials on the internet. Accordingly, a Notice of Internet Availability of Proxy Materials (the Internet Availability Notice) has been mailed to the majority of our stockholders, while other stockholders have instead received paper copies of the documents accessible on the internet. It is important that your shares be represented and voted whether or not you plan to attend the annual meeting in person. If you are the registered holder of your shares and are viewing the proxy statement on the internet, you may grant your proxy electronically via the internet by following the instructions on the Internet Availability Notice previously mailed to you and the instructions listed on the internet site. If you are receiving a paper copy of the proxy statement, you may grant your proxy by completing and mailing the proxy card enclosed with the proxy statement, or you may grant your proxy electronically via the internet or by telephone by following the instructions on the proxy card. If your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should review the notice or voting instruction form you receive from that firm to determine whether and how you will be able to provide voting instructions or submit your proxy by telephone or over the internet. Submitting a proxy over the internet, by telephone or by mailing a proxy card will ensure your shares are represented at the annual meeting.
THE PENNANT GROUP, INC.
BY ORDER OF THE BOARD OF DIRECTORS
BARRY M. SMITH
CHAIRMAN OF THE BOARD OF DIRECTORS
Eagle, Idaho
Dated: April 11, 2024
| TABLE OF CONTENTS | |||||
| Proxy Statement | |||||
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THE PENNANT GROUP, INC.
1675 E. Riverside Drive, Suite 150
Eagle, Idaho 83616
Proxy Statement
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board of Directors” or the “Board”) of The Pennant Group, Inc., a Delaware corporation, for use at the Annual Meeting of Stockholders. When used in this Proxy Statement, the terms “we,” “us,” “our,” or the “Company” refer to The Pennant Group, Inc. and its independent operating subsidiaries. The Pennant Group, Inc. is a holding company and each of its independent operating subsidiaries is operated by its own management, employees and assets. The use of “we,” “us,” “our” and similar words in this Proxy Statement is not meant to imply that any or all of these independent operating subsidiaries are operated by the same entity or that The Pennant Group, Inc. operates any of the businesses conducted by its subsidiaries.
This summary highlights information contained elsewhere in this proxy statement and does not contain all of the information that you should consider. You should read the entire proxy statement carefully before voting.
| Our Annual Meeting | ||||||||||||||||||||
| Date and Time | May 23, 2024 at 8:30 a.m. MDT | Record Date | April 1, 2024 | |||||||||||||||||
| Place | Capitol Hill Assisted Living & Memory Care 76 S. 500 E. Salt Lake City, UT 84102 | Number of Shares Outstanding as of Record Date | 30,391,152 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) | |||||||||||||||||
| Who Can Vote | Only owners of record of the Company’s issued and outstanding common stock as of the close of business on April 1, 2024. Each share of common stock is entitled to one vote. The Common Stock will vote as a single class with respect to all matters submitted to a vote of the stockholders at the Annual Meeting. | |||||||||||||||||||
Any stockholder who executes and delivers a proxy has the right to revoke it at any time before it is exercised by delivering to the Secretary of the Company an instrument revoking it or a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. Subject to revocation, the proxy holders will vote all shares represented by a properly executed proxy received in time for the Annual Meeting in accordance with the instructions on the proxy. If no instruction is specified with respect to a matter to be acted upon, the shares represented by the proxy will be voted in accordance with the recommendation of the Board of Directors.
The expenses of preparing, assembling, printing and mailing the Internet Availability Notice, this Proxy Statement and the materials used in the solicitation of proxies will be borne by the Company. Proxies will be solicited through the internet and the mail and may be solicited by our officers, directors and employees in person, by telephone, or email. They will not receive additional compensation for this effort. We do not anticipate paying any compensation to any other party for the solicitation of proxies, but may reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation material to beneficial owners. The Company may retain the services of a proxy solicitation firm if, in the Board’s view, it is deemed necessary or advisable.
At the Annual Meeting, the stockholders of the Company will be asked to vote on the three proposals below. Your vote is very important. Accordingly, whether or not you plan to attend the Annual Meeting in person, you should complete your proxy card by using one of the methods described in these proxy materials. You may vote your shares at the Annual Meeting by attending and voting in person, by completing your proxy card via the internet or by telephone as described in these proxy materials, or by having your shares represented at the Annual Meeting by a valid proxy. If your shares are not registered directly in your name (e.g., you hold your shares in a stock brokerage account or through a bank or other holder of record), you may provide voting instructions or submit your proxy by following the instructions detailed in the notice or voting instruction form you receive from your broker or other nominee.
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Voting Choices and Recommendations of the Board
With respect to Proposal 1 (Election of Directors) you will have the choice to vote “FOR,” “AGAINST” or “ABSTAIN” with respect to each nominee. With respect to Proposals 2 and 3, you will have the choice to vote “FOR,” “AGAINST” or “ABSTAIN.” The Board recommends stockholders vote as follows:
| Proposal | Board Recommendation | |||||||
| 1 | “FOR” the election of each of the three directors nominated by the Board, each for a three-year term expiring at the 2027 annual meeting of stockholders | |||||||
| 2 | “FOR” ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) as independent registered public accounting firm for 2024 | |||||||
| 3 | “FOR” advisory approval of our named executive officer compensation | |||||||
Quorum Requirements
In order to constitute a quorum for the conduct of business at the Annual Meeting, a majority of the issued and outstanding shares of the Common Stock entitled to vote at the Annual Meeting must be represented, either in person or by proxy, at the Annual Meeting. Under Delaware law, shares represented by proxies that reflect abstentions or broker non-votes will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. A “broker non-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.
Vote Required to Approve Proposals
The following table summarizes the votes required for passage of each proposal and the effect of abstentions and broker non-votes.
| Proposal | Vote Required for Approval | Effect of Abstentions | Effect of Broker Non-Votes | |||||||||||
Proposal 1. Election of director nominees | Majority of votes cast with respect to each director | No effect | No effect | |||||||||||
Proposal 2. Approval of Independent Accounting Firm | Majority of voting power present and entitled to vote at the meeting | Against | No effect | |||||||||||
Proposal 3. Advisory Vote to Approve Named Executive Officer Compensation (“Say-on-Pay”) | Majority of voting power present and entitled to vote at the meeting | Against | No effect | |||||||||||
Unless instructed to the contrary, the shares represented by proxies will be voted FOR the election of the Class II director nominees, FOR the approval of Deloitte & Touche LLP as the Company’s independent accounting firm, and FOR advisory approval of our named executive officer compensation.
Additional Information Regarding the Internet Availability of Our Proxy Materials
We will furnish proxy materials over the internet. Accordingly, we sent to the majority of our stockholders an Internet Availability Notice regarding the internet availability of the proxy materials for this year’s annual meeting. Other stockholders were instead sent paper copies of the proxy materials accessible on the internet. Instructions on how to access the proxy materials over the internet or to request a paper copy can be found in the Internet Availability Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by going to www.proxyvote.com and following the instructions. A stockholder’s election to receive proxy materials by mail or e-mail will remain in effect until the stockholder terminates or changes such election.
Please note that you cannot vote your shares by filling out and returning the Internet Availability Notice. The Internet Availability Notice does, however, include instructions on how to vote your shares.
If your shares are registered directly in your name with our transfer agent, you are considered, with respect to those shares, the “stockholder of record.” In that case, either the Internet Availability Notice or the Notice of Annual Meeting, this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 have each been sent directly to you.
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in street name. In such case, either a notice similar to the Internet Availability Notice or the Notice of Annual Meeting, this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 will be provided (or otherwise made available) to you by your broker, bank or other holder of record who is considered, with
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respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record on how to vote your shares by following their instructions for voting.
Attending the Annual Meeting
Only stockholders as of the record date, or their duly appointed proxies, and invited guests of the Company may attend the Annual Meeting. Admission to the Annual Meeting will begin at approximately 8:00 a.m. Mountain Time. In order to be admitted to the Annual Meeting, you should:
•bring current, government-issued photo identification, such as a driver’s license, and proof of ownership of common stock on the record date. If you are a holder of record, your identity will be checked against a list of registered holders at the Annual Meeting. If you hold your shares in street name, a recent brokerage statement or a letter from your bank, broker, trustee, or other nominee are examples of proof of ownership. If you want to vote your shares held in street name in person, you must obtain a legal proxy in your name from the broker, bank, trustee, or other nominee that holds your shares of common stock;
•leave your camera at home because cameras, transmission, broadcasting, and other recording devices will not be permitted to be used in the meeting room;
•be prepared to comply with security requirements, which may include, among other security measures, security guards searching all bags and attendees passing through a metal detector; and
•arrive shortly after 8:00 a.m. Mountain Time to ensure that you are seated by the start of the Annual Meeting at 8:30 a.m. Mountain Time.
Any holder of a proxy from a stockholder must present a properly executed legal proxy and a copy of the proof of ownership. If you do not provide photo identification and comply with the other procedures outlined above for attending the Annual Meeting in person, you will not be admitted to the Annual Meeting.
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| PROPOSAL 1: ELECTION OF THREE DIRECTORS | ||||||||||||||
| ü | OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE ELECTION OF THE CLASS II DIRECTOR NOMINEES LISTED BELOW. | |||||||||||||
On the recommendation of the Nominating and Corporate Governance Committee of our Board of Directors, our Board of Directors, including its independent directors, selected and approved Mr. Scott E. Lamb, Dr. Gregory K. Morris, MD, and Mr. Barry M. Smith as nominees for election as Class II directors, the class being elected at the Annual Meeting, each to serve for a term of three years, expiring at the annual meeting of the stockholders to be held following the 2026 fiscal year or until his or her successor is duly appointed or elected and qualified or until his or her earlier death, resignation or removal. We are not aware of any arrangements or understandings between the director nominees and any other person pursuant to which such persons were selected as a director nominee. Each of the Class II directors qualifies as an independent director.
Mr. Lamb, Dr. Morris, and Mr. Smith currently serve as members of our Board of Directors and have agreed to serve if elected. In the event the nominees named herein are unable to serve or decline to serve at the time of the Annual Meeting, the persons named in the enclosed proxy will exercise discretionary authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees. The proxy cannot be voted for a greater number of persons than three.
| Committee Membership | ||||||||||||||||||||||||||
| Name | Age | Director Since | Board of Directors | Audit Committee | QAC Committee | NCG Committee | Compensation Committee | |||||||||||||||||||
| Scott E. Lamb | 61 | 2019 | ü | ü | ü | |||||||||||||||||||||
| Gregory K. Morris, MD | 69 | 2022 | ü | ü | ü | |||||||||||||||||||||
| Barry M. Smith | 70 | 2021 | ü | ü | ||||||||||||||||||||||
Our Board of Directors unanimously recommends that the stockholders vote FOR each of the Class II director nominees listed above.
Background information regarding the nominees and all other directors as of April 1, 2024, including some of the attributes that led to their selection, appears below. In addition, the Board believes that the experience, attributes, and skills of any single director nominee should not be viewed in isolation, but rather in the context of the experience, attributes, and skills that all director nominees bring to the Board as a whole, each of which contributes to the function of an effective Board.
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| BOARD COMPOSITION | ||||||||||||||
General
Our Amended and Restated Certificate of Incorporation (our “Certificate of Incorporation”) provides for a classified board of directors consisting of three classes of directors, with each class serving staggered three-year terms and a nearly equal number of board members in each class, as determined by our Board of Directors. As a result, a portion of our Board of Directors will be elected each year. Our Board of Directors has nominated Mr. Scott E. Lamb, Dr. Gregory K. Morris, MD, and Mr. Barry M. Smith as Class II, each with a term that would expire at the annual meeting of the stockholders to be held following the 2026 fiscal year. Ms. JoAnne Stringfield and Mr. Stephen M. R. Covey have been designated Class III directors, and their term expires at the annual meeting of the stockholders to be held following the 2024 fiscal year. Mr. Christopher R. Christensen, Dr. John G. Nackel, and Mr. Brent J. Guerisoli have been designated Class I directors, and their term expires at the annual meeting of the stockholders to be held following the 2025 fiscal year.
Directors and Nominees
The following table and biographical information sets forth certain information about Mr. Scott E. Lamb, Dr. Gregory K. Morris, MD, and Mr. Barry M. Smith as well as the continuing directors. Such information is current as of April 1, 2024. The information presented below for each director includes the specific experience, qualifications, attributes and skills that led us to the conclusion that such director should be nominated to serve on our Board of Directors in light of our business.
| Name | Age | Position | Director Since | |||||||||||
| Barry M. Smith | 70 | Chairman | 2021 | |||||||||||
| Christopher R. Christensen | 55 | Director | 2019 | |||||||||||
| John G. Nackel, Ph.D | 72 | Director | 2019 | |||||||||||
| Brent J. Guerisoli | 43 | Director and Chief Executive Officer | 2023 | |||||||||||
| Stephen M. R. Covey | 61 | Director | 2019 | |||||||||||
| JoAnne Stringfield | 65 | Director | 2019 | |||||||||||
| Scott E. Lamb | 61 | Director | 2019 | |||||||||||
| Gregory K. Morris, MD | 69 | Director | 2022 | |||||||||||
Nominees for Election to the Board of Directors (Class II Directors)
Scott E. Lamb served as the Treasurer and Chief Financial Officer of ICU Medical, Inc. (“ICU Medical”) (NASDAQ: ICUI), a publicly traded company that develops, manufactures, and sells medical technologies used in vascular therapy, oncology, and critical care applications, from February 2008 to March 2020. From 2003 to February 2008, Mr. Lamb served as ICU Medical’s Controller. From 2000 to 2003, Mr. Lamb served as Senior Director of Finance for Vitalcom, Inc. Prior to that, Mr. Lamb held various finance and accounting roles at other start-up and manufacturing companies. Mr. Lamb’s experience as the Chief Financial Officer of a public company for over a decade supports the conclusion that he should serve as one of our directors.
