Document:

Exhibit 10.1

Exhibit 10.1

Description of HMS Holdings Corp. 2010 Long Term Incentive Plan

1. Objectives. Afford executives the multi-year opportunity/motivation and
alignment with shareholders associated with an equity stake in HMS. Do so in a way that:
i) is consistent with prior LTI grants, ii) extends the “pay-for-growth” philosophy to
equity grants as well as STIP cash bonuses, iii) utilize shares approved for the plan
efficiently, iv) is affordable in a FAS 123r context, and v) is compliant with the
shareholder-approved 2006 Stock Plan, vi) competitive when compared to peer companies.

2. Plan elements.

a. Timing —  Grants will be dated and priced October 1, 2010. The price used will be
the closing share price on October 1, 2010.

b. Exercise period — Seven years, consistent with the prior year’s grants and adequate
in length for long-term appreciation and multi-year vesting periods to aid in retention.
Options and RSU’s would expire on October 1, 2017.

c. Size of grant — Grant total of approximately 313,412 shares, or approximately 8% of
the available pool. This grant consists of 240,202 options and 39,573 RSU’s. RSU’s are
counted against the available pool at a rate of 1.85 shares per RSU, resulting in a total
of 73,210 shares against the available pool for RSU’s. This year’s proposed grant
represents approximately 1.1% of fully diluted shares outstanding, well within ISS
guidelines for companies of a similar size and market capitalization.

c. Form of grants — Grants will be either in the form of non-qualified options (“NQs”)
or Restricted Stock Units (RSU’s).

d. Approval of Grants —  The Compensation Committee will approve to grant options to
Executive Officers, the Board of Directors and a pool of options and RSU’s for the rest of
the management participants to be allocated at the discretion of the Chief Executive
Officer with input from senior management. The Board will ratify the Compensation
Committee’s approval. By so structuring the 2010 grants, the Company will satisfy the
letter of : I) Rule 16b-3 of the Securities Exchange Act of 1934, which requires that
grants of options to executive officers (i.e., reporting officers—Holster, Lucia, Hosp,
Schmid, Perrin, Curtin, Dragonetti) be approved by the Board of Directors; and ii) Internal
Revenue Code Section 162(m), which requires that the Compensation Committee have approved
performance-based compensation if it is to be excepted from the compensation deductibility
limitations of the Section.

 

 

 

e. Award specifics.

i. BSPA executives — As described in the 2009 Long Term Incentive Plan, the BSPA
Asset Purchase Agreement and their Employment Agreements, the six former BSPA executives
(Curtin, Glenn, Singh, Frey, Hancock, and Benedict) have fulfilled the issuance of the BSPA
grants. There are no BSPA grants requested and the above named executives are now part
of the regular program.

ii. Board of Directors —  Applying the $80,000 FAS123R cost per Director equity
compensation formula (implemented in 2006 at $40,000), each of our nine outside directors
will receive approximately 1052 NQ options and 1052 RSUs, each based on current stock
prices and Black-Scholes calculation (total for all Directors of 9,468 options and 9,468
RSUs). Options will vest 25% per quarter over one year, consistent with the “best
practice” that long option vesting periods not be used to make Directors in any way
beholden to management.

iii. Executive Officers and all other executives. As summarized on Attachment 4, the
Executive Group will be granted 91,470 options and all other executives will be granted a
total of 139,264 options and 30, 105 RSU’s (which account for 55,694 shares against the
plan), and which will include the following performance vesting component:

—50% of each individual grant (options and RSU’s) would be outright, with a three and
one-quarter year ratable vest and a seven-year exercise limit.

—50% of each individual grant (options and RSU’s) would be performance-based.
Options and RSU’s would cliff vest at the end of three and one-quarter years on December
31, 2013. Vesting would require achievement of 40% growth in fully diluted earnings per
share (EPS), 2012 over 2010, with a minimum of 15% EPS growth 2011 over 2010. See Exhibits
2 and 3 for a full description of award conditions. Use of EPS (rather than market cap)
protects ability to reverse FAS 123r charges if criteria are missed and options lapse. The
shorter vesting period (three and one-quarter years versus four) has been used in the last
three years. It should be noted that performance vesting remains rare in our peer group or
in LTI plans in general.

 

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3. Other considerations.

a. P&L Impact — Historical FAS123R charges have been $1.7 million in 2006, $2.2
million in 2007, $3.5 million in 2008 and $6.4 million for 2009. The estimated 123R
expense for the 2010 is $7.8 million, including the grant recommendations above. It should
be noted that the 2010 costs include the cost of Restricted Stock Grants to certain
executives made in February 2009. Attachment 4B provides a detailed breakdown of the FAS
123R expenses and provides a simulation for future years using moderate growth assumptions
in share price appreciation. The 123R expense for estimated for 2011 is only a 10%
increase. The simulation demonstrates that, all other things equal, the company can continue to make annual grants which increase in relation to the company’s
earnings growth (growth around 25%), but the actual 123R P&L impact will be much less
(growth in the low teens) because the expense associated with older grants is now rolling
off. Said differently, we have now reached a stage where the expense with each incremental
annual grant is partially offset with a prior year’s grant expense being dropped. This
simulation does not imply any approval of the future level of grants, but is only provided
to show how the 123R expense may develop over time.

