Exhibit 10.2

MAGELLAN HEALTH SERVICES, INC.

2006 DIRECTOR EQUITY COMPENSATION PLAN

1.                  Purposes. The purpose of this 2006 Director Equity
Compensation Plan (the “Plan”) is to serve as part of an appropriate and
efficient package of compensation arrangements intended to attract, retain and
fairly compensate individuals with the appropriate skills and qualifications to
serve as directors of Magellan Health Services, Inc. (the “Company”) while
increasing participating directors’ stock ownership in the Company and thereby
further aligning their interests and those of the Company’s shareholders. The
amount, timing and other terms of cash compensation that may be paid by the
Company to directors are not governed by this Plan. In addition, adoption of
this Plan shall not limit the authority of the Board to adopt other compensation
programs in which directors may participate.

2.                  Definitions. In addition to the terms defined in Section 1,
the following terms shall be defined as set forth below:

(a)            “Administrator” shall have the meaning set forth in Section 11.b.

(b)           “Annual Award Date” shall have the meaning set forth in
Section 5.a.

(c)            “Annual Award” shall have the meaning set forth in Section 5.a.

(d)           “Black-Scholes Valuation” means the present value of an Option as
of the date in question, calculated by means of the Black-Scholes option pricing
model, so called, as calculated by a qualified financial analyst or compensation
expert based on historical market price information and assumptions as to rates
of interest and other factors which the Board believes are reasonable under the
circumstances.

(e)            “Board” means the Board of Directors of the Company as then
constituted.

(f)              “Change of Control” means the first to occur after the
effective date of this Plan of any of the following events:

(i)                any “person,” as such term is used in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
acquires Voting Stock (as defined below) and immediately thereafter is a
“beneficial owner,” as such term is used in Rule 13d-3 promulgated under the
Exchange Act, of 30% or more of the Voting Stock of the Company;

(ii)             the majority of the Board of Directors of the Company consists
of individuals other than “Continuing Directors,” which shall mean the members
of the Board on the effective date of the Plan; provided that any person
becoming a director subsequent to the date hereof whose election or nomination
for election was supported by two-thirds of the directors who then comprised the
Continuing Directors, shall be considered to be a Continuing Director;

(iii)          the Board of Directors of the Company adopts and, if required by
law or the certificate of incorporation of the Company, the shareholders approve
the dissolution of the Company or a plan of liquidation or comparable plan
providing for the disposition of all or substantially all of the Company’s
assets, and all material conditions to such transactions have been satisfied;

(iv)         all or substantially all of the assets of the Company are disposed
of pursuant to a merger, consolidation, share exchange, reorganization or other
transaction unless the shareholders of the Company immediately prior to such
merger, consolidation, share exchange, reorganization or other transaction
beneficially own, directly or indirectly, in substantially

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the same proportion as they previously owned the Voting Stock or other ownership
interests of the Company, a majority of the Voting Stock or other ownership
interests of the entity or entities, if any, that succeed to the business of the
Company; or

(v)            the Company merges or combines with another company and,
immediately after the merger or combination, the shareholders of the Company
immediately prior to the merger or combination own, directly or indirectly, 50%
or less of the Voting Stock of the successor company with the proportionate
ownership of individual shareholders not substantially changed, provided that in
making such determination there shall be excluded from the number of shares of
Voting Stock held by such shareholders, but not from the Voting Stock of the
successor company, any shares owned by affiliates of such other company who were
not also affiliates of the Company prior to such merger or combination.

For purposes of this Section 2(f), the term “Voting Stock” shall mean the
Company’s Ordinary Common Stock and any other capital stock which entitles the
holder thereof to vote (either as part of a voting group or generally) in the
election of directors.

(g)           “Disability” means a Qualifying Director’s termination of service
as a director of the Company due to physical or mental incapacity of long
duration which renders such person unable to perform the duties of a director of
the Company.

(h)           “Fair Market Value” means, with respect to Shares, the fair market
value of such Shares determined by such methods or procedures as shall be
established from time to time by the Board. Unless otherwise determined by the
Board, the Fair Market Value of a Share as of any given date means the average
of the opening and closing prices of the Shares reported on the NASDAQ National
Market for such date, or, if no Shares were traded on that date, on the next
preceding day on which there was such a trade.