Gregory K. Morris, MD is a partner since 2012 in MorrisHuml LLC—a consultancy that supports Fortune 1000 firms across industry sectors— where his areas of focus include strategy implementation, strategic alignment, prospective risk mitigation and shaping culture through action learning. Prior to MorrisHuml, he was a partner at Morris & Gunter Associates, LLC. From 2002 until 2004, he was senior vice president for strategy and business development for Advocate Health Care, and from 1995 until 2001, he worked at Cap Gemini Ernst & Young as Vice President as well as Senior Partner. His insurance experience includes serving as senior vice president health care delivery and corporate medical director for Blue Cross and Blue Shield National Capital Area, Eastern Region Medical Director for MetLife and Medical Director for CIGNA Healthcare of Georgia. He achieved the rank of Major with the Army National Guard/U.S. Army and was awarded the Bronze Star. Mr. Morris graduated from Morehouse College and received his MD from Emory University School of Medicine. We believe Dr. Morris’s extensive leadership development expertise in healthcare and in other industries, his clinical background and experience practicing in healthcare organizations and his valuable strategic and other management insights support the conclusion that he should serve as one of our directors.
Barry M. Smith served as Chairman and Chief Executive Officer of Magellan Health, Inc., the nation’s largest provider of behavioral health services and a leading national provider of radiology benefit management services, specialty pharmacy and prescription benefit management services, from 2013 until 2019. He founded and served as Chairman, President and Chief Executive Officer of VistaCare, Inc., a national provider of hospice services, from 1996 to 2002, and he served as Chairman of VistaCare in 2003. From 1990 through 1995, Mr. Smith served as Chairman and Chief Executive Officer of Value Rx, Inc., which was then one of the country’s largest pharmacy benefit management companies and, prior to that, served as vice president of operations for PCS Health Systems, also a pharmacy benefit management firm. Mr. Smith has
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served as a member of the board of directors of Ensign since 2014. We believe Mr. Smith’s extensive experience as a proven and experienced leader in numerous healthcare businesses that are closely related to our businesses and his valuable strategic and other management insights support the conclusion that he should serve as one of our directors.
Class III Directors
Stephen M. R. Covey has served as the Chief Executive Officer of CoveyLink Worldwide, LLC, since 2004, and is the co-founder of FranklinCovey’s Speed of Trust Practice, where he has taught trust and leadership in 55 countries to business, government, and nonprofit organizations. Mr. Covey is the former President and Chief Executive Officer of the Covey Leadership Center, where he grew the company to become one of the largest leadership development firms in the world. He is the former Executive Vice President of the Franklin Covey Co., where he also served as President of the Education & Training business unit. Mr. Covey is The New York Times and Wall Street Journal bestselling author of The Speed of Trust and Trust & Inspire: How Truly Great Leaders Inspire Greatness in Others. Mr. Covey received his MBA from Harvard Business School. Mr. Covey serves on the Government Leadership Advisory Council, and he has been recognized with the Lifetime Achievement Award for “Top Thought Leaders in Trust” from the advocacy group, Trust Across America/Trust Around the World. We believe that Mr. Covey’s extensive experience in both culture and leadership development, as well as his proven track record of educating and helping business leaders achieve their organization goals, supports the conclusion he should serve as one of our directors.
JoAnne Stringfield is a member of the Board of Directors of Blue Cross of Idaho and was the Chair from 2015 to 2023. Blue Cross of Idaho is a not-for-profit mutual heath insurance company and Idaho’s largest private health insurer with approximately 600,000 members. Ms. Stringfield has served on the Blue Cross of Idaho board of directors since 2002. From 2008 until 2016, Ms. Stringfield was an operations executive with Marlin Equity Partners, a global investment firm. From 2001 until 2007, Ms. Stringfield was Vice President of Human Resources of Micron Technology, Inc. a global leader in memory and storage solutions. From 1996 until 2001, Ms. Stringfield served as Vice President of Administration and Corporate Secretary of Micron Electronics, Inc., a publicly traded subsidiary of Micron Technology. Ms. Stringfield joined Micron in 1984 and held various finance and administrative positions. Ms. Stringfield worked for Boise Cascade as an internal auditor prior to joining Micron. Ms. Stringfield received a Bachelor of Science degree in Accounting from the University of Idaho. We believe that Ms. Stringfield’s experience serving on the board of a mutual health insurance company and other business experience supports the conclusion that she should serve as one of our directors.
Class I Directors
Christopher R. Christensen currently serves as the Executive Chairman of the Ensign Group, Inc. (“Ensign”). Mr. Christensen served as Ensign’s President from 1999, and its Chief Executive Officer from April 2006, in each case until May 2019. Mr. Christensen has served as a member of Ensign’s board of directors since Ensign’s formation in 1999 and has overseen Ensign and its growth since its inception. Prior to the formation of Ensign, Mr. Christensen served as acting Chief Operating Officer of Covenant Care, Inc., a California-based provider of long-term care. In addition, Mr. Christensen served on the board of directors of CareTrust REIT from June 2014 to April 2015. We believe that Mr. Christensen’s important role in the history and management of Ensign and our company and his leadership and business skills support the conclusion that he should serve as one of our directors.
John G. Nackel, Ph.D. served as a member of the board of directors of Ensign from June 2008 through December 2019. He is currently the Chairman and Chief Executive Officer of Three-Sixty Advisory Group, LLC (“Three-Sixty”) and Founder and General Partner of Wavemaker Three-Sixty Health, LP (“Wavemaker 360”) venture fund. Founded in 2007 by Dr. Nackel, Three-Sixty consults with leading health systems, payers, physicians, medical technology companies, and other providers. Founded in 2018, Wavemaker 360 invests in early-stage health care companies in the value-based payment space. Dr. Nackel is a 25-year veteran of Ernst & Young where he advised health care companies in his role as a Global Managing Director of Health Care. Dr. Nackel also served as Chief Executive Officer of Ingenix Consulting (now Optum), a division of United Healthcare. In addition, Dr. Nackel served as a director of Mercury General Corporation (NYSE: MCY) from 2016 until 2018. During his career, Dr. Nackel has also served as a board member or chairman of several privately held start-ups and emerging companies, including Visual Health Solutions, Vitalacy, HealthTask, ConnectedHealth, NetStrike, and Sertan, Inc. He earned his bachelor’s degree at Tufts University, master’s degrees in public health and industrial engineering at the University of Missouri, and a Ph.D. in industrial engineering (health systems design) at the University of Missouri. He is a fellow of the American College of Healthcare Executives and the Healthcare Information and Management Systems Society. He is a senior member of the Institute of Industrial Engineers. We believe that Dr. Nackel’s extensive experience as a consultant and an advisor to healthcare companies, his extensive board and management experience and his valuable leadership and management insights support the conclusion that he should serve as one of our directors.
Brent J. Guerisoli was appointed Chief Executive Officer of the Company effective August 1, 2022. He previously served as the President of the Company from January 2021 until his appointment as CEO. He has served as a member of the Company’s board of directors since February 2023. Prior to his appointment as President of Pennant, Mr. Guerisoli served as President of Cornerstone Healthcare, Pennant’s home health and hospice segment, helping lead the segment through a period of transformational growth, breakout financial performance and enhanced clinical excellence. Since joining the
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Company in 2012, Mr. Guerisoli has made significant contributions to the financial, clinical, and cultural achievements of Cornerstone and has played a key role in the organization’s overall leadership recruiting and training. Throughout his tenure at Pennant, Mr. Guerisoli has developed dozens of leaders and directed the organization’s growth efforts across several states. Mr. Guerisoli received his Master of Business Administration from the Walter A. Haas School of Business at the University of California, Berkeley. Prior to joining Pennant, Mr. Guerisoli completed the executive training program and later served as a business manager at AT&T. Mr. Guerisoli’s extensive knowledge of our operations and industry and his proven leadership skills support the conclusion that he should serve as one of our directors. Mr. Guerisoli’s service on the Board creates a critical link between management and the Board of Directors.
Board Diversity
Our Board of Directors seeks members from diverse professional backgrounds who combine a strong professional reputation and knowledge of our business and industry with a reputation for integrity. Our Board of Directors does not have a formal policy with respect to diversity and inclusion. Diversity of experience, expertise and viewpoints are some of many factors the Nominating and Corporate Governance Committee considers when recommending director nominees to our Board of Directors. Further, our Board of Directors is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool from which new candidates are selected.
We are committed to diversity in the areas of gender, ethnicity and professional background at all levels of our organization. The table below provides additional diversity information regarding our Board of Directors as of April 1, 2024. We included diversity statistics for our Board of Directors as of April 1, 2023 in our proxy statement for our annual meeting of stockholders held in 2023. There has been no subsequent change in the disclosed diversity information. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Listing Rule 5605(f).
| Board Diversity Matrix (as of April 1, 2024) | |||||||||||||||||
| Board Size: | |||||||||||||||||
| Total Number of Directors | 8 | ||||||||||||||||
| Gender Identity: | Female | Male | Non-Binary | Did Not Disclose Gender | |||||||||||||
| Directors | 1 | 7 | |||||||||||||||
| Demographic Background: | |||||||||||||||||
| African American or Black | 1 | ||||||||||||||||
| Alaskan Native or Native American | |||||||||||||||||
| Asian | |||||||||||||||||
| Hispanic or Latinx | |||||||||||||||||
| Native Hawaiian or Pacific Islander | |||||||||||||||||
| White | 1 | 6 | |||||||||||||||
| Two or More Races or Ethnicities | |||||||||||||||||
| LGBTQ+ | |||||||||||||||||
| Did Not Disclose Demographic Background | |||||||||||||||||
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| CORPORATE GOVERNANCE | ||||||||||||||
We are committed to continually enhancing our strong corporate governance practices, which we believe helps us sustain our success and build long-term value for our stockholders. Our Board of Directors sets high standards for our employees, officers and directors. Implicit in this philosophy is the importance of sound corporate governance. It is the duty of the Board of Directors to serve as a prudent fiduciary for stockholders and to oversee the management of the Company's business. Our governance structure enables independent, experienced and accomplished directors to provide advice, insight, guidance and oversight to advance the interests of the Company and our stockholders.
Director Independence
The NASDAQ Stock Market Rules require that a majority of the members of a listed company’s board of directors qualify as “independent,” as affirmatively determined by our Board of Directors. After review of all of the relevant transactions or relationships between each director (and his or her family members) and us, our senior management and our independent registered public accounting firm, our Board of Directors has affirmatively determined that each of Drs. John G. Nackel and Gregory K. Morris, MD, Ms. JoAnne Stringfield, and Messrs. Scott E. Lamb, Stephen M. R. Covey, and Barry M. Smith satisfies the requirements to serve as an “independent director” as such term is defined in Rule 5605(a)(2) of the NASDAQ Stock Market Rules. In this Proxy Statement, the aforementioned directors are referred to individually as an “Independent Director” and collectively as the “Independent Directors.” The Independent Directors intend to meet at least annually in executive sessions at which only Independent Directors will be present.
Each member of our Board of Directors serving on our Audit, Compensation and Nominating and Corporate Governance Committees is “independent” within the meaning of the applicable NASDAQ Stock Market Rules and, as applicable, the Exchange Act of 1934, as amended (the “Exchange Act”).
Code of Conduct and Ethics
We have adopted a code of ethics and business conduct that applies to all employees, including employees of our subsidiaries, as well as each member of our Board of Directors. The code of ethics and business conduct is available at our website at https://investor.pennantgroup.com/corporate-governance/governance-overview. Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document.
We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address specified above.
Board Leadership Structure
The Board of Directors does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board of Directors, as the Board of Directors believes it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board of Directors. Currently, the Chief Executive Officer position and Chairman of the Board of Directors position are filled by separate individuals. The Board does not include a lead independent director position at this time.
Risk Oversight
Our Board of Directors actively oversees the Company’s risk and enterprise-wide risk management process in a way that balances managing risks while enhancing the long-term value of the Company for the benefit of the stockholders. They focus on effective risk oversight to set the Company’s tone and culture with respect to effective risk management by developing and establishing a mutual understanding with management of the Company's risk philosophy and overall appetite for risk. Our Board of Directors is actively involved with management assessment of existing risk management processes and how management identifies, assesses and manages the Company’s most significant risk exposures. Our Board of Directors expects frequent updates from management about the Company's most significant risks to enable it to evaluate whether management is responding appropriately and is actively engaged in managing talent and long-term succession planning for executives.
Our Board of Directors relies on each of its four committees (collectively, the “Board Committees”) to help oversee the risk management responsibilities relating to the functions performed by the Board Committees. Our Audit Committee periodically discusses with management the Company’s major financial, compliance and cybersecurity risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. Our Compensation Committee helps the Board of Directors identify the Company’s exposure to any risks potentially created by our compensation programs and practices. Our Nominating and Corporate Governance and Quality Assurance and
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Compliance Committees support the Company’s quality assurance programs, oversee risks relating to the Company’s policies and assist the Board of Directors and management in promoting an organizational culture that encourages commitment to ethical conduct and a commitment to compliance with the law. Each of these Board Committees is required to make regular reports of its actions and any recommendations to the Board of Directors, including recommendations to assist the Board of Directors with its overall risk oversight function.
Management and directors engage with our stockholders throughout the year in a variety of forums. Our interactions cover a broad range of governance and business topics, including proxy access, board elections, compensation practices, peer group composition and business strategy. Our engagement activities and meaningful exchanges to which we have been exposed provide us with a valuable understanding of our stockholders’ perspectives and an opportunity to share views with them. We look forward to maintaining an open line of dialogue with our stockholders.
We encourage you to visit the Corporate Governance area of the “Investor Relations” section of our website (https://investor.pennantgroup.com/corporate-governance/governance-overview) where you will find detailed information about our corporate governance practices and policies, including our Nominating and Corporate Governance Committee Charter.
Meeting Attendance
During the year ended December 31, 2023, our Board of Directors met eight times. Each member of the Board of Directors attended at least 75 percent of the meetings of our Board of Directors and the meetings of any of our Board Committees on which each member of the Board of Directors served that were held during the term of each such director. In addition, the Board of Directors meet in executive sessions without management present. Our Board of Directors also acted by way of unanimous written consent during the year ended December 31, 2023.
Although we do not have a formal policy regarding attendance by members of our Board of Directors at our Annual Meeting of Stockholders, we encourage our directors to attend. Last year, all of our Directors attended our Annual Meeting of Stockholders, and we anticipate that at least a majority of our Board of Directors will attend the Annual Meeting this year.
Committees of the Board of Directors
During fiscal year 2023, our Board of Directors had four standing Board Committees: the Compensation Committee, the Audit Committee, the Nominating and Corporate Governance Committee and the Quality Assurance and Compliance Committee. The Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, makes Board Committee and committee chair assignments annually at its meeting immediately following the annual meeting of stockholders, although further changes to committee assignments are made from time to time as deemed appropriate by the Board of Directors. Each of the Board Committees operate pursuant to written charters, copies of which are available on our website at https://investor.pennantgroup.com/corporate-governance/governance-overview.