b. Overhang — As mentioned, this year’s grant request represents approximately 1.1% of
outstanding shares. This is well below the 2% of outstanding share threshold of ISS (the
firm that advises institutional investors on how to vote on proxy requests). We anticipate
that because of the continued exercise of prior option grants that are currently
deep-in-the-money, and because of the increased value of options and RSU’s results in a
level of share requests for future grants which will be below the 2% threshold, our prior
concerns of meeting ISS guidelines are greatly diminished.

c. Grant dispersion —  The extension of the equity program further into the management
hierarchy continues to be somewhat limited this year as we feel we are now reaching down to
the right levels of the organization. We have increased the number of participants, but
this is largely resulting from hiring new management as opposed to going further down the
organization. It should also be noted that the fact of being selected for an option award,
irrespective of its amount, is perceived by our management staff as significant
recognition, and we believe LTI to be a powerful part of our overall system of financial
and non-financial motivators.

 

3Exhibit 10.2

Exhibit 10.2

Option No. XXXX

HMS HOLDINGS CORP.

Non-Qualified Stock Option Agreement

THIS AGREEMENT, made as of October 1, 2010 between HMS HOLDINGS CORP., a New York corporation
(the “Corporation”), and First Name Last Name (the “Optionee”), is pursuant to the Amended and
Restated 2006 Stock Plan of the Corporation (the “Plan”). The Plan, as adopted by the Board of
Directors (the “Board”), was approved by the shareholders (the “Shareholders”) of the Corporation
on June 12, 2009. Said Plan, as it may hereafter be amended and continued by the Board and the
Shareholders, is incorporated herein by reference and made a part of this Agreement.

The Plan is administered by the Compensation Committee (the “Committee”) of the Board, as
defined in the Plan. The Board has determined that it would be to the advantage and interest of the
Corporation and its shareholders to grant the option provided for herein to the Optionee as an
inducement to remain in the service of the Corporation, or a Parent or a Subsidiary thereof, and as
incentive for increased efforts during such service.

NOW, THEREFORE, pursuant to the Plan, the Corporation, with the approval of the Committee,
hereby grants to the Optionee as of the date hereof an option (the “Option”) to purchase all or any
part of an aggregate of XXX shares of the Corporation’s common shares, $.01 par value per share
(the “Common Stock”), at $XXXX per share upon the following terms and conditions:

1. The Option and all rights of the Optionee to purchase shares of Common Stock hereunder
shall terminate on September 30, 2017 (hereinafter referred to as the “Expiration Date”).

 

 

 

2. The Optionee’s right and option to purchase the shares of Common Stock pursuant to the
Option shall vest as follows:

	 	 	 	 	 
	December 31, 2010

	 	 	 	XXX shares
	March 31, 2011

	 	an additional
	 	XXX shares
	June 30, 2011

	 	an additional
	 	XXX shares
	September 30, 2011

	 	an additional
	 	XXX shares

3. Once the Option has vested in accordance with the preceding Section 2, it shall continue to
be exercisable until the earlier of the termination of the Optionee’s rights hereunder pursuant to
Section 5, or the Expiration Date. A partial exercise of the Option shall not affect the
Optionee’s right to exercise the Option with respect to the remaining shares subject thereto,
subject to the conditions of the Plan and this Agreement. Full payment for shares acquired shall
be made in cash at or prior to the time that an Option, or any part thereof, is exercised.

4. (a) Except as provided in Section 5, the Option may not be exercised unless the Optionee
is, at the time of exercise, a non employee Director, as defined in the Plan, of the Corporation.
A leave of absence or an interruption in service (including an interruption during military
service) authorized or approved by the Corporation shall not be deemed an interruption of service
for the purposes of Section 5.

(b) No partial exercise of the Option may be for less than 100 full shares (or less than all
the shares as to which the Option is exercisable, if less than 100 shares), and in no event shall
the Corporation be required to issue any fractional shares.

 

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5. (a) In the event the Optionee shall cease to be in the service of the Corporation by reason
of the Optionee’s death, disability (as defined below) or involuntarily by the Corporation other
than for cause (as defined in paragraph (b) below) within 24 months following a Change in Control
(as defined in the Plan), all Options held by the Optionee shall become fully vested and
exercisable. In the event the Optionee shall cease to be in the service of the Corporation by
reason of the Optionee’s retirement (as defined below), the Option shall continue to vest under
Section 2 as if the Optionee had continued to be in the service of the Corporation until the
expiration of two years after the Optionee’s retirement. In the event the Optionee shall cease to
be in the service of the Corporation for any other reason, all unexercised Options held by the
 Optionee that are not then exercisable by the Optionee shall lapse effective the date of
termination of service. For purposes of this Agreement (i) “disability” shall mean permanent and
total disability as defined by Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the “Code”) as it now exists or may hereafter be amended and (ii) “retirement” shall mean
termination of service in accordance with the retirement policies of the Corporation on or after
attaining age 60 and completing 5 years of service with the Corporation.

