exh10-3f.htm


    Exhibit
10-3

     

    


     

    FY
2007 MANAGEMENT INCENTIVE COMPENSATION PLAN

    


    


    You have
been selected to participate in the Sierra Health Services, Inc. (here 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
Sierra management group 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
2007. No greater than the following percentages of the 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.

    


     

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    The
FY 2007 Targeted Operating Segment Objectives are:

    


    
      	
              1.  

            	
              Quality of Service
      & Quality of Care

            


    

    


    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%

              	
                90.0-100.0

              	
                Achieve
      “Excellent” Status

              
	
                125%

              	
                85.9-89.99

              	
                Achieve
      “Commendable” Status

              
	
                120%

              	
                85.8-85.89

              	
                Achieve
      “Commendable” Status

              
	
                115%

              	
                85.6-85.79

              	
                Achieve
      “Commendable” Status

              
	
                110%

              	
                85.3-85.59

              	
                Achieve
      “Commendable” Status

              
	
                105%

              	
                85.1-85.29

              	
                Achieve
      “Commendable” Status

              
	
                100%

              	
                80.0-85.09

              	
                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 2006 voluntary turnover as the baselines
from which the objectives will be determined.

    


    
      	
              Business
      Unit

            	
              2007

              Objective

            	
              2006
      Actual

              Voluntary

            
	
              BHO

            	
              16.5%

            	
              19.1%

            
	
              FHH

            	
              14.0%

            	
              16.3%

            
	
              FHS

            	
              10.0%

            	
              10.7%

            
	
              THC

            	
              16.5%

            	
              26.6%

            
	
              HPN

            	
              15.0%

            	
              17.0%

            
	
              SHL

            	
              16.1%

            	
              20.7%

            
	
              SHO

            	
              16.5%

            	
              25.7%

            
	
              SMA

            	
              15.0%

            	
              15.9%

            
	
              SNA

            	
              12.5%

            	
              13.3%

            
	
              SHS

            	
              10.0%

            	
              8.9%

            


    

    


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


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


    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 2007 MANAGEMENT INCENTIVE COMPENSATION PLAN

    


    TERMS  &
CONDITIONS

    


    
      	
              1.  

            	
              The
      Plan shall be known as “The Sierra Health Services, Inc. (hereafter known
      as the “Company”) FY 2007 Management Incentive Compensation
      Plan”.

            


    

    


    
      	
              2.  

            	
              Plan
      Year will be January 1, 2007 – December 31,
  2007.

            


    

    


    
      	
              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 President & COO; the Vice
      President of Human Resources; the Senior Executive Vice President Legal
      and Administration; and, the Chief Financial
  Officer.

            


    

    


    
      	
              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.

            


    

    


    
      	
              E.  

            	
              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.

            


    

    


    
      	
              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.

            


    

    
       

      
         

        
          
          

          
            

          

        

        
          
          

        

      

      PLAN
DOCUMENT FOR THE FY 2007 MANAGEMENT INCENTIVE COMPENSATION PLAN

      TERMS
& CONDITIONS – CONTINUED

    

    


    
      	
              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.  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.

            


    

    


    
      	
              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.

            


    

    


    
      	
              11.  

            	
              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.

            


    

    


    
      	
              12.  

            	
              Termination of
      Employment – Participants, who terminate their employment
      voluntarily or involuntarily 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.

            


    

    


    
      	
              13.  

            	
              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 2007 MANAGEMENT INCENTIVE COMPENSATION PLAN

      TERMS
& CONDITIONS – CONTINUED

    

    


    
      	
              14.  

            	
              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 2007 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.

            


    

    


    
      	
              15.  

            	
              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.

            


    

    


    
      	
              16.  

            	
              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.

            


    

    


    
      	
              17.  

            	
              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.

            


    

    


    
      	
              18.  

            	
              Effect on Previous Plans
      – The Plan is effective January 1, 2007, and supersedes and replaces all
      previous management bonus plans.  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.

            


    

    


    
      	
              19.  

            	
              Achievement Beyond Payout
      Grids - In the event that Company performance exceeds the maximum
      provided by the Payout Grids, Sierra Health Services reserves the right to
      increase the level of individual payouts up to 3 Times the Target Award
      level based upon improved profitability and or other performance measures
      as determined by the Incentive Compensation
  Committee.