The following table identifies the members of the Board’s standing committees and the number of meetings held by each committee during 2023.
Compensation Committee | Audit Committee | NCG Committee | QAC Committee | ||||||||||||||
| Barry M. Smith* | C | ||||||||||||||||
| Christopher R. Christensen | ü | ||||||||||||||||
| John G. Nackel, PhD | C | ü | |||||||||||||||
| Brent J. Guerisoli | ü | ||||||||||||||||
| Stephen M. R. Covey | ü | ü | |||||||||||||||
| JoAnne Stringfield | ü | C | |||||||||||||||
| Scott E. Lamb | C | ü | |||||||||||||||
| Gregory K. Morris, MD | ü | ü | |||||||||||||||
Number of Meetings in 2023 | 6 | 4 | 5 | 4 | |||||||||||||
« | Chairman of the Board | ü | Member | C | Chairperson | ||||||||||||||||||
Audit Committee
Our Audit Committee currently consists of Mr. Scott E. Lamb, Dr. Gregory K. Morris and Dr. John G. Nackel. Mr. Scott E. Lamb serves as Chairperson of the Audit Committee. All members of the Audit Committee meet the independence requirements
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set forth by the SEC, the NASDAQ Stock Market listing standards and the Audit Committee charter. Our Audit Committee held four meetings in 2023. The Audit Committee met four times in executive session without management present and each time the Chairperson of the Audit Committee chaired such executive session. Each member of our Audit Committee is “financially literate” as required by, and in accordance with, the NASDAQ listing requirements. Our Board of Directors has determined that Mr. Scott E. Lamb qualifies as an “audit committee financial expert” as that term is defined in the rules and regulations established by the SEC. This designation is a disclosure requirement of the SEC related to Mr. Scott E. Lamb’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose on Mr. Scott E. Lamb any duties, obligations or liability that are greater than those generally imposed as a member of our Audit Committee and our Board of Directors, and such designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of our Audit Committee or Board of Directors. The primary functions of the Audit Committee include, among other things:
•overseeing our financial reporting process and the integrity of our financial statements and other financial information provided by us to the public or any governmental or regulatory body;
•overseeing the functioning of our internal controls;
•ongoing monitoring and oversight of cybersecurity risks and related mitigation measures;
•maintaining the procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
•approving of our transactions with related persons pursuant to the Related Person Transaction Policy (as defined herein);
•pre-approving audit and permissible non-audit services to be performed by our independent accountants, if any, and the fees to be paid in connection therewith;
•engaging, replacing and compensating our independent auditors and overseeing our independent auditors’ qualifications, independence and performance of the annual independent audit of our financial statements;
•advising the Board of Directors and overseeing the Company’s reporting on material environmental, social and governance (“ESG”) matters and initiatives and evaluating the Company’s disclosures relating to ESG matters;
•overseeing legal compliance programs and addressing any legal or regulatory matters that may have a material impact on our financial statements; and
•overseeing, updating and implementing the portions of our code of ethics and business conduct that relate to the integrity of our financial reports.
In fulfilling its responsibilities, the Audit Committee also sets the “tone at the top” and emphasizes the importance of an environment that supports integrity in the financial reporting process, oversees processes for monitoring auditor independence, oversees implementation of new accounting standards and reviews and understands non-GAAP measures, and related company policies and disclosure controls. The responsibilities of our Audit Committee are more fully described in our Audit Committee Charter, which is available on our website at https://investor.pennantgroup.com/corporate-governance/governance-overview. Representatives of our independent registered public accounting firm and our internal financial personnel regularly meet privately with and have unrestricted access to the Audit Committee.
Compensation Committee
Our Compensation Committee currently consists of Dr. John G. Nackel, Mr. Stephen M. R. Covey and Ms. JoAnne Stringfield. Dr. John G. Nackel serves as Chairperson of the Compensation Committee. All members of the Compensation Committee meet the independence requirements set forth by the NASDAQ Stock Market listing standards and the Compensation Committee charter. Each member of the Compensation Committee is a “non-employee director” (within the meaning of Rule 16b-3 under the Exchange Act) and an “outside director” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended). Our Compensation Committee held six meetings in 2023. The Compensation Committee met six times in executive session without management present and each time the Chairperson of the Committee chaired such executive session. The primary functions of the Compensation Committee include, among other things:
•developing and reviewing policies relating to executive compensation and benefits;
•determining or recommending to our Board of Directors the cash and non-cash compensation of our executive officers;
•evaluating the performance of our executive officers; and
•administering or making recommendations to our Board of Directors with respect to the administration of our equity-based and executive incentive compensation plans.
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Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee currently consists of Messrs. Barry M. Smith, Scott E. Lamb and Stephen M. R. Covey. Mr. Barry M. Smith serves as the Chairperson of the Nominating and Corporate Governance Committee. Each member of the Nominating and Corporate Governance Committee meets the independence requirements set forth in the NASDAQ listing requirements and the Nominating and Corporate Governance Committee charter. Our Nominating and Corporate Governance Committee held five meetings in 2023. The Nominating and Corporate Governance Committee met four times in executive session without management present and each time the Chairperson of the Committee chaired such executive session. The primary responsibilities of the Nominating and Corporate Governance Committee include, among other things:
•assisting the Board of Directors in establishing the minimum qualifications for a director nominee, including the qualities and skills that members of our Board of Directors are expected to possess;
•management succession planning;
•selecting, or recommending that our Board of Directors selects, the director nominees for election at the next annual meeting of stockholders, or to fill vacancies on our Board of Directors occurring between annual meetings of stockholders;
•identifying and evaluating individuals qualified to become members of our Board of Directors, consistent with criteria approved by our Board of Directors and our Nominating and Corporate Governance Committee;
•developing, recommending to our Board of Directors, and assessing our corporate governance policies; and
•advising the Board of Directors on management of the Company’s strategy, initiatives, and risks opportunities as it relates to governance.
Quality Assurance and Compliance Committee
Our Quality Assurance and Compliance Committee currently consists of Mr. Christopher R. Christensen, Mr. Brent J. Guerisoli, Ms. JoAnne Stringfield and Dr. Gregory K. Morris. Ms. JoAnne Stringfield serves as the Chairperson of the Quality Assurance and Compliance Committee. Our Quality Assurance and Compliance Committee held four meetings in 2023. The primary responsibilities of the Quality Assurance and Compliance Committee include, among other things:
•overseeing the promulgation and periodic updating of a written corporate compliance program that includes written policies, procedures and standards of conduct, as well as disciplinary guidelines to assist officers and employees charged with direct enforcement responsibility;
•designating a corporate compliance officer, and functioning as the compliance committee to which such compliance officer reports;
•ensuring that means exist for the delivery of appropriate compliance training and education to the officers and employees of our several subsidiaries;
•establishing lines of communication for escalating compliance and quality assurance issues to our Quality Assurance and Compliance Committee and our Board of Directors;
•monitoring the effectiveness of internal compliance and quality assurance audits; and
•causing our officers to respond, as appropriate, to compliance and quality assurance issues and to take effective corrective action.
Director Nomination Process
As indicated above, our Nominating and Corporate Governance Committee oversees the director nomination process. This committee is responsible for assisting the Board of Directors in establishing minimum qualifications for director nominees, including qualities and skills that members of our Board of Directors are expected to possess. Under our Nominating and Corporate Governance Committee charter, which is available at our website at https://investor.pennantgroup.com/corporate-governance/governance-overview, these criteria include the candidate’s personal and professional integrity, the candidate’s financial literacy or other professional or business experience relevant to an understanding of the Company and its business, the candidate’s demonstrated ability to think and act independently and with sound judgment, and the candidate’s ability to be effective, in conjunction with other members or nominees of the Board of Directors in collectively serving the long-term interests of the Company and its stockholders. Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. Our Nominating and Corporate Governance Committee identifies and evaluates individuals qualified to become members of our Board of Directors. Our Nominating and Corporate Governance Committee then recommends that our Board of Directors select the director nominees for the election at the next annual meeting of stockholders, or to fill vacancies on our Board of Directors occurring between annual meetings of the stockholders.
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We believe it is important to have an appropriate mix of diversity for the optimal functionality of the Board of Directors. Our Nominating and Corporate Governance Committee charter requires that the committee consider each candidate’s qualities, skills, background, diversity, ability, judgment, skills and experience in the context of the needs and current make-up of the Board of Directors when evaluating director nominees. The Board of Directors believes it is important for each member of the Board of Directors to possess skills and knowledge in the areas of leadership of large, complex organizations; finance; strategic planning; laws and regulations; government relations; and relevant industries, especially the healthcare and home health, hospice and senior living industries. These considerations help ensure that the Board of Directors as a whole has the appropriate mix of diversity, characteristics, skills and experiences for the optimal functioning of the Board of Directors in its oversight of our Company. As part of its periodic self-assessment process, the Nominating and Corporate Governance Committee reviews and evaluates its performance, including overall composition of the Board of Directors and the criteria that it uses for selecting nominees in light of the specific skills and characteristics necessary for the optimal functioning of the Board of Directors in its oversight of our Company. The Nominating and Corporate Governance Committee considers all of the criteria described above, including the candidate’s diversity, in identifying and selecting nominees and in the future may establish additional minimum criteria for nominees.
The Nominating and Corporate Governance Committee will consider nominees for the Board of Directors who are recommended by stockholders who meet the eligibility requirements set forth in our Bylaws. If an eligible stockholder wishes to recommend a nominee, he or she should submit such recommendation in writing to the Chair, Nominating and Corporate Governance Committee, c/o Secretary of the Company, Kirk S. Cheney, The Pennant Group, Inc., 1675 E. Riverside Drive, Suite 150, Eagle, Idaho 83616, by the deadline for stockholder proposals set forth in the Company’s last proxy statement, specifying the information required by the Nominating and Corporate Governance Committee charter and our Bylaws. All such recommendations will be brought to the attention of the Nominating and Corporate Governance Committee, and the Nominating and Corporate Governance Committee shall evaluate such director nominees in accordance with the same criteria applicable to the evaluation of all director nominees.
General Nomination Right of All Stockholders
Any stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice, information and consent provisions contained in our Amended and Restated Bylaws (our “Bylaws”), as discussed in “Future Stockholder Proposals” below. Unless otherwise required by law, if a stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation and present his or her proposed business or nomination, such proposed business will not be transacted and the nomination will be disregarded. The presiding officer of an annual meeting of stockholders shall refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
Director Compensation
We provide cash and stock compensation to directors for their services as directors or members of Board Committees. We also reimburse our non-employee directors for their reasonable expenses incurred in attending meetings of our Board of Directors and Board Committees.
In fiscal year 2023, each of our non-employee directors received an annual retainer of $30,000, with the exception of Chairman Barry M. Smith, whose retainer is described below. In addition, each member of the Board Committees received the following annual retainers:
| Committees | Chair Retainer | Member Retainer | ||||||||||||
| Audit | $ | 30,000 | $ | 12,000 | ||||||||||
| Quality Assurance and Compliance | 30,000 | 12,000 | ||||||||||||
| Nominating and Corporate Governance | 15,000 | 7,500 | ||||||||||||
| Compensation | 22,500 | 10,000 | ||||||||||||
In lieu of a separate member retainer and committee or chair retainers, our Board Chairman, Barry M. Smith, receives a single aggregate retainer of $80,000. We do not compensate our non-employee directors other than for their service on our Board of Directors or the Board Committees. Historically, we have compensated our non-employee Board members based upon what we considered to be fair compensation. Compensation for Board of Directors and Board Committee service is partially based upon relevant market data that we obtain by reviewing director compensation by public companies in the home health, hospice, senior living and other related healthcare industries. To establish compensation of the Board of Directors, we have reviewed the published director compensation information of other healthcare services companies, including The Ensign Group, Inc., National Healthcare Corp., Encompass Health Corporation, Amedisys, Inc., Addus Healthcare Inc., and Brookdale Senior Living Inc.
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In the fourth quarter of 2022 we retained independent compensation consultants to review our director and executive compensation in comparison to peer companies. These experts analyzed the target total compensation, including cash compensation and equity compensation, paid to our directors, executives, and certain key leaders. Informed by this review process, our Compensation Committee set the amount of annual retainers for non-employee directors and retainers for the chairpersons of each Board Committee at levels that the Compensation Committee believes are comparable to the cash compensation paid to directors of peer group companies.
Our 2019 Omnibus Incentive Plan contains an automatic stock grant program for our directors. Each non-employee director receives an automatic grant of 1,500 shares of restricted stock on the 15th day of the month following each quarter end, which shares vest over a three-year period beginning with the first anniversary of the grant date (the “Automatic Stock Grant Program”). Directors elected to fill less than a three-year term will receive a pro rata stock award. In addition to their automatic quarterly grants of 1,500 shares per quarter, in 2023 each director received an additional one-time grant of 3,000 shares of restricted stock on January 17, 2023 with a fair value of $10.80 per share subject to ordinary vesting requirements.
Unvested restricted stock grants will become fully vested on the date each non-employee director ceases serving on the Board of Directors unless such director is removed for cause. Pursuant to the Automatic Stock Grant Program, each Board member who receives stock grants must maintain ownership of a minimum of thirty-three percent (33%) of the cumulative shares granted to him or her. Our Board of Directors and Compensation Committee considered the total compensation paid to directors of the foregoing peer group companies in deciding to grant these automatic stock awards. However, our Board of Directors and Compensation Committee determined the amount of stock awards based on what they considered to be an appropriate incentive for board service to the Company, and they did not attempt to base this number on the amount awarded to directors of the other companies named above. Our Board of Directors has also determined that it may be necessary to provide additional incentives to prospective directors in order to recruit talented leaders to serve on the Board of Directors.
None of our directors or director nominees has any agreement or arrangement with any third party that relates to compensation or other payment in connection with that person’s candidacy or service as a director of our company.