(i)               “Mandatory Retirement” means the termination of a directors’
service in accordance with any mandatory retirement policy adopted by the Board
and then in effect.

(j)               “Option” means the right, granted to a Qualifying Director
under Section 5, to purchase a specified number of Shares at the specified
exercise price for a specified period of time under the Plan. All Options will
be non-qualified stock options.

(k)            “Restricted Shares” means Shares granted to a Qualifying Director
under Section 5, subject to a risk of forfeiture and restrictions on transfer
for a specified period as provided in Section 6.

(l)               “Shares” means shares of Ordinary Common Stock of the Company
or such other securities as may be substituted for Shares pursuant to Section 9.

(m)         “Qualifying Annual Meeting” shall mean the annual meeting of
shareholders held in 2006 or thereafter.

(n)           “Qualifying Director” means a person who (i) is serving as a
director of the Company at the close of business on the date of a “Qualifying
Annual Meeting,” or is elected as a director of the Company after each such date
and before the next following annual meeting of shareholders of the Company and
is designated by the Board of Directors to participate in the Plan and (ii) has
been designated by the Board of Directors as an “independent director” as
determined for purposes of Article III, Section 3 of the Bylaws of the Company
as from time to time in effect or, although not so designated, is not an officer
or employee of the Company or any subsidiary of the Company and does not
otherwise participate in the management of the Company and has been designated
by the Board of Directors to participate in the Plan.

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3.                  Effective Date. The Plan has been adopted by the Board and
shall be effective as of the date of approval by the Company’s shareholders at
the 2006 annual meeting of shareholders, by the affirmative vote of a majority
of the voting power present in person or by proxy and entitled to vote on the
matter of approval of this Plan. Such shareholder approval shall be a condition
to the right of each participant to receive any awards hereunder.

4.                  Participation. Only Qualifying Directors shall be eligible
to participate in the Plan.

5.                  Award of Restricted Shares and Options.

a.                 Time of Award. Immediately following the date of each
Qualifying Annual Meeting of the Company (each, an “Annual Award Date”), each
Qualifying Director shall be issued by the Company, in consideration of the
services to be provided by him or her as a director of the Company for the
ensuing year, a number of Restricted Shares and Options determined in accordance
with Section 5(b) (an “Annual Award”), subject to adjustment in accordance with
Section 9; provided, however, that a lesser number of Restricted Shares and
Options, as may be determined by the Board, may be issued to a Qualifying
Director whose service as a director commences after a Qualifying Annual Meeting
and before the next Qualifying Annual Meeting; and provided further, that the
issuance of shares of Restricted Stock will be delayed for ten days, with the
performance of services during such period being deemed payment of lawful
consideration having a value at least equal to the par value of the Restricted
Stock.

b.                Determination of Awards. The Annual Awards shall consist of:
(i) 750 Restricted Shares, and (ii) a number of Options with an aggregate value,
determined on the basis of a Black-Scholes Valuation as of the Annual Award
Date, equal to the Fair Market Value on the Annual Award Date of 2,250 Shares.
All such Options shall be awarded with an exercise price equal to 100% of the
Fair Market Value of a Share as of the Annual Award Date and shall expire on the
earlier of (i) the date which is ten (10) years following the Annual Award Date
(or such earlier date as may be specified by the Board prior to award), or
(ii) if not otherwise forfeited upon termination of service, one year after the
Qualifying Director ceases to serve as a director of the Company for any reason.

c.                 Applicability of Restrictions. The issuance of Restricted
Shares and Options hereunder pursuant to each Annual Award shall be subject to
the restrictions on transfer and ownership thereof provided by Section 6 of this
Plan. In addition, the Company shall not be obligated to issue Shares except
upon compliance with applicable provisions of law, including federal and state
securities laws.

d.                Issuance of Instruments. Certificates representing Restricted
Shares shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Shares, the Company shall retain
physical possession of the certificate, and the Qualifying Director shall have
delivered a stock power to the Company, endorsed in blank, relating to the
Restricted Shares. Upon the lapse of restrictions on the Restricted Shares, the
Share certificate shall be released by the Company to the Qualifying Director
with any legend relating to such restrictions removed. Options shall be
evidenced by award notices in such form as may be adopted from time to time by
the Administrator and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Options, until the lapse of such
restrictions in accordance with the terms of this Plan.

