UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.          )

 

 

 

 

 

 

Genomic Health, Inc.

301 Penobscot Drive

Redwood City, California 94063

(650) 556‑9300

April 25, 2019

Dear Stockholder:

You are cordially invited to attend the 2019 Annual Meeting of Stockholders of Genomic Health, Inc. The meeting will be held at 9:00 a.m., Pacific Time, on Thursday,  June 13, 2019. We are pleased to announce that this year’s annual meeting will be held completely virtual via live interactive webcast on the internet. You will be able to attend, vote and submit your questions during the meeting at www.virtualshareholdermeeting.com/GHDX2019.

The formal notice of the Annual Meeting and the Proxy Statement has been made a part of this invitation.

Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the Annual Meeting. After reading the Proxy Statement, please promptly vote. Your shares cannot be voted unless you sign, date and return the enclosed proxy, vote by telephone or the Internet, vote as instructed by your broker, or attend the Annual Meeting and vote virtually at www.virtualshareholdermeeting.com/GHDX2019.

We have also enclosed a copy of our 2018 Annual Report to Stockholders.

We look forward to you attending the meeting.

 

 

Genomic Health, Inc.

301 Penobscot Drive

Redwood City, California 94063

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Wednesday, June 13, 2019

9:00 a.m. Pacific Daylight Time

Virtually at www.virtual shareholdermeeting.com/GHDX2019

 

To our Stockholders:

Genomic Health, Inc. will hold its Annual Meeting of Stockholders at 9:00 a.m., Pacific Time, on Thursday, June 13, 2019 virtually at www.virtualshareholdermeeting.com/GHDX2019.

We are holding this Annual Meeting for the following purposes:

RECORD DATE:  Stockholders of record at the close of business on April 18, 2019 are entitled to notice of and to vote at this meeting and any adjournments or postponements of the Annual Meeting.

It is important that your shares be represented at this meeting. Even if you plan to attend the virtual Annual Meeting, we hope that you will vote promptly. Please review the instructions on pages 2 and 3 of the attached Proxy Statement regarding your voting options.

Important Notice Regarding the Availability of Proxy Materials for the

Annual Meeting of Stockholders to be held on June 13, 2019.

The Proxy Statement and Annual Report are available at

www.proxydocs.com/ghdx

 

Genomic Health, Inc.

301 Penobscot Drive

Redwood City, California 94063

PROXY STATEMENT

Information Concerning Voting and Solicitation

This Proxy Statement is being furnished to you in connection with the solicitation by the board of directors of Genomic Health, Inc., a Delaware corporation (“we,” “us,” “our,” “Genomic Health” or the “Company”), of proxies in the accompanying form to be used at the Annual Meeting of Stockholders of the Company to be held virtually via live interactive webcast at www.virtualshareholdermeeting.com/GHDX2019 on Thursday, June 13, 2019, at 9:00 a.m., Pacific Time, and any postponement or adjournment thereof (the “Annual Meeting”). To participate in the Annual Meeting, you will need the unique control number we have provided on your proxy card or that is contained in your voting instruction form. Additional directions for participating in the Annual Meeting are available at www.virtualshareholdermeeting.com/GHDX2019.

This Proxy Statement and the accompanying form of proxy are being mailed to stockholders on or about May 1, 2019.

Proposals to be voted on at the Annual Meeting

 

 

Proxy Statement Summary

Frequently Asked Questions

 

Will there be any other items of business on the agenda?

We do not expect any other items of business because the deadline for stockholder proposals and nominations has already passed. Nonetheless, in case there is an unforeseen need, the accompanying proxy gives discretionary authority to the persons named on the proxy with respect to any other matters that might be properly brought before the meeting. Those persons intend to vote that proxy in accordance with their best judgment.

How can I attend the Annual Meeting?

You are invited to join the Annual Meeting if you are a stockholder of record or a beneficial owner as of April 18, 2018, live via the Internet at www.virtualshareholdermeeting.com/GHDX2019. You may vote and submit questions while attending the meeting on the Internet. Instructions on how to attend and participate in the Annual Meeting via the Internet, including how to demonstrate proof of stock ownership, are posted at www.virtualshareholdermeeting.com/GHDX2019. You must have your control number in order to attend the Annual Meeting, which is provided on the proxy card or voting instruction form.

Who is entitled to vote?

Stockholders of record at the close of business on April 18, 2019 (the “Record Date”) are entitled to notice of and may vote at the Annual Meeting. Each stockholder is entitled to one vote for each share of the Company’s common stock held as of the Record Date.

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

Stockholder of Record.  If your shares are registered directly in your name with Genomic Health’s transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, the stockholder of record. The Proxy Statement, Annual Report and proxy card, including control number, have been sent directly to you by Genomic Health.