The following table sets forth the compensation awarded to, earned by, or paid to our non-employee directors for the year ended December 31, 2023. In recognition of his significant time investment and contribution to the Company, in 2023, our Board Chairman, Barry M. Smith, received a one-time grant of 30,000 options on July 17, 2023 with a strike price of $11.35 and a three-year vesting schedule, in addition to his normal quarterly grants. Each of the directors included in the table served for the full-year 2023.
| Name | Fees Earned ($) | Stock Awards ($)(1) | Total($) | |||||||||||||||||
| Christopher R. Christensen | 42,000 | 101,820 | 143,820 | |||||||||||||||||
| John G. Nackel, Ph.D | 64,500 | 101,820 | 166,320 | |||||||||||||||||
| Stephen M. R. Covey | 47,500 | 101,820 | 149,320 | |||||||||||||||||
| JoAnne Stringfield | 75,000 | 101,820 | 176,820 | |||||||||||||||||
| Scott E. Lamb | 67,500 | 101,820 | 169,320 | |||||||||||||||||
| Gregory K. Morris | 46,000 | 101,820 | 147,820 | |||||||||||||||||
Barry M. Smith(2) | 68,500 | 266,925 | 335,425 | |||||||||||||||||
| (1) | This column reflects the total dollar amount recognized for financial statement reporting purposes with respect to the fair value of the restricted stock awards granted to each of the Directors in accordance with Accounting Standard Codification (ASC) 718, Stock Compensation. Mr. Christopher R. Christensen, Dr. John G. Nackel, Mr. Stephen M. R. Covey, Ms. JoAnne Stringfield, Mr. Scott E. Lamb, Mr. Barry M. Smith, and Dr. Gregory K. Morris each received grants of 1,500 shares of restricted stock in the first month of each quarter for the full-year 2023 and an additional 3,000 RSA on January 17, 2023 with a fair value of $10.80 per share subject to ordinary vesting schedule. Compensation expense for stock awards granted to Board of Directors were recognized in full on the date these awards were granted. | |||||||
| (2) | Mr. Smith's annual retainer (paid in monthly increments) was increased to $80,000 by Board approval in June 2024, and became effective with the July monthly payment. | |||||||
Communications with Directors
Stockholders who would like to send communications to our Board of Directors, any Board Committee or to any individual director may do so by submitting such communications by mail to Kirk S. Cheney, c/o The Pennant Group, Inc., 1675 E. Riverside Drive, Suite 150, Eagle, Idaho 83616. We suggest, but do not require, that such submissions include the name and contact information of the stockholder making the submission and a description of the matter that is the subject of the communication. Mr. Cheney will then distribute such information to our Board of Directors for review. Communications received by the Company may be reviewed by Mr. Cheney to ensure appropriate and careful review of the matter.
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| PROPOSAL 2: APPROVAL OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||||||||||||
| ü | OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2024 | |||||||||||||
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm retained to audit the Company’s financial statements. As a matter of good corporate governance, we are asking the stockholders to ratify the selection of Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm for the year ending December 31, 2024. Deloitte has served as our auditor since 2019. The affirmative vote of a majority of the outstanding common stock having voting power present in person or represented by proxy and entitled to vote will be required to ratify the appointment of Deloitte.
Stockholders are not required to ratify the appointment of Deloitte as our independent registered public accounting firm. If stockholders fail to ratify the appointment, the Audit Committee will consider whether or not to retain Deloitte. Even if the appointment is ratified, the Audit Committee may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.
Representatives of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
Principal Accountant Fees and Services
We engaged Deloitte to provide audit services to us during fiscal year 2023. The following table sets forth the fees for services rendered by Deloitte for the years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||||||||
Audit Fees(1) | $ | 1,201,770 | $ | 1,080,000 | ||||||||||
| Audit-Related Fees | — | — | ||||||||||||
| Tax Fees | — | — | ||||||||||||
All Other Fees(2) | 1,895 | 2,495 | ||||||||||||
| Total | $ | 1,203,665 | $ | 1,082,495 | ||||||||||
| (1) | Audit Fees consisted of fees incurred for the audited financial statements included in our Annual Report on Form 10-K, and for the review of our financial statements included in our Quarterly Reports on Form 10-Q. | ||||
| (2) | This amount represent subscription fees paid to Deloitte for use of an accounting research tool during the years ended December 31, 2023 and 2022. | ||||
Audit Committee Pre-Approval Policies and Procedures
Our Audit Committee approved all audit, audit-related, tax and other fees for services performed by our independent registered public accounting firm during 2023. The Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the “Audit Pre-Approval Policy”). The Audit Pre-Approval Policy provides for general pre-approval for a specified range of fees for certain categories of routine services to be provided during a given calendar year. This general pre-approval is automatically renewed at the beginning of each calendar year, unless otherwise determined by the Audit Committee. If the cost of any proposed service exceeds the amount for which general pre-approval has been established, specific pre-approval by the Audit Committee is required. Specific pre-approval of services is considered at the regular meetings of the Audit Committee. The Audit Pre-Approval Policy delegates authority to the Chairman of the Audit Committee to grant specific pre-approval between regularly scheduled Audit Committee meetings for audit and audit related services not to exceed $50,000 and all other services not to exceed $25,000. The Audit Pre-Approval Policy also establishes a list of prohibited non-audit services. In making all of its pre-approval determinations, the Audit Committee considers, among other things, whether such services are consistent with the rules promulgated by the Public Company Accounting Oversight Board (the “PCAOB”) and the SEC regarding auditor independence, whether the independent auditor is best positioned to provide the most effective and efficient service, and whether the service might enhance the Company’s ability to manage and control risk or improve audit quality. These and other factors are considered as a whole and no one factor is necessarily determinative.
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Audit Committee Report
Our Audit Committee has reviewed and discussed with our management our audited consolidated financial statements and the establishment and maintenance of internal controls over financial reporting and has discussed with our independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Accounting Oversight Board and the SEC. Our Audit Committee has received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence. Our Audit Committee has also considered whether the provision of non-audit services provided to us by our independent registered public accounting firm is compatible with maintaining its independence and has discussed with the auditors such auditors’ independence.
Based on its review, our Audit Committee recommended to our Board of Directors that the audited financial statements for the Company’s year ended December 31, 2023 be included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed on February 28, 2024.
Respectfully submitted by the Audit Committee of the Board of Directors,
Mr. Scott E. Lamb, Chair
Dr. John G. Nackel, PhD
Dr. Gregory K. Morris, MD
Members of the Audit Committee
The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Audit Committee Report by reference therein.
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EXECUTIVE OFFICERS
Below is biographical information for each of our current executive officers as of April 11, 2024, other than Brent Guerisoli (whose biographical information is shown under “Directors and Nominees” above). Each executive officer serves at the discretion of the Board of Directors and the Chief Executive Officer.
| Name | Age | Position | |||||||||
| Brent J. Guerisoli | 42 | Chief Executive Officer | |||||||||
| Lynette B. Walbom | 46 | Chief Financial Officer | |||||||||
| John J. Gochnour | 41 | Chief Operating Officer and President | |||||||||
| Kirk S. Cheney | 42 | General Counsel and Corporate Secretary | |||||||||
| Jason P. Steik | 40 | Chief Clinical Officer | |||||||||
Lynette B. Walbom was appointed Chief Financial Officer of the Company on May 22, 2023. Prior to joining Pennant, Ms. Walbom was Vice President of Financial Reporting and Tax for Raising Cane’s Restaurants, LLC, a national restaurant chain operating in 35 states, which more than doubled in size—based on number of restaurants and geographic footprint—during her tenure. At Raising Cane’s, from 2016 to 2023, Ms. Walbom had broad responsibility for financial reporting, acquisitions, tax, accounting systems, and equity management. From 2003 to 2016, Ms. Walbom was Chief Financial Officer of a family office with investments in companies in several industries, including financial services, computer services, real estate development and franchising. Ms. Walbom began her 23-year career in accounting as a public company auditor at Deloitte. Ms. Walbom received her B.S. degree in accounting from Northern Arizona University—The W.A. Franke College of Business and is a certified public accountant.
John J. Gochnour was appointed Chief Operating Officer of Pennant upon its formation in 2019 and was appointed President of Pennant on August 1, 2022. Prior to the formation of Pennant, Mr. Gochnour served as Executive Vice President and General Counsel of Cornerstone since January 2013. Mr. Gochnour played a critical role in the acquisition and integration efforts of Cornerstone and Ensign’s other new business ventures, by sourcing, negotiating and helping to integrate acquisitions across 12 states and multiple industries. Mr. Gochnour also led the recruiting and development of Cornerstone’s professional resource team and founded the Cornerstone Service Center, which provides consulting and management services in the areas of finance, legal, human resources, and information technology to operations across the Cornerstone platform. Prior to joining Cornerstone, Mr. Gochnour was an attorney at the law firm Paul Hastings LLP in Costa Mesa, California, where he litigated complex civil disputes and advised clients related to risk management, general liability, and employment issues. Mr. Gochnour received his law degree from the Duke University School of Law.
Kirk S. Cheney is Pennant’s General Counsel and Corporate Secretary. In this role, Mr. Cheney oversees the legal, regulatory, and risk management functions of the company. He also plays a key role helping to lead Pennant’s Service Center so that its performance accelerates Pennant’s overall results. Mr. Cheney joined the Pennant Group in 2019, after serving as General Counsel for Click Sales, Inc., a technology company that provides payment attribution and processing for online sales. Previously, Mr. Cheney practiced corporate law at the international and national law firms of Vinson & Elkins, LLP and Holland & Hart, LLP, where he counseled clients on litigation matters, corporate transactions, and debt restructuring and investments. Mr. Cheney received his law degree from Yale Law School in 2009, where he was an editor of the Yale Law Journal.
Jason P. Steik is the Chief Clinical Officer of the Company. Mr. Steik has a broad spectrum of healthcare leadership experience, including serving as Chief Nursing Officer of a regional Acute Care Medical Center for LifePoint Health from 2018 to 2020. Mr. Steik previous experience includes Emergency, Trauma, and Heart & Vascular department leadership. Mr. Steik is a Certified Professional in Patient Safety (CPPS) through the Institute for Healthcare Improvement. With more than 15 years of acute and post-acute care experience, Mr. Steik is passionate about bridging the acute to post-acute spectrum of care and bringing high quality, compassionate healthcare into the home. Mr. Steik received his Bachelor of Science in Nursing degree from Boise State University and his Master of Business Administration from the University of Massachusetts, Amherst.
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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis explains the key elements of our executive compensation program and compensation decisions regarding the following named executive officers (NEOs) for 2023:
| Name | Position | |||||||
| Brent J. Guerisoli | Chief Executive Officer | |||||||
Lynette B. Walbom1 | Chief Financial Officer | |||||||
Jennifer L. Freeman2 | Former Interim Chief Financial Officer | |||||||
| John J. Gochnour | Chief Operating Officer and President | |||||||
| Kirk S. Cheney | General Counsel and Corporate Secretary | |||||||
| Jason P. Steik | Chief Clinical Officer | |||||||
| (1) | Ms. Walbom was appointed Chief Financial Officer on May 22, 2023 | ||||
| (2) | Ms. Freeman ceased serving as Interim Chief Financial Officer on May 22, 2023. | ||||
The following discussion and analysis provides information regarding our executive compensation objectives and principles, procedures, practices and decisions and is provided to help give perspective to the numbers and narratives that follow in the tables in this section. This discussion will focus on our objectives, principles, practices and decisions with regard to the compensation of the executive officers that participate in our executive officer compensation plan.
Prior to 2022, we operated as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act enacted in April 2012. As an emerging growth company, we elected to rely on exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Since 2022, we have held a say-on-pay advisory vote, and expect to hold such vote in future years.
Compensation Policy and Objectives
We believe that compensation paid to our executive officers should be closely aligned with our performance and the performance of each individual executive officer on both a short-term and a long-term basis, based upon the value each executive officer provides to our company, and designed to assist us in attracting and retaining the best possible executive talent, which we believe is critical to our long-term success. Because we believe that compensation should be structured to ensure that a significant portion of compensation earned by executives will be closely related to factors that directly and indirectly influence stockholder value, the “at risk” compensation of our executive officers generally constitutes a large portion of their total compensation potential. In addition, commensurate with our belief that those of our employees who act like owners should have the opportunity to become owners, many of our executive officers have a significant level of stock ownership, which we believe aligns the incentives of the executive officers with the priorities of our stockholders. To that end, it is the view of our Board of Directors and the Compensation Committee that the total compensation program for executive officers should consist of the following:
•Base salary;
•Annual and other short-term cash bonuses;
•Long-term incentive compensation; and
•Certain other benefits.
The Compensation Committee believes that our executive compensation program has been appropriately designed to provide a level of incentives that do not encourage our NEOs to take unnecessary risks in managing their respective functions. As discussed above, a substantial portion of our NEOs' compensation is performance-based, consistent with our approach to executive compensation. Our annual incentive compensation program is designed to reward annual financial and/or strategic performance in areas considered critical to our short- and long-term success. In addition, we measure performance on a variety of bonus criteria other than our profit to determine an executive's annual incentive compensation award, such as clinical quality standards, positive survey and audit results, good corporate governance practices, leadership development, positive patient feedback and feedback from other employees regarding such executives' performance. We believe this discourages risk-taking that focuses excessively on short-term profits at the sacrifice of our long-term health. Likewise, our long-term equity incentive awards are directly aligned with long-term stockholder interests through their link to our stock price and multi-year ratable vesting
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schedules. In combination, the Compensation Committee believes that the various elements of our executive compensation program sufficiently tie our executives' compensation opportunities to our focus on sustained long-term growth and performance.
The Compensation Committee’s charter enables the Compensation Committee to retain a compensation consultant, legal counsel, or other adviser (a “Compensation Adviser”). The Compensation Committee is directly responsible for the appointment, compensation, and oversight of any such Compensation Adviser. In establishing our executive compensation packages, the Compensation Committee may generally review relevant market data of executives of companies in the healthcare services industry based on publicly available information.
The Compensation Committee may select, or receive advice from, a Compensation Adviser only after taking into consideration the following factors: (i) the provision of other services to the Company by the person that employs the compensation consultant, legal counsel or other adviser; (ii) the amount of fees received from the Company by the person that employs the compensation consultant, legal counsel or other adviser, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel or other adviser; (iii) the policies and procedures of the person that employs the compensation consultant, legal counsel or other adviser that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the compensation consultant, legal counsel or other adviser with a member of the Compensation Committee; (v) any stock of the Company owned by the Compensation Adviser, legal counsel or other adviser; and (vi) any business or personal relationship of the Compensation Adviser, legal counsel, other adviser or the person employing the adviser with an executive officer of the Company.
