EXHIBIT 10.9

 
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FY 2006 MANAGEMENT INCENTIVE COMPENSATION PLAN

You have been selected to participate in the Sierra Health Services, Inc.
(hereafter referred to as “the Company”) FY 2006 Management Incentive
Compensation Plan (the “Plan”). The Plan is intended to reward key employee
performance for assisting the Company in achieving financial success and
maximizing shareholder value. Your participation in the Plan is subject to the
Terms and Conditions, contained herein, and being employed in an eligible
position as determined annually by the Company. The Plan is designed to reward
Participants for meeting specific individual and Company objectives, and for
assisting the Company in achieving specific financial objectives.

TARGET PAYOUT:
Participants will be eligible for an incentive payout expressed as a percent of
base annual salary. If 100% of all objectives are achieved, Participants will be
eligible for the following awards as a percent of the Participant’s base annual
salary:

CEO/Chief of Staff
100%
 
   
Vice President/Subsidiary President
25% - 90%
 
Assistant Vice President
30% - 40%
Director
15% - 35%

PLAN DESIGN

Financial Performance
85%
   
Quality Objectives
10%
   
Turnover Objectives
5%
 
   
Total
100%
 

*See page 3 for former W/C employee bonus Calculations.

CEO’S CHALLENGE

The President of the MHD Division and the Corporate staff will have a special
objective added to the Plan. The successful achievement of this challenge
objective will result in that subsidiary or division becoming eligible for an
extra 10% payment pool for selected Participants after all other calculations
have been finalized.

INDIVIDUAL PERFORMANCE/CONTRIBUTION

The Individual Performance Objective/Contribution will be a multiplier times the
sum of the above criteria. The total of the above criteria will be multiplied by
0% to a maximum of 125%.

 
Example:
Director at $100,000 salary, eligible for 25% Incentive
   
Financial Performance
95%
Times 85% weight
 
=      .808
   
Quality Objective
100%
Times 10% weight
 
=      .100
   
Turnover Objective
100%
Times 5% weight
 
=      .050
                     .958    
Individual Performance/Contribution
 
X 1.05
         
= 1.005 X $100,000 X 25%
       
= $25,134.38
 

Individual Performance may be adjusted for Individual contribution. There will
be a distribution guideline of individual performance/contribution results in FY
2006. No greater than the following percentages of the Corporate group’s or
Division’s Participant’s ratings for individual objectives may be achieved:

 
Rating
Maximum Percent
·  115% -125%
10% of eligible Participants
·  105% -114%
20% of eligible Participants
·  95% -104%
40% of eligible Participants
·  85% - 94%
20% of eligible Participants
·  75% - 84%
7%-10% of eligible Participants
·  50% - 74%
Up to 3% of eligible Participants
·  < 50% will be considered unsatisfactory performance such that Participants
may be ineligible for a Plan incentive
payment as determined in its sole discretion, by the Incentive Plan Compensation
Committee.

Notes:

·  
The bonus of certain employees who were previously employed with the Workers
Compensation Division will be subject to such additional performance or
financial factors as determined by the Chief Executive Officer of Sierra Health
Services and/or the Incentive Plan Compensation Committee.

·  
Financial Performance is defined as Operating Income, including eligible bonus
expense, expressed as a percent of targeted Operating Income. Financial Cash
Flow will be expressed as a percent of Target Cash Flow, (EBITA). The Company’s
financial objective is actual consolidated Net Income compared to Net Income
target. All figures are expressed as actual results divided by planned financial
results, expressed as a percent. The Company’s Chief Financial Officer will
determine the interpretation of Operating Income, Taxes, Depreciation Expense,
and Cash Flow. Disputes regarding Plan definitions will be resolved as
determined by the Incentive Plan Compensation Committee in their sole
discretion.

·  
No payments will be made under the Plan to the extent that such payments would
place the Company in violation of any laws, regulations or bank covenants under
its credit facility.