6.                  Restrictions on Ownership and Transfer of Restricted Shares
and Options. Prior to the vesting and lapse of restrictions on Restricted Shares
and Options as provided in this Section 6, the Restricted Shares and Options
comprising an Annual Award shall not be transferable by the recipient, except by
will or the laws of descent and distribution, or to a beneficiary in the event
of a Qualifying Director’s death,

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and will not otherwise be subject to alienation, anticipation, encumbrance,
garnishment, attachment, levy, execution or other legal or equitable process,
nor subject to the debts, contracts, liabilities or engagement, or torts of any
Qualifying Director or his or her beneficiary. Any attempt to alienate, sell,
transfer, assign, pledge, garnish, attach or take any other action subject to
legal or equitable process or encumber or dispose of any interest in the Plan
shall be void. Such Restricted Shares and Options shall vest and become
non-forfeitable in full at the close of business on the date which is one full
year following the Annual Award Date, subject to the following:

a.                 In the event of a Change of Control of the Company or the
termination of a Qualifying Director’s service as a director due to his or her
death or Disability, the Annual Award, if not previously vested or forfeited,
shall immediately vest and become non-forfeitable in full. Following the death
or Disability of a Qualifying Director, his or her estate, heirs, distributees
or personal representative shall succeed to all of the Qualifying Director’s
right, title and interest in and to the Restricted Shares and Options.

b.                In the event of termination of the Qualifying Director’s
service as a director due to Mandatory Retirement, the award, if not previously
vested or forfeited, shall immediately vest and become non-forfeitable in full.

c.                 Unless otherwise determined by the Board, an award of
Restricted Shares and/or Options that has not vested in accordance with this
Section 6 at or before the time of termination of the Qualifying Director’s
service as a director for any reason other than as set forth in Section 6.a. and
b. will cease to vest and will be forfeited upon such termination.

d.                From and after the time vested in accordance with this
Section 6, Restricted Shares and Options may only be sold or otherwise
transferred in accordance with policies generally established by the Board with
respect to sales of shares of the Company by directors of the Company and
applicable securities laws.

e.                 Once granted to a Qualifying Director, Restricted Shares may
be voted by the Qualifying Director (or his or her successor) without
restriction by virtue of the Plan.

f.                   Once granted to a Qualifying Director, Restricted Shares
shall, unless otherwise determined by the Board, be entitled to receive cash
dividends which are not large, special and non-recurring and which are paid
prior to the lapse of the risk of forfeiture on such Restricted Shares. Other
dividends will be payable or not payable and subject to adjustment to the
Restricted Shares in accordance with Section 9, with the resulting additional
Restricted Shares subject to the same terms, including risk of forfeiture, as
the Restricted Shares on which the dividend was paid.

g.                Notwithstanding the foregoing vesting and forfeiture
provisions, the Administrator may permit a Qualifying Director to transfer
Options to trusts, limited liability companies, partnerships and other like
entities solely for the purpose of estate planning, provided that any such
transfer is consistent with the registration of any offer and sale of Shares
related thereto on Form S-8, S-3 or other applicable registration form as may be
used in connection with the Plan, and any such transferee is also subject to the
restrictions to which the Qualifying Director is subject under the Plan. In
addition, the foregoing vesting and forfeiture provisions shall not impair any
change in or exchange of the shares occurring by reason of a merger,
consolidation, recapitalization, reorganization or like transaction involving
the Company.

7.                  Payment of Option Exercise Price. Prior to the exercise of
an Option, the holder thereof shall have none of the rights of a shareholder of
the Company. The exercise price of an Option shall be paid to the Company either
in cash or by the surrender of Shares or the withholding of Shares from those
deliverable upon exercise of the Option, or any combination thereof, or in such
other lawful form or manner as may be established by the Administrator.

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8.                  Shares Available Under the Plan. Subject to adjustment as
provided in Section 9 below, the total number of Shares reserved and available
for delivery under the Plan for awards shall be 120,000; provided, however, that
no more than 15,000 Restricted Shares in the aggregate may be awarded under the
Plan. The Shares delivered under the Plan may consist of authorized and unissued
or treasury shares, and Shares underlying Restricted Shares or Options which are
forfeited shall be available for future awards.