In the fourth quarter of 2022 we retained a Compensation Adviser to review and advise the Compensation Committee on the Company’s executive compensation. The Compensation Adviser analyzed target total compensation paid to our NEOs and certain other key leaders, including their base cash compensation, cash incentive compensation, and equity compensation in comparison to peer companies. The Compensation Adviser noted similarities and differences among peer companies, provided insight into appropriate compensation considerations, and assessed the effectiveness of the Company’s executive compensation plan to attract and retain talented executives. The data and recommendations of the Compensation Adviser will be used by the Compensation Committee to help inform total compensation targets for the Company’s executives in 2023 and beyond. Based on this review process, and the Committee’s own consideration and analysis, our Compensation Committee concluded that the Company’s executive compensation is reasonable and appropriate in relation to peer companies.
The Compensation Committee supports the Company’s commitment to administer compensation equitably without regard to race, color, religion, gender, gender identity or expression, sexual orientation, national origin, genetics, disability, age, or veteran status.
Principal Economic Elements of Executive Compensation
Base Salary. We believe it is important to pay our executives salaries within a competitive market range in order to attract and retain highly talented executives. Although historically we have not set executive salaries based upon any particular benchmarks, we may from time to time generally review relevant market data to assist us in our compensation decision process. We believe that the base salaries and the total compensation of our executives are comparable to or below the median total compensation of executives with similar positions at comparable companies. Each of our executives’ base salary is generally determined based upon job responsibilities, individual experience and the value the executive provides to our Company. The Compensation Committee considered each of these factors in determining the compensation each executive would be paid in 2023. We may elect to change this practice in future years. The decision, if any, to materially increase or decrease an executive's base salary in subsequent years will likely be based upon these same factors and others recommended by a compensation consultant, if any. Our compensation committee makes decisions regarding base salary at the time the executive is hired, and makes decisions regarding any changes to base salary on an annual basis.
Annual Cash Bonuses. We establish an executive incentive program each year, pursuant to which certain executives may earn annual bonuses based upon our performance under the criteria set forth in our executive compensation plan. Historically, in the first quarter of each year, our compensation committee identifies the plan's participants for the year and establishes an objective formula by which the amount, if any, of the plan's bonus pool will be determined. The committee also has the discretion to allocate the bonus pool among the individual executives prior to the end of the year and any such early allocation will remain subject to further adjustments upon the final determination of the bonus pool calculations during the first quarter of each year. The bonus pool is also adjusted to include clinical and governance performance that can increase or decrease the bonus pool based on the achievement of a pre-established target.
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Our compensation committee established the following formula for the 2023 bonus pool:
Adjusted Annual Earnings Before Taxes1 (“AEBT”) in 2023 | Bonus Pool | |||||||
| For AEBT up to $13.6 million | $— | |||||||
| For AEBT greater than $13.6 million, but less than $14.1 million | AEBT between $13.6 million and $14.1 million * 5.0% | |||||||
| For AEBT greater than $14.1 million, but less than $14.6 million | $0.025 million + (amount of AEBT between $14.1 million and $14.6 million * 7.5%) | |||||||
| For AEBT greater than $14.6 million, but less than $15.4 million | $0.038 million + (amount of AEBT between $14.6 million and $15.4 million * 10.0%) | |||||||
| For AEBT greater than $15.4 million, but less than $16.4 million | $0.075 million + (amount of AEBT between $15.4 million and $16.4 million * 12.5%) | |||||||
| For AEBT greater than $16.4 million | $0.125 million + (amount of AEBT over $16.4 million * 15.0%) | |||||||
| (1) | The 2023 bonus pool was based on non-GAAP AEBT. AEBT is defined as net income before (a) costs incurred for start-up operations, including rent and excluding depreciation, (b) share-based compensation expense, (c) non-capitalizable acquisition related costs and credit allowances, (d) redundant or non-recurring transition services costs, (e) loss related to senior living operations transferred to Ensign, (f) usual or non-recurring charges, and (g) net income attributable to noncontrolling interest. | |||||||
Based on performance, the executive bonus pool formula above is adjusted for the following: 1) if performance declines by 10% or more from prior year levels, the lowest target boundary will increase by 20%; 2) if performance increases by 5% or less compared to the prior year levels, then the lowest target boundary will increase by 5%; and 3) if performance declines by 5% or more, then no incentive will be awarded under the plan.
Historically, in the first quarter of the subsequent year, our compensation committee subjectively allocates the bonus pool among the participating executives based upon each participating executive's contribution to our financial, clinical and governance performance during the preceding year, and value to the organization going forward. In 2023, the executive bonus pool calculation was based on AEBT. This measure is more fully described and reconciled to the nearest GAAP measures on page 70 of the Company’s Annual Report on Form 10-K dated February 28, 2024.
The clinical measures that our Compensation Committee consider include our success in achieving positive survey results, hospice composite measure trends, and Centers for Medicare and Medicaid Services' five-star home health rating. The governance measures that our compensation committee considers includes culture of the organization, strategic organizational development, risk management and leadership development throughout the organization. Our Compensation Committee reviews each participating executive's performance including the financial, clinical and governance measures with consideration of feedback from other employees and may, at its discretion, allocate more or less to the bonus pool, at any time during the fiscal year or during the subsequent year’s first quarter review. Our Compensation Committee exercises discretion in the allocation of the bonus pool among the participating executives. We allocate executive bonus compensation between cash and non-cash compensation, such that if the total executive pool is greater than a specified amount, for every dollar greater than the stated amount, half of the incentive will be paid in cash and half will be paid in fully vested restricted stock awards. As the bonus pool was not greater than the stated amount (which was $5.0 million for 2023), the total executive incentive was paid in cash.
The Compensation Committee determined, based on the adjusted predetermined formula, that the bonus pool for 2023, plus additional allocation and adjustments to the bonus pool approved by our Compensation Committee based on clinical performance, leadership development, and growth, was $2,150,000. Cash incentive performance bonuses for 2023 were allocated to the executive officers who participated in the executive incentive program as follows: Mr. Guerisoli, $1,000,000; Mr. Gochnour, $800,000, and Ms. Walbom, $350,000. Messers. Cheney and Steik received incentive pay separate from the program outlined above. Mr. Cheney’s cash incentive pay of $250,000 was tied to the Company’s performance, legal results, and successful operation of the Service Center. Mr. Steik participated in an incentive program tied to the financial and clinical performance of the Company’s home health and hospice segment and was awarded a cash incentive bonus for 2023 of $250,000. The bonus program for the Company’s home health and hospice segment is structured similarly to the executive bonus pool described above with metrics and targets specific to that operating segment.
Each year, our compensation committee reviews our financial performance goals and may adjust the bonus pool formula at its discretion to better align the amount available for annual executive bonuses with our objectives. The compensation committee may increase the amount of adjusted annual income that must be achieved in order to create the same bonus pool as the preceding year in order to increase the difficulty of receiving the same bonus. The allocation of this bonus pool to the participating executives remains discretionary based upon the compensation committee's determination of each participating executive's contribution to our annual performance and value to the organization going forward. The 2023 financial performance goals and bonus pool formula have been established by the compensation committee consistent with historical practices. In addition, the compensation committee can (and is some cases, must) “clawback” certain performance-based compensation paid to our executives under our executive incentive plan in certain circumstances where there has been a restatement of the Company's financial results or where subsequent events diminish the performance metrics, including clinical results, upon which the incentive payments were based.
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Long-Term Incentive Compensation. We believe that long-term performance is achieved through an ownership culture. Accordingly, we encourage long-term performance by our executives and other key personnel throughout the organization through the use of stock-based awards. We have adopted an equity incentive plan that permits the grant of stock, stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and other stock-based awards. Historically, we have generally issued stock options and, less frequently, restricted stock under this plan.
In order to preserve the link between the interests of executives and other key personnel and those of stockholders, we generally grant stock awards to those executives and others who have performed at a high level and have demonstrated qualities of an ownership culture. Our executives who have significant levels of stock ownership are not permitted to hedge the economic risk of such ownership. We intend to continue to provide long-term awards through the granting of stock based awards. The individuals receiving these awards will be required to hold them for one year from the end of the calendar year for which they are earned.
Except with respect to grants to our directors and other stock grants issued pursuant to the executive incentive plan, the stock options and restricted stock awards that we grant generally vest over five years (20% on each anniversary of the grant date). If a recipient’s employment with us terminates, then the stock options and restricted stock that remain unvested as of the date of the termination of the recipient’s employment will be forfeited without compensation. Until vested, the stock options and restricted stock may not be transferred, and vested options and shares shall be subject to our insider trading policy. Stock options generally have a maximum term of ten years. The grant dates of our stock options and restricted stock awards are generally the date our Board of Directors or Compensation Committee meets to approve such stock option grants or restricted stock awards. Our Board of Directors or Compensation Committee historically has approved stock-based awards at regularly scheduled meetings. Our Board of Directors and Compensation Committee intend to continue this practice of approving the majority of stock-based awards at regularly scheduled meetings on a quarterly basis, unless earlier approval is required for a new-hire inducement or position change grant; regardless of whether or not our Board of Directors or Compensation Committee knows material non-public information on such date. The exercise price of our stock options is the fair market value of our common stock on the date of grant as determined by the closing price of our common stock on the NASDAQ Stock Market on the date of grant. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares of common stock underlying the option, including voting rights and the right to receive dividends or dividend equivalents. However, the recipients of restricted stock will have the right to vote and to receive any dividends or other distributions paid with respect to their shares of restricted stock, whether vested or unvested.
Our Chief Executive Officer historically has made recommendations to our Compensation Committee and Board of Directors regarding the amount of stock options and other compensation to grant to our other executives based upon his assessment of their performance, and may continue to do so in the future. Our executive officers, however, do not have any role in determining the timing of our stock option grants.
Although we do not have any formal policy for determining the amount of stock-based awards or the timing of our stock-based awards, we have historically granted stock options or restricted stock to high-performing employees (i) in recognition of their individual achievements and contributions to our company, and (ii) in anticipation of their future service and achievements. We may in the future introduce a more formal plan.
Other Compensation. Our executives are eligible to receive the same benefits that are available to all employees, including the premiums paid to provide life insurance equal to each executive's annual salary and the premiums to provide accidental death and dismemberment insurance. Certain of our executives also receive allowances for automobiles and third-party tax services.
Compensation Committee Report
The Compensation Committee has reviewed the foregoing Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and discussed the Compensation Discussion and Analysis with our management. Based on such review and discussions with management, the Compensation Committee recommended to our Board that the foregoing Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Respectfully submitted by the Compensation Committee of the Board of Directors,
Dr. John G. Nackel, PhD, Chair
Ms. JoAnne Stringfield
Mr. Stephen M. R. Covey
Members of the Compensation Committee
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The Compensation Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Compensation Committee Report by reference therein.
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Summary Compensation Table
The following table sets forth certain information with respect to compensation for the years ended December 31, 2021, 2022 and 2023, earned by, awarded to or paid to our NEOs.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($)(1) | Stock Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||||||||||||
Brent J. Guerisoli Chief Executive Officer | 2023 | 362,500 | 1,000,000 | 497,136 | — | 8,884 | 1,868,520 | |||||||||||||||||||||||||||||||||||||
| 2022 | 295,834 | 500,000 | 150,650 | 604,350 | 8,447 | 1,559,281 | ||||||||||||||||||||||||||||||||||||||
| 2021 | 268,092 | 300,000 | 186,880 | — | 4,820 | 759,792 | ||||||||||||||||||||||||||||||||||||||
Lynette B. Walbom(2) Chief Financial Officer | 2023 | 206,250 | 350,000 | 183,542 | — | 75,400 | 815,192 | |||||||||||||||||||||||||||||||||||||
Jennifer L. Freeman(2) Former Chief Financial Officer | 2023 | 278,000 | — | 72,529 | — | 8,354 | 358,883 | |||||||||||||||||||||||||||||||||||||
| 2022 | 276,666 | 136,000 | 90,390 | 268,600 | 7,823 | 779,479 | ||||||||||||||||||||||||||||||||||||||
| 2021 | 267,917 | 175,000 | 155,733 | — | 7,798 | 606,448 | ||||||||||||||||||||||||||||||||||||||
John J. Gochnour President and Chief Operating Officer | 2023 | 316,668 | 800,000 | 369,754 | — | 8,713 | 1,495,135 | |||||||||||||||||||||||||||||||||||||
| 2022 | 273,541 | 458,702 | 60,260 | 537,200 | 9,941 | 1,339,644 | ||||||||||||||||||||||||||||||||||||||
| 2021 | 265,500 | 135,750 | 186,880 | — | 10,775 | 598,905 | ||||||||||||||||||||||||||||||||||||||
Kirk Cheney General Counsel and Corporate Secretary | 2023 | 250,000 | 250,512 | 212,304 | — | 238 | 713,054 | |||||||||||||||||||||||||||||||||||||
| 2022 | 213,031 | 90,000 | 24,095 | 188,020 | 188 | 515,334 | ||||||||||||||||||||||||||||||||||||||
| 2021 | 195,000 | 60,000 | 91,841 | — | 170 | 347,011 | ||||||||||||||||||||||||||||||||||||||
Jason P. Steik Chief Clinical Officer | 2023 | 257,726 | 250,000 | 212,304 | — | 966 | 720,996 | |||||||||||||||||||||||||||||||||||||
| 2022 | 236,667 | 82,500 | 12,052 | 188,020 | 919 | 520,158 | ||||||||||||||||||||||||||||||||||||||
| 2021 | 212,292 | 60,000 | 91,845 | — | 887 | 365,024 | ||||||||||||||||||||||||||||||||||||||
| (1) | The annual amounts shown are the amounts of total compensation cost which will be recognized over the five year vesting period related to options to purchase common stock which were granted during the year ended December 31, 2023, as a result of the adoption of ASC 718. These awards are not immediately exercisable and vest over five years. For a discussion of valuation and forfeiture assumptions, see Note 12, Options and Awards, in our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. | |||||||
| (2) | Jennifer L. Freemen stepped down from her role as interim Chief Financial Officer on May 22, 2023 and Lynette B Walbom took over the role of Chief Financial Officer on the same date. | |||||||
Pay Versus Performance
The following table sets forth certain information required by Item 402(v) of Regulation S-K (“PvP Rules”). For a better understanding of how our Compensation Committee evaluates and sets executive compensation, please see the “Compensation Discussion and Analysis” (CD&A) above.