(b) To the extent not theretofore exercised, any Options held by the Optionee that are then
exercisable shall terminate as follows: If the service is terminated for any reason other than for
cause (as defined below), disability, death, retirement or involuntarily by the Corporation other
than for cause within 24 months following a Change in Control, any then exercisable Options shall
terminate upon the expiration of three months after the termination of service. If the service
terminates because of disability (as defined in paragraph (a) above) or because of death, any then
exercisable Options shall terminate upon the expiration of one year after the termination of
service. If the service terminates because of retirement (as defined in paragraph (a) above), any
then exercisable Options, and any options that may subsequently become exercisable by operation of
the post-retirement vesting provisions of Section 5(a), shall terminate upon the expiration of two
years after the termination of service. If the termination is “for cause” as determined by the
Board, which shall be deemed to mean the deliberate gross misconduct of the Optionee or the
violation by the Optionee, after any such termination, of the terms of a Restrictive covenant and
Confidentiality/Non-Disclosure Agreement with the Corporation, any then exercisable Options shall
terminate upon the termination of service. If the service is terminated by the Corporation other
than for cause (as defined above) within 24 months following a Change in Control, any then
exercisable Options shall terminate upon the expiration of one year after the termination of
service.

(c) Notwithstanding any provision of this Section 5 to the contrary, the Option may not be
exercised and all rights hereunder shall terminate upon the Expiration Date.

6. Nothing in this Agreement shall confer upon the Optionee any right to continue in the
employ or service of the Corporation or affect the right of the Corporation to terminate the
Optionee’s service at any time.

 

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7. (a) The Optionee may exercise the Option with respect to all or any part of the shares then
exercisable by giving the Corporation written notice at 401 Park Avenue South, New York, New York
10016. Such notice shall specify the number of shares as to which the Option is being exercised
and shall be preceded or accompanied by payment in full in accordance with Section 3 hereof.

(b) Prior to or concurrently with delivery by the Corporation to the Optionee of a
certificate(s) representing such shares, the Optionee shall:

(i) upon notification of the amount due, pay promptly any
amount necessary to satisfy applicable federal, state or local tax
requirements; and

(ii) if such shares are not currently or effectively
registered under the Securities Act of 1933, as amended (the
“Act”) and applicable state securities laws, give satisfactory
assurance in writing signed by the Optionee or his legal
representative, as the case may be, that such shares are being
purchased for investment and not with a view to the distribution
thereof.

(c) As soon as practicable after receipt of the notice and payment referred to in subparagraph
(a) of this Section 7, the Corporation shall cause to be delivered to the Optionee at the office of
the Corporation at 401 Park Avenue South, New York, New York 10016 or such other place as may be
mutually acceptable to the Corporation and the Optionee, a certificate or certificates for such
shares; provided however, that the time of such delivery may be postponed by the Corporation for
such period of time as may be required for the Corporation, with reasonable diligence, to comply
with applicable registration requirements under the Act, the Securities Exchange Act of 1934, as
amended, and any requirements under any other law or regulation applicable to the issuance or
transfer of shares. If the Optionee fails for any reason to accept delivery of all or any part of
the number of shares specified in such notice upon tender of delivery thereof, his right to
purchase such undelivered shares may be terminated.

 

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8. In the event of any merger, reorganization, consolidation, recapitalization, stock
dividend, stock split, reverse stock split, spin-off, extraordinary cash dividend or similar transaction or other change on corporate structure affecting the Common Stock, the
Committee shall make such adjustments and substitutions to the number, class and kind of shares (to
the nearest possible full share) and to the price per share subject to the unexercised portion of
this Option as the Committee determines to be appropriate in its sole discretion.

9. This Option shall not be transferable other than by will or by the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title I
of the Employee Retirement Income Security Act, or the rules thereunder. During the lifetime of the
Optionee, this Option shall be exercisable only by the Optionee. In the event of any attempt by the
Optionee to transfer, assign, pledge, hypothecate or otherwise dispose of the Option or of any
right hereunder, except as provided for herein or in the 2006 Stock Plan, or in the event of the
levy of any attachment, execution or similar process upon the rights or interest hereby conferred,
the Corporation may terminate this Option by notice to the Optionee and it shall thereupon become
null and void.

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed by a duly
authorized officer, and the Optionee has affixed his signature hereto.

	 	 	 	 	 	 	 
	 	 	By: HMS HOLDINGS CORP.	 	 
	 
	 	 	 	 	 	 
	 

	 	Signature:
	 	
 

William C. Lucia
	 	 
	 

	 	 	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	October 1, 2010	 	 
	 
	 	 	 	 	 	 
	 

	 	Optionee:	 	 	 	 
	 

	 	 	 	 

First Name Last Name
	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	October 1, 2010	 	 

 

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