POOL THRESHOLD & SIZE

An incentive pool will be established and used as the basis for payouts under
the Plan based upon the degree to which SHS achieves specific financial
objectives. The following chart summarizes the ‘Company’ payout levels when the
specified level of financial performance has been achieved. The Company’s Chief
Executive Officer has the discretion to review and alter the threshold based on
specific business circumstances and conditions. For the Company payout schedule,
refer to the attached Financial Matrix.

COMPANY/SUBSIDIARY ACHIEVEMENT

Financial thresholds, targets and high achievement levels (achievement over
100%) for payouts will be determined for the Corporation, and
divisions/subsidiaries based upon annual financial results as determined by the
Incentive Plan Compensation Committee and the Chairman & CEO. Payouts in the
Matrices are based on the achievement of sample financial results. Actual Plan
payments will be interpolated for actual results.

COMPANY OBJECTIVES

The Chairman & CEO and the Incentive Plan Compensation Committee will establish
Company-wide objectives and the appropriate weight that each Participant is
responsible for assisting the Company to achieve. Categories may include, but
are not limited to: quality of care, quality of service, turnover rates, growth
objectives, expense management, specific management objectives, community or
public relations, or specific individual competency development objectives.

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The FY 2006 Targeted Operating Segment Objectives are:

1.  
Quality of Service & Quality of Care

Managed Care Division:
The criteria for this objective are the sum of the Quality Standards score (75
points possible) plus the HEDIS score (12.5 points possible) and the customer
satisfaction score (12.5 points possible).

Percent of
Bonus
Achieved
Range of
HEDIS/CAHPS
+ Standard Score
Percent Increase
150%
86.1-100.0
Achieve “Excellent” Status
125%
85.9+86.0
Achieve “Commendable” Status
120%
85.7-85.8
Achieve “Commendable” Status
115%
85.5-85.6
Achieve “Commendable” Status
110%
85.3-85.4
Achieve “Commendable” Status
105%
85.1-85.2
Achieve “Commendable” Status
100%
80.0-85.0
Achieve “Commendable” Status
50%
65.0-79.99
Achieve “Accredited” Status
0%
<65.0
Falls Below “Accredited” Status

2.  
Employee Turnover

Each Business Unit (e.g. BHO, FHH, SMA) will use their actual FY 2005 voluntary
turnover as the baselines from which the objectives will be determined.

Business Unit
2006
Objective
2005 Actual
Voluntary
BHO
14.0%
30.0%
FHH
14.0%
14.0%
FHS
12.6%
12.6%
THC
15.1%
21.2%
HPN
15.0%
15.5%
SHL
14.0%
15.2%
SHO
14.0%
22.2%
SMA
18.0%
20.5%
SNA
20.0%
23.3%
SHS
10.0%
10.0%

Turnover: If the turnover objective is achieved, the Business Unit will receive
5%. If the turnover objective is exceeded by greater than five percent, the
Business Unit will receive an additional 5%.

INDIVIDUAL OBJECTIVES

Payment of individual objectives may range from 0% to 125% of the Participant’s
Individual Objective target. This number will be used as a multiplier based upon
the sum of the financial and other company objectives have been achieved versus
planned goals. Any individual rating less than 50% will be considered
unsatisfactory performance, and the Participant may be ineligible for any
incentive payment. The Division senior executive or corporate Vice President
will recommend a percentage to the Incentive Plan Compensation Committee (whose
membership is defined in the Plan document). However, the Incentive Plan
Compensation Committee will, in its sole discretion, determine the percentage
award for the Participant. Individual objectives may include, but are not
limited to: meeting specified revenue, market penetration, geographic business
expansion goals, cost targets and goals relating to acquisitions or
divestitures.

MINIMUM PERFORMANCE

To be eligible, a participant must have achieved at least a ‘successful’
performance review in his/her most recent formal or informal review and may not
be on any Performance Improvement Plan on the date of the payout. A Participant
who has successfully completed a Performance Improvement Plan shall have his/her
incentive plan payout prorated by the length of time on the Performance
Improvement Plan.