Pursuant to the PvP Rules, the pay versus performance table (“PvP Table”) (set forth below) is required to include, for each year, the compensation actually paid (“CAP”) for the principal executive officer (“PEO”) and the average CAP for non-PEO NEOs. CAP represents a new calculation of compensation that differs significantly from the Summary Compensation Table ("SCT") calculation of compensation presented in the CD&A, as well as from the way in which the Compensation Committee makes annual compensation decisions, as discussed in the CD&A. For example, the CAP calculation for a given year includes the change in fair value of multiple years of equity grants that are outstanding and unvested during the year, whereas the Summary Compensation Table calculation includes only the grant date fair value of equity awards that are granted during the year. These differences result in a CAP calculation that may be higher or lower than the corresponding Summary Compensation
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Table calculation, and that also may be more significantly impacted by changes in stock price. Outstanding equity awards may be represented in more than one year of the PvP Table.
Pay Versus Performance Table
The following table sets forth additional compensation information for our PEO and our other Named Executive Officers (non-PEO NEOs) (averaged) along with total shareholder return, net income, and Adjusted net income performance results for fiscal 2023, 2022, 2021 and 2020.
| Year | Summary Comp. Table Total for Daniel H. Walker | Summary Comp. Table Total for Brent J. Guerisoli | Comp. Actually Paid to Daniel H. Walker | Comp. Actually Paid to Brent J. Guerisoli | Average Summary Comp. Table Total for Non-PEO NEOs | Average Comp. Actually Paid to Non-PEO NEOs | Year-end value of $100 invested on 12/31/2019 in: | Net Income (in millions) | Adjusted Net Income (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pennant Group | Industry Peer Group | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($)(1) | ($)(1) | ($)(1)(2) | ($)(1)(2) | ($)(1) | ($)(1)(2) | ($)(3) | ($)(3) | ($) | ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | N/A | ( | N/A | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | For 2023, the PEO was For 2022, the PEO was For 2021, the PEO was For 2020, the PEO was | ||||||||||||||||||||||||||||||||||||||||
| (2) | For 2023, CAP was determined by making the following adjustments for equity awards: | ||||||||||||||||||||||||||||||||||||||||
| Summary Compensation Table (“SCT”) Total | Equity Deductions from SCT Total | Year End Fair Value of Current Year Equity Awards | Year over Year Change in Fair Value of Outstanding and Unvested Equity Awards | Year over Year Change in Fair Value of Equity Awards Granted in Prior Year that Vested in the Year | Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Year | CAP | |||||||||||||||||||||||||||||||||||
| Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||||||||
| Brent J. Guerisoli | 2023 | ( | |||||||||||||||||||||||||||||||||||||||
| Non-PEO NEOs | 2023 | ( | |||||||||||||||||||||||||||||||||||||||
| (a) | Summary Compensation Table amounts reflect the grant date fair values of equity awards. For CAP calculation purposes, adjustments have been made to reflect fair values as of each measurement date. The equity award adjustments for each applicable year include the addition (or subtraction, as applicable) of the following: (i) the year-end fair value of any equity awards granted in the applicable year that are outstanding and unvested as of the end of the year; (ii) the amount of change as of the end of the applicable year (from the end of the prior fiscal year) in fair value of any awards granted in prior years that are outstanding and unvested as of the end of the applicable year; (iii) for awards granted in prior years that vest in the applicable year, the amount equal to the change as of the vesting date (from the end of the prior fiscal year) in fair value; (iv) and for awards granted in prior years that are determined to fail to meet the applicable vesting conditions during the applicable year, a deduction for the amount equal to the fair value at the end of the prior fiscal year. The valuation assumptions used to calculate fair values did not materially differ from those disclosed at the time of grant, with the exception of the current share price used in the valuations. For a reconciliation of adjustments to Summary Compensation Table amounts for 2020, 2021, and 2022 for CAP calculation purposes, see the proxy statement filed with the Commission on April 13, 2023. | |||||||||||||
| (3) | Company and peer group total shareholder return (“TSR”) for each year reflects what the cumulative value of $100 would be, including reinvestment of dividends, if such amount were invested on December 31, 2019. For purposes of the table, the Company’s peer group is an “industry peer group”, as reflected in our stock performance graph in our Annual Report on Form 10-K, which was filed with the Commission on February 28, 2024. When comparing the Company’s Total Shareholder Return (TSR) to its peer group, it is important to recognize that, although each peer group company is part of the post-acute health care industry, Pennant and its peers have different business lines, geographies, business models, and acuity mixes. For example, The Ensign Group, one of the key contributors to the peer group TSR, primarily operates skilled nursing facilities. Encompass Health is a large operator of inpatient rehabilitation hospitals, a business line that Pennant does not have. The Company has provided the peer group TSR comparison to comply with SEC rules, but notes that the peer group comparison is imperfect. The peer group total shareholder returns for 2020, 2021, and 2022 have been re-stated from those reported in the prior year due to the acquisition of LHC Group, Inc. in February 2023. | ||||||||||||||||||||||||||||||||||||||||
| (4) | Adjusted net income is defined as net income before (i) costs incurred for start-up operations, including rent and excluding depreciation, (ii) share-based compensation expense, (iii) non-capitalizable acquisition related costs and credit allowances, (iv) redundant or non-recurring transition services costs, (v) loss related to senior living operations transferred to Ensign, (vi) usual or non-recurring charges, (vii) net income attributable to noncontrolling interest, and (viii) the tax impact of the adjustments to GAAP net income. | ||||||||||||||||||||||||||||||||||||||||
| (5) | The amounts for Average Summary Comp. Table Total for Non-PEO NEOs and the Comp. Actually Paid for Non-PEO NEOs for 2020 were revised from the corresponding amounts reported in the prior year’s proxy statement, which were inadvertently overstated. The corrected amounts are reflected in the table above and the graphical comparisons shown below. | ||||||||||||||||||||||||||||||||||||||||
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Most Important Performance Measures for 2023
The following table lists the most important measures that were used to link executive compensation to company performance in 2023. The measures in the table are not ranked.
| Measure | ||
Relationship Between CAP and Financial Performance
In accordance with PvP Rules, the Company is providing the following descriptions of the relationships between information presented in the PvP Table. The following graphs depict the relationship between Net Income, Adjusted Net Income and CAP to the Company's PEOs and the NEOs, respectively.
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Grants of Plan-Based Awards
The following table summarizes grants of plan-based awards made to our NEOs in 2023.
| Name | Grant Date | All Other Stock Awards: Number of Shares or Stock Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Options and Stock Awards ($) | |||||||||||||||||||||||||||
| Brent J. Guerisoli | 2/28/2023 | — | 60,000 | 15.02 | 435,174 | |||||||||||||||||||||||||||
| 8/22/2023 | — | 10,000 | 12.52 | 61,963 | ||||||||||||||||||||||||||||
| Lynette B. Walbom | 5/25/2023 | — | 25,000 | 11.60 | 140,168 | |||||||||||||||||||||||||||
| 8/22/2023 | — | 7,000 | 12.52 | 43,374 | ||||||||||||||||||||||||||||
| Jennifer L. Freeman | 2/28/2023 | — | 10,000 | 15.02 | 72,529 | |||||||||||||||||||||||||||
| John J. Gochnour | 2/28/2023 | — | 45,000 | 15.02 | 326,380 | |||||||||||||||||||||||||||
| 8/22/2023 | — | 7,000 | 12.52 | 43,374 | ||||||||||||||||||||||||||||
| Kirk Cheney | 2/28/2023 | — | 25,000 | 15.02 | 181,322 | |||||||||||||||||||||||||||
| 8/22/2023 | — | 5,000 | 12.52 | 30,981 | ||||||||||||||||||||||||||||
| Jason P. Steik | 2/28/2023 | — | 25,000 | 15.02 | 181,322 | |||||||||||||||||||||||||||
| 8/22/2023 | — | 5,000 | 12.52 | 30,981 | ||||||||||||||||||||||||||||
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information with respect to outstanding equity awards of our NEOs as of December 31, 2023. The market value of the shares in the following table is the fair value of such shares at December 31, 2023.
| Name | Option awards | Stock awards | ||||||||||||||||||||||||||||||||||||||||||||||||
| Grant Date | Number of Securities underlying unexercised options exercisable (#)(1) | Number of securities underlying unexercised options unexercisable (#)(1) | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares of units of stock that have not vested ($)(2) | |||||||||||||||||||||||||||||||||||||||||||
| Brent J. Guerisoli | 8/22/23 | — | 10,000 | — | 12.52 | 8/22/33 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 2/28/23 | — | 60,000 | — | 15.02 | 2/28/33 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 7/25/22 | — | — | — | — | — | 36,000 | 501,120 | |||||||||||||||||||||||||||||||||||||||||||
| 2/21/22 | 5,000 | 20,000 | — | 14.13 | 2/21/32 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/25/21 | 6,000 | 9,000 | — | 31.54 | 5/25/31 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/28/20 | 24,000 | 16,000 | — | 38.88 | 10/28/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 8/15/20 | 3,600 | 2,400 | — | 37.98 | 8/15/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/27/20 | 12,000 | 8,000 | — | 27.56 | 5/27/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/1/19 | 52,000 | 13,000 | — | 15.09 | 10/1/29 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/31/18 | 14,282 | — | — | 6.16 | 5/31/28 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/25/17 | 12,497 | — | — | 4.54 | 5/25/27 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/26/16 | 8,926 | — | — | 3.84 | 5/26/26 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/27/15 | 2,515 | — | — | 7.42 | 5/27/25 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 8/5/14 | 2,514 | — | — | 5.31 | 8/5/24 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Jennifer L. Freeman | 2/28/23 | — | 10,000 | — | 15.02 | 2/28/33 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 7/25/22 | — | — | — | — | — | 16,000 | 222,720 | |||||||||||||||||||||||||||||||||||||||||||
| 2/21/22 | 3,000 | 12,000 | — | 14.13 | 2/21/32 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/25/21 | 5,000 | 7,500 | — | 31.54 | 5/25/31 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/28/20 | 12,000 | 8,000 | — | 38.88 | 10/28/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 8/15/20 | 2,400 | 1,600 | — | 37.98 | 8/15/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/27/20 | 24,000 | 16,000 | — | 27.56 | 5/27/30 | 4,000 | 55,680 | |||||||||||||||||||||||||||||||||||||||||||
| 10/28/19 | 5,600 | 1,400 | — | 18.09 | 10/28/29 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/1/19 | 9,600 | 2,400 | — | 15.09 | 10/1/29 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Lynette B. Walbom | 8/22/23 | — | 7,000 | — | 12.52 | 8/22/33 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 5/25/23 | — | 25,000 | — | 11.60 | 5/25/33 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| John J. Gochnour | 8/22/23 | — | 7,000 | — | 12.52 | 8/22/33 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 2/28/23 | — | 45,000 | — | 15.02 | 2/28/33 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 7/25/22 | — | — | — | — | — | 32,000 | 445,440 | |||||||||||||||||||||||||||||||||||||||||||
| 2/21/22 | 2,000 | 8,000 | — | 14.13 | 2/21/32 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/25/21 | 6,000 | 9,000 | — | 31.54 | 5/25/31 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/28/20 | 9,000 | 6,000 | — | 38.88 | 10/28/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 8/15/20 | 3,600 | 2,400 | — | 37.98 | 8/15/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/27/20 | 9,000 | 6,000 | — | 27.56 | 5/27/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/1/19 | 61,600 | 15,400 | — | 15.09 | 10/1/29 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/31/18 | 17,853 | — | — | 6.16 | 5/31/28 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/25/17 | 8,926 | — | — | 4.54 | 5/25/27 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/26/16 | 12,572 | — | — | 6.10 | 10/26/26 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/26/16 | 8,926 | — | — | 3.84 | 5/26/26 | — | — | |||||||||||||||||||||||||||||||||||||||||||
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| 5/27/15 | 6,286 | — | — | 7.42 | 5/27/25 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 8/5/14 | 15,715 | — | — | 5.31 | 8/5/24 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 2/7/14 | 34,568 | — | — | 3.36 | 2/7/24 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Jason P. Steik | 8/22/23 | — | 5,000 | — | 12.52 | 8/22/33 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 2/28/23 | — | 25,000 | — | 15.02 | 2/28/33 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 7/25/22 | — | — | — | — | — | 11,200 | 155,904 | |||||||||||||||||||||||||||||||||||||||||||
| 2/21/22 | 400 | 1,600 | — | 14.13 | 2/21/32 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/26/21 | 1,200 | 1,800 | — | 24.04 | 10/26/31 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/25/21 | 2,000 | 3,000 | — | 31.54 | 5/25/31 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/28/20 | 3,000 | 2,000 | — | 38.88 | 10/28/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 8/25/20 | 1,500 | 1,000 | — | 37.70 | 8/25/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Kirk Cheney | 8/22/23 | — | 5,000 | — | 12.52 | 8/22/33 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 2/28/23 | — | 25,000 | — | 15.02 | 2/28/33 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 7/25/22 | — | — | — | — | — | 11,200 | 155,904 | |||||||||||||||||||||||||||||||||||||||||||
| 6/1/22 | 600 | 2,400 | — | 18.03 | 6/1/32 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/26/21 | 1,200 | 1,800 | — | 24.04 | 10/26/31 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/25/21 | 2,000 | 3,000 | — | 31.54 | 5/25/31 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/28/20 | 3,000 | 2,000 | — | 38.88 | 10/28/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 8/15/20 | 2,400 | 1,600 | — | 37.98 | 8/15/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 5/27/20 | 3,000 | 2,000 | — | 27.56 | 5/27/30 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| 10/1/19 | 6,400 | 1,600 | — | 15.09 | 10/1/29 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| (1) | Options granted to employees of the subsidiaries of Pennant generally vest over five years at 20% per year on the anniversary of the grant date. Options expire ten years after the date of grant. | |||||||
| (2) | The market value of these shares at December 31, 2023 was $13.92 per share. | |||||||
Option Exercises and Stock Vested
The following table provides information for our NEOs about options that were exercised and restricted stock that vested in 2023.
| Option Awards | Stock Awards | |||||||||||||||||||
| Name | Number of shares acquired on exercise (#) | Value realized on exercise ($)(1) | Number of shares acquired on vesting (#) | Value realized on vesting ($)(2) | ||||||||||||||||
| Brent J. Guerisoli | — | — | 9,000 | 89,920 | ||||||||||||||||
| Jennifer L. Freeman | — | — | 6,000 | 68,260 | ||||||||||||||||
| John J. Gochnour | — | — | 8,000 | 101,160 | ||||||||||||||||
| Jason P. Steik | — | — | 2,800 | 31,472 | ||||||||||||||||
| Kirk Cheney | — | — | 2,800 | 31,472 | ||||||||||||||||
| (1) | The value realized on the exercise of stock options is equal to the number of shares acquired multiplied by the difference between the exercise price and the market price of our common stock. The market price is the closing price of our common stock on the date of exercise. | |||||||
| (2) | The value realized on the vesting of restricted stock awards is equal to the number of shares vested multiplied by the market price of our common stock. The market price is the closing price of our common stock on the vesting date. | |||||||
Employment Agreements
Our current NEOs do not have employment agreements.