9.                  Change in Capital Stock. The total number and kind of shares
which may be issued under the Plan and that are granted under Section 5 shall be
appropriately adjusted for any change in the outstanding Shares through
recapitalization, stock split, stock dividend, merger or consolidation in which
the Company is the surviving corporation or similar transaction. In such case,
the number of shares subject to outstanding Restricted Stock and Options, and
related terms (including the exercise price of each Option) also shall be
adjusted so as to prevent dilution or enlargement of the rights of participants.
Such adjustments and the manner of application thereof shall be determined by
the Board in its discretion.

10.            Nonassignability. No rights under this Plan shall be assignable
or transferable by a Qualifying Director other than as set forth in the first
paragraph of Section 6 or in Section 6.g.

11.            Administration.

a.                 Authority. The Board and the Administrator, acting under the
direction of the Board, shall administer and interpret this Plan in accordance
with its terms, and shall have all powers necessary to accomplish such purpose.
The Board may delegate any or all of its functions to a committee of the Board,
provided that the Board shall approve the form and amount of compensation to
directors under any provision of the Plan. The Administrator may perform any
function of the Board under the Plan, except for adopting material amendments to
the Plan and any other function from time to time specifically reserved by the
Board to itself. The Board and the Administrator may each appoint agents and
delegate thereto powers and duties under the Plan, except as otherwise limited
by the Plan.

b.                Administrator. The Administrator shall be the chief legal
officer of the Company, or, if that officer is unavailable, the chief financial
officer; provided, however, that the Board may designate a different individual
or committee to serve as Administrator.

12.            Changes to the Plan and Awards. The Board may amend, suspend,
discontinue or terminate the Plan or the award of Restricted Shares and Options
under the Plan, without the consent of any other party, including the
shareholders of the Company; provided that any amendment shall be subject to
shareholder approval if and to the extent then required under applicable
rules of the NASDAQ National Market or any other stock exchange or automated
quotation system upon which the Shares may then be listed or quoted; and
provided further that no such action may materially impair the rights of a
recipient of an award previously made without the consent of such recipient.
Without the prior approval of the shareholders of the Company, the Board may not
amend or replace previously granted Options in a transaction that constitutes a
“repricing.” For this purpose, “repricing” means: (i) amending the terms of an
Option after it is granted to lower its exercise price; (ii) any other action
that is treated as a repricing under generally accepted accounting principles;
and (iii) canceling an Option at a time when its exercise price is equal to or
greater than the fair market value of the underlying Shares, in exchange for
another Option, Restricted Shares or other equity, unless the cancellation and
exchange occurs in connection with a merger, acquisition, spin-off or other
similar corporate transaction. Adjustments to Restricted Stock and Options under
Section 9 will not be deemed repricings, however.

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13.            Governing Law. This Plan, awards granted hereunder and actions
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflicts of laws).

14.            Tax Compliance.

(a)            Certain Terms Relating to Code Section 409A. “409A Awards” means
awards that constitute a deferral of compensation under Section 409A of the
Internal Revenue Code of 1986, as amended, and regulations thereunder. “Non-409A
Awards” means an award other than 409A Awards (including those exempt as
“short-term deferrals” under Proposed Treasury Regulation § 1.409A-1(b)(4) and
any successor regulation). Although the Board retains authority under the Plan
to grant Options and Restricted Shares on terms that will qualify those awards
as 409A Awards, Options and Restricted Shares are intended to be Non-409A Awards
unless otherwise expressly specified by the Committee.

(b)           Compliance with Code Section 409A. For purposes of this Plan,
references to an award term or event (including any authority or right of the
Company or a participant) being “permitted” under Section 409A shall mean
(i) for a 409A Award, that the term or event will not cause the participant to
be liable for payment of interest or a tax penalty under Section 409A and
(ii) for a Non-409A Award, that the term or event will not cause the award to be
treated as subject to Section 409A. Other provisions of the Plan
notwithstanding, the terms of any 409A Award and any Non-409A Award, including
any authority of the Company and rights of the participant with respect to the
award, shall be limited to those terms permitted under Section 409A, and any
terms not permitted under Section 409A shall be automatically modified and
limited to the extent necessary to conform with Section 409A.

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