 

PLAN DOCUMENT FOR

THE FY 2006 MANAGEMENT INCENTIVE COMPENSATION PLAN

TERMS & CONDITIONS

1.  
The Plan shall be known as “The Sierra Health Services, Inc. (hereafter known as
the “Company”) FY 2006 Management Incentive Compensation Plan”.

2.  
Plan Year will be January 1, 2006 - December 31, 2006.

3.  
Participants are defined as active eligible employees as defined by the
Compensation Committee, Sierra Health Services, Inc. The Incentive Plan
Compensation Committee is comprised of the Chief of Staff, SHS, the Vice
President of Human Resources, the Senior Vice President Legal and Administration
for Sierra Health Services, the Chief Financial Officer for Sierra Health
Services and the President of the Managed Healthcare Division.

A.  
The participant must be employed at Sierra Health Services or one of its
Subsidiaries.

B.  
If the employee is no longer employed by or has given notice of intent to
terminate from Sierra Health Services on the date of the Payout, he/she will be
ineligible for a bonus payout unless otherwise recommended by the Incentive Plan
Compensation Committee.

C.  
Participants who are not in an eligible position for the full plan year may
receive a prorated bonus, at the Incentive Plan Compensation committee’s
discretion, if all other eligibility and performance requirements are otherwise
satisfied.

D.  
The participant’s performance appraisal rating for the plan year must be at
least a “Successful” to be eligible for a payout under the Plan.

PLAN DOCUMENT FOR
THE FY 2006 MANAGEMENT INCENTIVE COMPENSATION PLAN
TERMS & CONDITIONS - CONTINUED

4.  
Payment under this Plan, if any, shall be based on the employee’s accomplishment
of the specified objectives, subject to the approval of the Incentive Plan
Compensation Committee and the Compensation Committee of the Sierra Health
Services’ Board of Directors. Accomplishment of individual objectives shall fall
within the attached bonus range and may exceed or may be less than 100% of
target and shall be determined by Incentive Plan Compensation Committee. The
Incentive Plan Compensation Committee reserves the right to offer Sierra Health
Services stock options or other equity to Participants up to 50% of value of
their incentive payment.

5.  
All payouts under this Plan, including those for 16(b) employees, are subject to
prior approval by the Compensation Committee of the Company’s Board of
Directors.

6.  
Participant’s rights under the Plan may not be assigned or transferred in any
way.

7.  
The Plan may be amended, modified, suspended or terminated by the Company at any
time without prior consent by or notice to employees. The Company at its sole
discretion without prior consent or notice may change objectives at any time for
eligible participants.

8.  
The Plan shall be unfunded. The Company shall not be required to establish any
special or separate fund or to make any other segregation of assets to assure
the payment of the amounts under the Plan. Rights to the payment of amounts
under the Plan shall be no greater than the rights of the Company’s general
creditors.

9.  
Nevada State law governs the validity, construction, interpretation,
administration and effect of the Plan, and the substantive laws, except for the
choice of law, and rules of the State of Nevada shall govern rights relating to
the Plan. If any part of this Plan is ruled to be invalid by any judicial body,
the remainder of the document shall continue to be in force.

10.  
All applicable employment, benefit and tax deductions will be withheld from the
incentive payout.

PLAN DOCUMENT FOR
THE FY 2006 MANAGEMENT INCENTIVE COMPENSATION PLAN
TERMS & CONDITIONS - CONTINUED

11.  
Participant - A Participant in the Plan is an employee of Sierra Health Services
Inc., or its subsidiaries who has been: (a) selected by the Company to
participate for the Plan Year; (b) who executes this agreement to participate in
the Plan for the Plan Year; and (c) who is employed by the Company on the date
of the payout. No employee of the Company has the right or is guaranteed the
right to participate in the Plan by virtue of being an employee of the Company
or fulfilling any specific position with the Company. Selection for
participation in the Plan is solely within the discretion of the Company. Sierra
Health Services, Inc. may offer participation in the Plan to additional
employees or terminate the participation of any Participant in the Plan any time
during the Plan Year.