Pension Benefits
None of our named executive officers participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by us. The Compensation Committee may elect to adopt qualified or non-qualified defined benefit plans in the future if it determines that doing so is in our best interests.
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Non-Qualified Deferred Compensation
During fiscal year 2021, the Company implemented a non-qualified deferred compensation plan (the “DCP”) for executive, other highly compensated employees, independent contractors and non-employee directors which went into effect on June 1, 2021, effective for compensation to be paid in 2022 and thereafter. The independent contractors and non-employee directors are otherwise ineligible for participation in the Company's 401(k) plan. The DCP allows participating employees to defer the receipt of a portion of their base compensation and certain employees up to 80% of their base salary and bonus compensation, or director fees. At the participant’s election, payments can be deferred until a specific date at least one year after the year of deferral or until termination of employment and can be paid in a lump sum or in up to ten annual installments. Separate deferral elections can be made for each year, and in limited circumstances, existing payment elections may be changed. The amounts deferred are credited with earnings and losses based upon the actual performance of the deemed investments selected by the participant. The rate of return for each participant varies depending on the specific investment elections made by the participant. Additionally, the plan allows for the employee deferrals to be deposited into a rabbi trust and the funds are generally invested in individual variable life insurance contracts owned by us that are specifically designed to informally fund savings plans of this nature.
The following table shows contributions and earnings during fiscal year 2023 and the account balances as of December 31, 2023, for our named executive officers who have contributed to the deferred compensation plan. All of the contributions that are reported in the table below were already included in the Summary Compensation Table.
| Name | Aggregate Balance at December 31, 2022 ($) | Executive Contributions in 2023 ($) | Company Contributions in 2023 ($) | Aggregate Earnings in 2023 ($) | Aggregate Withdrawals/Distributions ($) | Aggregate Balance at December 31, 2023 ($) | |||||||||||||||||
| Jennifer L. Freeman | 25,607 | 65,395 | 19,504 | — | 110,506 | ||||||||||||||||||
| Brent J. Guerisoli | 28,106 | 50,000 | — | 6,346 | — | 84,452 | |||||||||||||||||
| John J. Gochnour | 62,374 | — | — | 10,069 | — | 72,443 | |||||||||||||||||
Change-in-Control and Severance Disclosure
We have not entered into any arrangements providing for payments or benefits in connection with the resignation, severance, retirement or other termination of any of our NEOs, changes in their compensation or a change in control.
The Compensation Committee has the authority to accelerate the vesting of options and restricted stock, in certain circumstances, subject to the terms of the plans.
Hedging Transactions
Forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, allow a director, officer or employee to lock in much of the value of his or her stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These transactions allow the director, officer or employee to continue to own the covered securities, but without the full risks and rewards of ownership. When that occurs, the director, officer or employee may no longer have the same objectives as the Company’s other stockholders. Therefore, the Company prohibits all directors, officers or employees that hold the Company's shares from engaging in such transactions, unless such transaction is approved in advance by the General Counsel and Board of Directors of the Company.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Dr. John G. Nackel, Ms. JoAnne Stringfield, and Mr. Stephen M. R. Covey. None of the members of the Compensation Committee at any time has been one of our officers or employees. None of our executive officers currently serves, or during 2023 served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers on our Board or Compensation Committee.
Pay Ratio Disclosure
In accordance with Item 402(u) of Regulation S-K, we determined the ratio of the annual total 2023 compensation of Mr. Brent J. Guerisoli, our Chief Executive Officer, relative to the annual total 2023 compensation of our median employee. For 2023, the ratio of the total annual compensation of Mr. Guerisoli as reported in the “total” column of the Summary Compensation Table
33
to the median of the annual total compensation of all of our other employees was 58:1. The median of the annual total compensation of our employees other than Mr. Guerisoli, including part-time employees and those who served a partial year, was $31,970 for 2023. We identified the median employee using our employee population of approximately 5,679 employees as of December 31, 2023, 31.5% of whom are part-time. In accordance with SEC rules for calculating the ratio, we did not make any full-time equivalent adjustments to the compensation of our part-time employees, any annualized adjustments for employees who served the partial year, or any adjustments to Mr. Guerisoli’s compensation to reflect amounts actually earned during 2023 or to reflect amounts unearned for 2023 performance.
Since the foregoing pay ratio includes the impact of our part-time employees and those who served a partial year, we believe it is appropriate to provide a supplemental calculation to reflect the pay ratio of Mr. Guerisoli to the median annual total compensation of our employees who served the whole year and were full-time as of December 31, 2023. The ratio of Mr. Guerisoli’s total annual compensation as reported in the “total” column of the Summary Compensation Table to the median annual total compensation of only our employees who served the whole year and were full-time as of December 31, 2023 was 29:1 for 2023. The median of the total annual compensation of such employees, other than Mr. Guerisoli, was $65,293 for 2023. We identified such median employee using our employee population of approximately 2,391 employees who served the whole year and were full-time as of December 31, 2023.
To identify the median employees, we used amounts reported in box 5 of wage statements on Form W-2 issued for compensation earned in 2023 as our consistently applied compensation measure. We then calculated the annual total compensation for the identified median employees in accordance with the requirements of the Summary Compensation Table.
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| PROPOSAL 3: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION | ||||||||||||||
| ü | OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE “SAY ON PAY” PROPOSAL | |||||||||||||
General Information
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 14A of the Exchange Act enable our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation paid to our “Named Executive Officers” as disclosed in this Proxy Statement in accordance with the SEC’s rules.
Say on Pay Vote Mechanics
We are asking our stockholders to provide advisory approval of the compensation paid to our NEOs, as described in the “Compensation Discussion and Analysis” (“CD&A”) section of this Proxy Statement (beginning on page 22) and the compensation tables and narrative disclosures following the CD&A.
Highlights of our Executive Compensation Program
As described in detail the CD&A, we seek to closely align the interests of our NEOs with the interests of our stockholders. Our compensation programs are designed to reward our NEOs for the achievement of short-term and long-term strategic and operational goals and the achievement of increased total shareholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. For example:
•We discourage excessive risk-taking by our employees by establishing compensation policies and programs that balance short-term incentives with long-term growth.
•Annual and short-term cash bonuses are based on multiple performance metrics that are consistent with our long-term goals. In particular, annual bonuses are based on the achievement of certain financial performance goals tied to our overall performance and individual performance goals such as positive survey results, high clinical quality standards, governance, compliance requirements, positive patient feedback and feedback from other employees. We believe that this balanced approach discourages risk-taking that focuses excessively on short-term profits at the sacrifice of our long-term health.
•Management or the Compensation Committee, as applicable, generally has discretion to adjust the annual incentive compensation of our field and service center leaders upward or downward for quality of performance and other factors other than our financial performance. The Compensation Committee can award bonuses that are less than the bonus amount resulting from the predetermined formula it establishes as a result of not achieving our goals regarding clinical performance, governance, compliance and other strategic objectives, and allocate such award bonuses to other members of management or withhold such amounts altogether.
•Our long-term equity incentive awards are designed to directly align the interests of our employees with long-term stockholder interests. We encourage long-term performance by our executives and employees at every level in the organization through the use of stock-based awards with multi-year vesting schedules. We believe that long-term performance is achieved through an ownership culture and that equity incentive awards reward performance without incentivizing inappropriate risk-taking. Above a pre-established bonus target, we allocate executive bonus compensation between cash and non-cash compensation. Under this policy, if the total executive pool is greater than the then-applicable stated amount, for every dollar greater than the stated amount, 50% of the incentive will be paid in cash and 50% will be paid in fully vested restricted stock awards.
•Our Compensation Committee has adopted a “clawback” policy that complies with SEC rules and NASDAQ listing standards. The clawback policy allows (and in certain cases requires) our Board to recover any erroneously awarded incentive-based compensation paid to our current or former executives and the presidents of our subsidiaries in certain circumstances where there has been a restatement of our financial results or where subsequent events diminish the performance metrics, including clinical results, upon which the prior incentive payments were based.
•Our Compensation Committee has adopted specific governance performance goals, which include leadership development and establishing a team made up of members of the Board and management with the goal of creating a strategy for the Board that emulates the culture of the organization.
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•Our Compensation Committee oversees our compensation policies and practices and is responsible for reviewing and approving compensation of our executive officers.
Consistent with these goals, and as further discussed in the CD&A, we believe the Compensation Committee of our Board of Directors has designed an executive compensation program that: (i) rewards pay for performance, (ii) is competitive and reasonable as compared to compensation programs adopted by similarly-sized public companies in the industry and based on a review of broader public company and industry survey data and (iii) is cost-effective with limited perquisites and other personal benefits.
The vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or the Compensation Committee. Our Board of Directors and the Compensation Committee value the opinions of our stockholders and will take into account the outcome of this vote in considering future compensation arrangements.
Accordingly, we ask our stockholders to vote on the following resolution at the Annual Meeting:
“RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company's Proxy Statement for the 2024 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the 2023 Summary Compensation Table and the other related tables and disclosure.”
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| STOCK OWNERSHIP INFORMATION | ||||||||||||||
Stock Ownership Table
The following table sets forth information known to us with respect to beneficial ownership of our common stock as of April 01, 2024 for (i) each director and nominee, (ii) each holder of 5.0% or greater of our common stock, (iii) our Named Executive Officers, and (iv) all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. Shares subject to options that are exercisable within 60 days following April 01, 2024 are deemed to be outstanding and beneficially owned by the optionee for the purpose of computing share and percentage ownership of that optionee, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The percentage of shares beneficially owned is based on 30,036,124 shares of common stock outstanding as of April 01, 2024. Except as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them.
Name and Address of Beneficial Owner(1) | Number of Shares | Percentage | ||||||||||||
| Named Executive Officers And Directors | ||||||||||||||
Brent J. Guerisoli(2) | 244,962 | * | ||||||||||||
John J. Gochnour(3) | 287,028 | * | ||||||||||||
Jennifer L. Freeman(4) | 101,407 | * | ||||||||||||
Lynette Walbom(5) | 5,000 | * | ||||||||||||
Brian W. Wayment(6) | 48,013 | * | ||||||||||||
Jason Steik(7) | 14,500 | * | ||||||||||||
Christopher R. Christensen(8) | 755,038 | 2.5 | % | |||||||||||
John G. Nackel(9) | 162,965 | * | ||||||||||||
Stephen M. R. Covey(10) | 26,750 | * | ||||||||||||
JoAnne Stringfield(11) | 24,945 | * | ||||||||||||
Scott E. Lamb(12) | 38,135 | * | ||||||||||||
Barry M. Smith(13) | 52,699 | * | ||||||||||||
Gregory K. Morris, MD(13) | 15,000 | * | ||||||||||||
| All Executives Officers and Directors as a Group (12 persons) | 1,776,442 | 5.8 | % | |||||||||||
| 5% Stockholders | ||||||||||||||
8 Knots Management, LLC(14) | 1,837,492 | 6.0 | % | |||||||||||
BlackRock, Inc.(15) | 2,184,974 | 7.2 | % | |||||||||||
T. Rowe Price Associates, Inc.(16) | 2,718,886 | 8.9 | % | |||||||||||
Wasatch Advisors, Inc.(17) | 1,465,754 | 4.8 | % | |||||||||||
The Vanguard Group(18) | 1,706,403 | 5.6 | % | |||||||||||
| * | Means less than 1%. | |||||||
| (1) | The addresses of all of the officers and directors listed are in the care of The Pennant Group, Inc., 1675 E. Riverside Drive, Suite 150, Eagle, ID 83616 | |||||||
| (2) | Represents 80,142 shares of common stock and options to purchase 164,820 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (3) | Represents 119,250 shares of common stock and options to purchase 167,778 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (4) | Represents 34,807 shares of common stock and options to purchase 66,600 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (5) | Represents options to purchase shares of common stock 5,000 that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (6) | Represents options to purchase shares of common stock 48,013 that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (7) | Represents options to purchase shares of common stock 14,500 that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (8) | Represents 135,618 shares of common stock held directly by Mr. Christensen, 481,149 shares are held by Hobble Creek Investments, LLC, of which Mr. Christensen is the sole member, 126,100 shares are directly owned by The Christopher R. Christensen 2020 Irrevocable Trust and indirectly by Mr. Christensen's spouse, as trustee of the trust, 2,171 shares are held directly by Mr. Christensen's spouse, and 2,000 shares are held by Mr. Christensen's former spouse as custodian for their minor children under the California Uniform Transfers to Minors Act. Mr. Christensen's former spouse holds voting and investment power over the shares held for their children. Also includes options to purchase 8,000 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
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| (9) | Includes 2,700 shares held by the Nackel Family Trust dated June 30, 1997, and 94,652 shares of common stock held by Dr. Nackel directly. Dr. Nackel and his spouse share voting and investment power over the trust. Also includes options to purchase 65,613 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (10) | Represents 21,750 shares of common stock and options to purchase 5,000 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (11) | Represents 19,945 shares of common stock and options to purchase 5,000 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (12) | Represents 33,135 shares of common stock and options to purchase 5,000 shares of common stock that are currently exercisable or exercisable within 60 days of April 01, 2024. | |||||||
| (13) | Represents shares of common stock owned directly. | |||||||
| (14) | Information regarding 8 Knots Management, LLC (“8 Knots”) is based solely on a Schedule 13G/A filed with the SEC on February 14, 2023 by 8 Knots. 8 Knots reported that it has sole voting power with respect to 1,837,492 shares of common stock and sole dispositive power with respect to 1,837,492 shares of common stock. The address of the principal business office of 8 Knots is 4530 Woodfin Drive, Dallas, Texas 75220. | |||||||
| (15) | Information regarding Blackrock Inc. (“Blackrock”) is based solely on a Schedule 13G/A filed with the SEC on January 23, 2023 by Blackrock. Blackrock reported that it has sole voting power with respect to 2,150,866 shares of common stock and sole dispositive power with respect to 2,184,974 shares of common stock. The address of the principal business office of Blackrock is 55 East 52nd Street, New York, NY 10055. | |||||||
| (16) | Information regarding T. Rowe Price Associates, Inc. (“T. Rowe”) is based solely on a Schedule 13G/A filed with the SEC on February 14, 2023 by T. Rowe. T. Rowe reported that it has sole voting power with respect to 996,671 shares of common stock and sole dispositive power with respect to 2,718,886 shares of common stock. The address of the principal business office of T. Rowe is 100 E. Pratt Street, Baltimore, MD 21202. | |||||||
| (17) | Information regarding Wasatch Advisors, Inc. (“Wasatch”) is based solely on a Schedule 13G/A filed with the SEC on January, 10 2023 by Wasatch. Wasatch reported that it has sole voting power and sole dispositive power with respect to 1,465,754 shares of common stock. The address of the principal business office of Wasatch is 505 Wakara Way, Salt Lake City, UT 84108. | |||||||
| (18) | Information regarding The Vanguard Group, Inc. (”Vanguard”) is based solely on a Schedule 13G/A filed with the SEC on February 9, 2023 by Vanguard. Vanguard reported that it has shared voting power with respect to 50,136 shares of common stock, sole dispositive power with respect to 1,706,403 shares of common stock and shared dispositive power with respect to 76,224 shares of common stock. The address of the principal business office of Vanguard is 100 Vanguard Blvd. Malvern, PA 19355. | |||||||
Equity Compensation Plan Information
The following table provides certain information as of December 31, 2023 with respect to our equity compensation plans (after giving effect to shares issued and/or vesting on such date).