Beneficial Owner.  If your shares are held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name. The Proxy Statement, Annual Report and voting instructions, including control number, have been forwarded to you by your broker, bank or nominee who is considered, with respect to those shares, the stockholder of record.

How do I vote?

Stockholder of Record

If you are a stockholder of record, you may vote directly at the Annual Meeting by going to www.virtualshareholdermeeting.com/GHDX2019 and using the unique control number that has been provided to you on your proxy card, vote by signing and returning the enclosed proxy card, vote by telephone, or vote by the Internet. Whether or not you plan to attend the Annual Meeting, we urge you to vote to ensure your vote is counted. You may still attend the Annual Meeting and vote even if you have already voted.

We provide Internet voting to allow you to vote online. However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies.

Beneficial Owner

If you are a beneficial owner of shares registered in the name of your broker, bank, or other nominee, you have the right to direct your broker, bank or nominee how to vote your shares by following the voting instruction form included in the mailing from that entity. Complete and mail the voting instruction form to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by your broker, bank or other nominee. Follow the instructions from your broker, bank or other nominee included with these proxy materials, or contact your broker, bank or other nominee to request a proxy.

Can I change my vote or revoke my proxy?

If you are a stockholder of record, you may change your vote or revoke your proxy at any time prior to the vote at the Annual Meeting. If you submitted your proxy by mail, you must file with the Secretary of the Company a written notice of revocation or deliver, prior to the vote at the Annual Meeting, a valid, later‑dated proxy. If you submitted your proxy by telephone or by the Internet, you may change your vote or revoke your proxy with a later telephone or Internet proxy, as the case may be. Virtual attendance at the Annual Meeting will not have the effect of revoking a proxy unless you give written notice of revocation to the Secretary before the proxy is voted or you vote directly at the virtually-held Annual Meeting.

If you are a beneficial owner of shares held in street name and you wish to change or revoke your vote, please consult the instructions provided with this Proxy Statement or contact your broker, bank or nominee.

How are votes counted?

In the election of directors, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. For each of Proposals 2, 3, 4 and 5, you may vote “FOR” or “AGAINST” or “ABSTAIN.” If you “ABSTAIN” as to any of these Proposals, the abstention has the same effect as a vote “AGAINST.” If you provide specific instructions, your shares will be voted as you instruct. If you sign your proxy card with no further instructions and you are a stockholder of record, your shares will be voted in accordance with the recommendations of the board (“FOR” all of the nominees to the board, “FOR” each of Proposals 2, 3 and 4, and “AGAINST” Proposal 5) and in the discretion of the proxy holders on any other matters that properly come before the meeting. If you hold your shares in street name, please see the next section for important information regarding voting of your shares.

What vote is required to approve each item?

In Proposal 1, the election of directors, the eight persons receiving a majority of “FOR” votes at the Annual Meeting will be elected. Our board of directors has adopted a policy governing what will occur in the event that a director does not receive a majority of the votes cast. A majority of the votes cast means that the number of votes cast “FOR” a director nominee exceeds the number of votes “WITHHELD.” Abstentions and broker non‑votes will not be counted to determine whether a nominee receives a majority of the votes cast. Additional information concerning our policy for the election of directors is set forth under the heading “Majority Voting in Uncontested Director Elections.”

The vote for each of Proposal 2 and Proposal 4  requires the affirmative “FOR” vote of a majority of the common stock present in person or by proxy at the Annual Meeting and entitled to vote.

The vote in Proposal 3  is advisory and therefore is not binding on us, our board of directors, or our Compensation Committee of the board of directors. The vote in Proposal 5 is also advisory and therefore is not binding on us or our board of directors.

If you hold shares beneficially in street name and do not provide your broker, bank or nominee with voting instructions, your shares may constitute “broker non‑votes.” Generally, broker non‑votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In the event you do not provide instructions and your broker does not have authority to vote without your instructions, your

shares will not be voted on any such proposal, and will not be voted regarding the election of directors. In tabulating the voting results for any particular proposal, shares that constitute broker non‑votes are not considered entitled to vote on that proposal. Thus, broker non‑votes will not affect the outcome of any matter being voted on at the Annual Meeting, assuming that a quorum is obtained. Abstentions have the same effect as votes against a matter, except as noted above with respect to the election of directors.

Is cumulative voting permitted for the election of directors?

Stockholders may not cumulate votes in the election of directors, which means that each stockholder may vote no more than the number of shares he or she owns for a single director candidate.

What constitutes a quorum?

The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of common stock outstanding on the Record Date will constitute a quorum. As of the close of business on the Record Date, 37,072,397 shares of our common stock were outstanding. Both abstentions and broker non‑votes are counted for the purpose of determining the presence of a quorum.

How are proxies solicited?

