Exhibit 10.18


MAGELLAN
HEALTH SERVICES

Management Bonus Plan

2005


Purpose


The purpose of Magellan Health Services’ Management
Bonus Plan is to reward employees for achieving specific performance objectives
contributing to the overall results of the Company. Business units with
function specific plans, such as sales, and recovery functions, are covered
under separate plans.


Eligible Participants


·       Must
be full time employees not participating in any other incentive program.


·       Must
be currently meeting or exceeding performance standards.


·       Must
have received a minimum performance review score of 3.0.


·       Must
not have submitted a verbal or written resignation of employment.


·       Must
have been hired on or before January 31, 2005 to be eligible to receive
100% of bonus award.


·       Must
have been hired between February 1 through April 30, 2005 to be
eligible to receive 75% of bonus award.


·       Must
have been hired between May 1 through June 30, 2005 to be eligible to
receive 50% of the bonus award.


Plan Funding


The plan is funded based on the company meeting or
exceeding its Segment Profit target.




	
   

  	
  Segment Profit

  	
   

  	
   

  	
   

  	
  Funding Percentage

  	
   

  
	
  $215 Million

  	
   

  	
  100%

  






 


·       Segment
Profit to be as defined and reported the Company’s financial reports to its
shareholders.


·       The
Targeted Segment Profit will be adjusted as follows: (i) if the Company’s
contract with TennCare is terminated or reduced in scope the budgeted revenue
and expenses will be adjusted for the revenue and expenses relating to such
termination or reduction ; and (ii) if the Company makes additional
investments to accelerate growth, the budgeted expenses will be adjusted to
reflect such additional investments.


The Target Funding Pool will equal the total of the
Target Bonuses (salary times Target Bonus Percentage, see below) of the
eligible employees. The Funding Percentage is the portion or increment of the
Target Funding Pool that will determine the Funding Pool.


If the Segment Profit Target is met, the Funding Percentage will equal
100%.


If the Segment Profit Target is not met, the Target
Funding Pool for incentives will be reduced dollar for dollar until the Segment
Profit Target can be met, or the Target Funding Pool is exhausted, whichever
comes first. Any funds remaining after the Segment Profit Target is met will be
the Maximum Funding Pool for incentives under the Plan. In such case, the
Funding Percentage will equal the percentage of the Maximum Funding Pool to the
Target Funding Pool.


If the Segment Profit target is exceeded, the Funding
Pool will be increased by increasing the Funding Percentage by an amount
determined by the Compensation Committee in its discretion.


Performance Factor


In addition to the Funding Percentage, the other
factor that determines the bonus amount for each employee the Individual
Performance Factor.



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Individual
Performance Percentage


In order to receive an incentive bonus, individuals
must be recommended by their immediate supervisor, based on the achievement of
their Individual Performance Goals. The Individual Performance Percentage will
be determined by each employee’s immediate supervisor based on the extent to
which the employee met and exceeded their personal Individual Performance Goals.
 Generally, percentages can range from 0%
to 200% of target bonus with a percentage of 100% assigned to an employee whose
score is between consistently meets to consistently exceed expectations with
respect to their Individual Performance Goals. In general, employees with a
performance rating lower than 3.0 will not be eligible to receive a bonus. All
recommendations for incentive awards will be substantiated by appropriate
documentation of performance goals and assessment, and will be reviewed and
approved by each level of management above the immediate supervisor, up to and
including the CEO.


Target Bonus Percentage


Each employee in Grades 37 and above has a Target
Bonus Percentage. The Target Bonus Percentages by Grade are as follows:


Grades 37 and Above
Target Bonus Percentage Levels




	
  Level in Organization

  	
   

  	
   

  	
   

  	
  Target Bonus

  % of Base Salary

  	
   

  
	
  Chairman and CEO

  	
   

  	
   

  	
  100%

  	
   

  	
   

  
	
  President &
  Chief Operating Officer

  	
   

  	
   

  	
  75%

  	
   

  	
   

  
	
  Chief Officers

  	
   

  	
   

  	
  40 to 60%

  	
   

  	
   

  
	
  SVPs

  	
   

  	
   

  	
  25 to 40%

  	
   

  	
   

  
	
  CCO &
  Grades 42 to 44

  	
   

  	
   

  	
  20 to 25%

  	
   

  	
   

  
	
  Grades 39 to 41

  	
   

  	
   

  	
  15%

  	
   

  	
   

  
	
  Assoc MD, Medical
  Directors, and Vice President of Medical Services

  	
   

  	
   

  	
  10%

  	
   

  	
   

  
	
  Grades 37 and 38

  	
   

  	
   

  	
  8%

  	
   

  	
   

  






 


Payout
Formula


An
employee’s bonus under the Management Bonus Plan will be determined pursuant to
the following formula:


Salary  ́
Target Bonus Percentage  ́ Individual
Performance


Percentage
 ́ Funding Percentage.


For
example, if the Segment Profit target was met but not exceeded, an employee in
Grade 42 with a salary of $110,000 and a 20% Bonus Target and who received an
Individual Performance Percentage of 105% would receive a Bonus of $23,100,
determined as follows:


$110,000  ́
20%  ́ 105%  ́ 100% = $23,100.


Condition of Payout


No bonus will be paid to any employee if employment is
terminated, whether voluntary or involuntary, prior to the actual payment date
(unless otherwise provided in the employee’s Employment Agreement).


Payout
Approval


The
Compensation Committee of the Board must separately approve any payout for
officers of the Company for whom the Compensation Committee must approve salary
and/or benefits under the Compensation Committee approval policy.



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