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)(1) | |||||||||||||||||
Conversion of Ensign awards at the Spin-Off(2) | 311,317 | $ | 5.45 | — | ||||||||||||||||
| The Pennant Group Inc 2019 Omnibus Incentive Plan | 2,610,250 | $ | 20.35 | 1,009,158 | ||||||||||||||||
| Total | 2,921,567 | 1,009,158 | ||||||||||||||||||
| (1) | Represents the number of shares that remained available for issuance under The Pennant Group Inc 2019 Omnibus Incentive Plan (the “2019 Plan”) as of December 31, 2023. As of April 1, 2024, 1,578,455 shares remained available for issuance under the 2019 Plan. | |||||||
| (2) | Prior to the Spin-Off, employees of the Company’s subsidiaries participated in Ensign’s equity-based incentive plans (the “Ensign Plans”) and the Cornerstone Subsidiary Equity plan (the “Subsidiary Equity Plan”). Outstanding options held by employees of the Company under the Ensign Plans and outstanding options and restricted stock awards under the Subsidiary Equity Plan were modified and replaced with Pennant awards at the Spin-Off date. | |||||||
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| CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | ||
Since January 1, 2023, there has not been, nor is there any proposed transaction in which we were or will be a party or in which we were or will be a participant, involving an amount that exceeded or will exceed $120,000 and in which any director, executive officer, beneficial owner of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than the compensation arrangements and other agreements and transactions which are described in “Executive Compensation” and “Director Compensation” sections and the transactions described below.
Relationship between Ensign and Pennant
To govern our relationship after the Spin-Off, Ensign and Pennant entered into a Master Separation Agreement, a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement and certain real estate agreements. For further details of the transactions with Ensign please refer to Note 3, Basis of Presentation and Summary of Significant Accounting Policies, to the Consolidated and Combined Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed on February 28, 2024. Transactions pursuant to these agreements are pre-approved under our Related Person Transaction Policy.
Family Relationships
There have not been any related person transactions (including transactions with family members) that are required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Indemnification Provisions
We have entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements, along with our Certificate of Incorporation and Bylaws, require us to indemnify such persons to the fullest extent permitted by Delaware law.
Policies and Procedures for Transactions with Related Persons
Our Audit Committee reviews potential conflict of interest situations and any future proposed transaction or series of transactions with related persons on an ongoing basis, and either approve or disapprove each reviewed transaction or series of related transactions with related persons. On August 27, 2019, we adopted a written policy and set of procedures with respect to related person transactions (the “Related Person Transaction Policy”), which includes specific provisions for the approval of related person transactions. Pursuant to the Related Person Transaction Policy , a “related person transaction” is defined as a transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, in which we and certain enumerated related persons participate, the amount involved exceeds $120,000 and the related person has a direct or indirect material interest therein. Related person transactions include any existing or currently proposed transaction or series of similar transactions for which disclosure under Item 404(a) of SEC Regulation S-K is mandated. The term “related person” under SEC rules means, at the applicable time, (a) any director or executive officer of the Company, (b) any nominee to the Board of Directors, (c) any beneficial owner of more than 5% of Pennant stock, and (d) any immediate family member (as defined by SEC rules) of any of those directors, executive officers, nominees, or beneficial owners. An indirect material interest can arise from a related person’s position or relationship with a firm, corporation, or other entity that engages in a transaction with the Company.
In the event that a related person transaction is identified, such transaction must be reviewed and approved or ratified by our Audit Committee. If it is impracticable for our Audit Committee to review such transaction, pursuant to the policy, the transaction will be reviewed by the chair of our Audit Committee, whereupon the chair of our Audit Committee will report to the Audit Committee the approval or disapproval of such transaction.
In reviewing and approving related person transactions pursuant to the Related Person Transaction Policy, the Audit Committee, or its chair, shall consider all information that the Audit Committee, or its chair, believes to be relevant and important to a review of the transaction and shall approve only those related person transactions that are determined to be in, or not inconsistent with, our best interests and that of our stockholders, taking into account all available relevant facts and circumstances available to the Audit Committee or its chair. Pursuant to the Related Person Transaction Policy, these facts and circumstances will typically include, but not be limited to: the benefits of the transaction to us; the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer; the availability of other sources for comparable products or services; the terms of the transaction; and the terms of comparable transactions that would be available to unrelated third parties or to employees generally. Pursuant to the Related Person Transaction Policy, no member of the Audit Committee shall participate in
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any review, consideration or approval of any related person transaction with respect to which the member or any of his or her immediate family members is the related person.
Delinquent Section 16(a) Reports
The following tables lists all Section 16(a) reports that were filed late due to inadvertent clerical error in 2023.
| Reporting Person | # of Delinquent Reports | # of Related Transactions | ||||||
| Lynette B. Walbom | 1 | 1 | ||||||
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ADDITIONAL INFORMATION
Future Stockholder Proposals
Stockholders may present proposals for action at a future meeting only if they comply with the requirements of the proxy rules established by the SEC and our Bylaws. Stockholder proposals that are intended to be presented at our 2025 Annual Meeting and included in the proxy statement, form of proxy and other proxy solicitation materials related to that meeting must comply with the requirements of Rule 14a-8 under the Exchange Act and be received by us no later than December 12, 2024, which is 120 calendar days prior to the anniversary date of the mailing of this Proxy Statement. Stockholders are also advised to review our Bylaws, which contain additional advance notice requirements, including requirements with respect to advance notice of stockholder proposals and director nominations. Under our Bylaws, the deadline for submitting a stockholder proposal or a nomination for director is not later than the close of business on the 60th day, nor earlier than the 90th day, prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder to be timely must be so received no earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the 60th day prior to such annual meeting, or not later than the close of business on the 10th day following the date on which we publicly disclose the date of the meeting, whichever occurs first. In other words, for a stockholder proposal or a nomination for director to be considered at the 2025 annual meeting of stockholders, it should be properly submitted no earlier than February 22, 2025, and no later than March 24, 2025. Unless otherwise required by law, if a stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation and present his or her proposed business or nomination, such proposed business will not be transacted and the nomination will be disregarded. In addition to satisfying the requirements under our Bylaws with respect to advance notice of any director nomination, any stockholder who intends to solicit proxies in support of director nominees other than the Company’s nominees in accordance with Rule 14a-19 for the 2025 annual meeting of stockholders must provide the required notice of intent to solicit proxies to the Corporate Secretary at the address above no later than March 24, 2025 and otherwise comply with all requirements of Rule 14a-19.
Stockholder proposals must be in writing and should be addressed to our Secretary, at our principal executive offices at 1675 E. Riverside Drive, Suite 150, Eagle, Idaho 83616. It is recommended that stockholders submitting proposals direct them to our Secretary and utilize certified mail, return receipt requested in order to provide proof of timely receipt. The Chairman of the Annual Meeting reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions set forth in our Bylaws and conditions established by the SEC.
Other Matters
We do not know of any business, other than as described in this Proxy Statement that should be considered at the Annual Meeting. If any other matters should properly come before the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote the proxies held by them in accordance with their best judgment.
To assure the presence of the necessary quorum and to vote on the matters to come before the Annual Meeting, please indicate your choices on the enclosed proxy and date, sign, and return it promptly in the envelope provided. The signing of a proxy by no means prevents you from attending and voting at the Annual Meeting.
Available Information
We are subject to the informational requirements of the Exchange Act, and, in accordance therewith, file reports and other information with the SEC. The SEC maintains an Internet site that contains our reports, proxies and information statements that we have filed electronically with the SEC at http://www.sec.gov. The information contained on our website, other than this proxy statement, is not considered proxy solicitation material and is not incorporated by reference herein.
A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2023 (INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO), WHICH WE FILED WITH THE SEC ON FEBRUARY 28, 2024, WILL BE PROVIDED WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY STATEMENT IS MAILED UPON THE WRITTEN REQUEST OF ANY SUCH PERSON TO MR. KIRK S. CHENEY, SECRETARY, THE PENNANT GROUP, INC., 1675 E. RIVERSIDE DRIVE, SUITE 150, EAGLE, IDAHO 83616. THE SHARE OWNERSHIP OF THE STOCKHOLDER SUBMITTING THE STOCKHOLDER PROPOSAL MAY BE OBTAINED BY USING THE CONTACT INFORMATION ABOVE.
Stockholders Sharing the Same Address
We have adopted a procedure called “householding,” which has been approved by the SEC. Under this procedure, we will deliver only one copy of our Notice of Internet Availability of Proxy Materials, and for those stockholders that received a paper
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copy of proxy materials in the mail, one copy of our fiscal 2023 Annual Report on Form 10-K to stockholders and this proxy statement, to multiple stockholders who share the same address (if they appear to be members of the same family) unless we have received contrary instructions from an affected stockholder. Stockholders who participate in householding will continue to receive separate proxy cards if they received a paper copy of proxy materials in the mail. This procedure reduces our printing costs, mailing costs and fees, and also supports our environmental goals. If you are a stockholder, share an address and last name with one or more other stockholders and would like to revoke your householding consent or you are a stockholder eligible for householding and would like to participate in householding, please contact Broadridge, either by calling toll free at (866) 540-7095 or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. You will be removed from the householding program within 30 days of receipt of the revocation of your consent. A number of brokerage firms have instituted householding. If you hold your shares in “street name,” please contact your bank, broker or other holder of record to request information about householding.
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PROXY
THE PENNANT GROUP, INC.
1675 E. Riverside Drive, Suite 150, Eagle, Idaho 83616
ANNUAL MEETING OF STOCKHOLDERS
(This Proxy is Solicited on Behalf of the Board of Directors)
The undersigned hereby appoint(s) John J. Gochnour and Kirk S. Cheney, or either of them, as proxies, each with the power to appoint her/his substitute, and hereby authorize(s) them to represent and to vote, as designated below, all the shares of Common stock of The Pennant Group, Inc. ("Pennant"), held of record by the undersigned on April 1, 2024 at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at 8:30 a.m., Mountain Time on Thursday, May 23, 2024, at the Capitol Hill Assisted Living & Memory Care, 76 S. 500 E., Salt Lake City, Utah 84102 and at any adjournments or postponements thereof. Directions to the facility in order to attend the Annual Meeting may be obtained by calling (208) 506-6100. The undersigned also acknowledges receipt of the Notice of the Annual Meeting of Stockholders, the proxy statement and the annual report on Form 10-K for the year ended December 31, 2023 which were furnished with this proxy.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER
MEETING TO BE HELD ON MAY 23, 2024:
THE PROXY STATEMENT AND ANNUAL REPORT TO SECURITY HOLDERS ARE AVAILABLE AT
HTTP://WWW.PROXYVOTE.COM
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted FOR the Class III director nominees listed in Proposal 1, FOR Proposal 2 and Proposal 3.
| PROPOSAL | YOUR VOTE | BOARD OF DIRECTORS RECOMMENDS ↓ | ||||||||||||||||||
| 1 | Election of Directors | FOR | AGAINST | ABSTAIN | ||||||||||||||||
| Scott E. Lamb | ¨ | ¨ | ¨ | FOR | ||||||||||||||||
| Gregory K. Morris, MD | ¨ | ¨ | ¨ | FOR | ||||||||||||||||
| Barry M. Smith | ¨ | ¨ | ¨ | FOR | ||||||||||||||||
| FOR | AGAINST | ABSTAIN | ||||||||||||||||||
| 2 | Ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for fiscal year 2024. | ¨ | ¨ | ¨ | FOR | |||||||||||||||
| 3 | Advisory approval of the Company's named executive officer compensation | ¨ | ¨ | ¨ | FOR | |||||||||||||||
NOTE: In their discretion, the Proxies are authorized to vote upon all other matters as may properly come before the Annual Meeting and any adjournments or postponements thereof, provided that discretionary voting on such other matters is permitted by applicable rules and regulations. | ||||||||||||||||||||
| MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS | ¨ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MARK HERE IF YOU PLAN TO ATTEND THE MEETING | ¨ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Signature | Date | Signature | Date | |||||||||||||||||||||||
NOTE: This proxy must be signed exactly as your name appears hereon. Executors, administrators, trustees, etc., should give full title as such. If the stockholder is a corporation, a duly authorized officer should sign on behalf of the corporation and should indicate his or her title.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
BY USING THE ENCLOSED ENVELOPE.