12.  
Transfer/Promotion within the Business Unit Organization - Plan Participants who
are transferred or promoted during the Plan Year to another job within Sierra
Health Services, Inc. or its subsidiaries, not covered by the Plan will receive,
subject to approvals, a prorated payment following year-end based on their
achievement of specified objectives during eligible month(s) as determined by
Company. Similarly, an employee who becomes an eligible Participant in the Plan
Year, with at least 3 months service as an eligible Participant, may receive,
subject to approvals, a prorated payment following year-end based on their
achievement of specified objectives during eligible month(s) as determined by
Company in its sole discretion.

13.  
Termination of Employment - Participants, who terminate their employment
voluntarily or involuntarily from the Company or who have given notice of intent
to terminate from the Company during the Plan Year and until the Plan date of
payout, will not be eligible for any bonus payment under the Plan. Any
exceptions will be determined on an individual basis at the sole discretion of
the Incentive Plan Compensation Committee.

14.  
Retirement/Death/Disability - Termination of employment during the Plan Year and
until the Plan date of payout as a result of retirement, death, or disability
may constitute eligibility for a prorated payment as determined by the Company
in their sole discretion.

PLAN DOCUMENT FOR
THE FY 2006 MANAGEMENT INCENTIVE COMPENSATION PLAN
TERMS & CONDITIONS - CONTINUED

15.  
Windfalls/Business Losses - Revenues classified as “windfalls” or business
losses or charges against net income may or may not be excluded in whole or in
part from the calculation of revenue or profit objectives at the sole discretion
of the Chief Executive Officer. Similarly, significant declines in revenue
volume will be reviewed prior to any bonus award. Examples of such circumstances
include, but are not limited to: excluding acquisition-related and FY 2006
charges and non operating unusual charges, windfalls or business losses
resulting from any acquisition or disposition by the corporation as determined
by the Compensation Committee of Sierra Health Services Board of Directors or
the absence of cash flow through the majority of the fiscal year and the
subsequent receipt of a large cash receivable in the last quarter of the fiscal
year when evaluating the achievement of cash flow objectives.

16.  
Company Rights - Notice of participation in the Plan shall not impair or limit
the Company’s right to transfer, promote, or demote plan participants to other
jobs or to terminate their employment. Nor shall the Plan create either claim or
right to receive any payment under the Plan or any right to be retained in the
employment of the Company or its affiliates.

17.  
Non-Continuation - The Plan is established for the current fiscal year. There
shall be no obligation on the part of the Company to continue the Plan in the
same or a modified form for any future years.

18.  
Resolution of Disputes - In the event that a Participant has a dispute
concerning the administration of this Plan, it should first be submitted in
writing to the Vice President, Human Resources. In the event that the Vice
President does not provide a response satisfactory to the participant with
fifteen (15) days, the Participant may submit the dispute in writing, within
five (5) working days thereafter, to the Incentive Plan Compensation Committee -
Sierra Health Services, Inc., whose decision regarding the dispute shall be
final and binding on each Participant or person making a claim under the Plan.

19.  
Effect on Previous Plans - The Plan is effective January 1, 2006, and supersedes
and replaces all previous management bonus plans. All such previous Plans,
unless earlier terminated, are terminated effective at midnight, December 31,
2005. If not renewed by the Company or its designated representative(s), the
Plan will automatically terminate on December 31 of each year. Any changes in
the Plan will constitute a new Plan for the next Plan year.

20.  
Achievement Beyond Payout Grids - Sierra Health Services reserves the right to
increase the level of individual payouts up to 3 Times the 100% payout level,
based upon improved profitability and or other performance measures as
determined by the Incentive Compensation Committee.