Our employees, officers and directors may solicit proxies. We will bear the cost of soliciting proxies and will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out‑of‑pocket expenses for forwarding proxy and solicitation material to the owners of common stock.

IMPORTANT

Please promptly vote by signing, dating and returning the enclosed proxy card in the postage‑prepaid return envelope provided, voting by telephone or the Internet, or voting following the instructions provided by your bank, broker or nominee, so that your shares can be voted.

Proposal 1

Election of Directors

Directors and Nominees

 

 

At the Annual Meeting, our stockholders will be asked to elect eight persons as members of your board of directors, each for a one‑year term or until their successors are elected and qualified. The Nominating and Corporate Governance Committee of the board of directors has recommended, and the board of directors has designated, the eight persons listed below for election at the Annual Meeting. The proxies given to the proxy holders will be voted or not voted as directed and, if no direction is given, will be voted “FOR” each of the nominees. Your board of directors knows of no reason why any of these nominees should be unable or unwilling to serve. However, if for any reason any nominee should be unable or unwilling to serve, the proxies will be voted for any nominee designated to fill the vacancy by your board of directors, taking into account the recommendations of the Nominating and Corporate Governance Committee.

The names of the board of directors’ nominees, their ages as of March 15, 2019, and certain biographical information about the nominees are set forth below.

Vote Required

In an uncontested election, our bylaws require our directors to be elected by a majority of the shares of common stock present or represented and voting at the Annual Meeting with respect to that nominee. In a contested election, the nominees are elected by a plurality vote.

Your board of directors recommends a vote FOR the election of the nominees set forth above as directors of Genomic Health.

Corporate Governance Highlights

 

 

Corporate and Social Responsibility

In addition to our commitment to innovation and our corporate mission to transform the quality of treatment for patients living with cancer, we are also committed to enhancing the communities in which we operate, improving the treatment and experience of patients, supporting our colleagues and operating our business in a sustainable way that protects the environment. For more information about our corporate and social responsibility efforts, please see “Our Commitment” in the “Who We Are” portion of our website at www.genomichealth.com/our-commitment; however, please be advised that the information on our website is not part of this proxy statement.

 

Director Independence

Our board of directors has determined that, except for Ms. Popovits, each individual who currently serves as a member of the board is, and each individual who served as a member of the board in 2018 was, an “independent director” within the meaning of Rule 5605 of The Nasdaq Stock Market. Ms. Popovits is not independent because she is employed by the Company. All of the nominees are members of the board standing for election or reelection as directors. For Messrs. Baker and Parker,  Drs. Baker, Cohen, Flannelly and Fuchs, and Ms. Graham, the board of directors considered their relationship and transactions with the Company as directors and securityholders of the Company.

Board Meetings

Our board of directors held eight meetings in 2018. Each director attended at least 75% of the aggregate number of meetings of the board of directors held during the period for which such director served on our board of directors and of the committees on which such director served. The independent directors meet in regularly scheduled executive sessions at in‑person meetings of the board of directors without the participation of Ms. Popovits or the other members of management. We do not have a policy that requires the attendance of directors at the Annual Meeting. No directors other than Ms. Popovits attended our 2018 annual meeting.

Committees of the Board of Directors 

Below is a description of each committee of the board of directors. The board of directors has determined that each director who serves on the Audit, Compensation, and Nominating and Corporate Governance Committees is “independent,” as that term is defined by applicable listing standards of The Nasdaq Stock Market and rules of the Securities and Exchange Commission, or SEC, and has adopted written charters for these committees. These charters are available on the investor section of our website (www.genomichealth.com).

Audit Committee

Compensation Committee

 

Nominating and Corporate Governance Committee

 

Science and Technology Advisory Committee

 

Director Nominations

The board of directors nominates directors for election at each annual meeting of stockholders and elects new directors to fill vacancies when they arise. The Nominating and Corporate Governance Committee has the responsibility to identify, evaluate, recruit and recommend qualified candidates to the board of directors for nomination or election.

The board of directors has as an objective that its membership be composed of experienced and dedicated individuals with diversity of backgrounds, perspectives and skills. The Nominating and Corporate Governance Committee will select candidates for director based on their character, judgment, diversity of experience, business acumen and ability to act on behalf of all stockholders. The Nominating and Corporate Governance Committee believes that nominees for director should have experience, such as experience in management or accounting and finance, or industry and technology knowledge, that may be useful to Genomic Health and the board of directors, high personal and professional ethics, and the willingness and ability to devote sufficient time to carry out effectively their duties as directors. Although the Company has no formal diversity policy for board members, the board and the Nominating and Corporate Governance Committee consider diversity of backgrounds and experiences and other forms of diversity when selecting nominees. The Nominating and Corporate Governance Committee also believes that service as director of other public companies provides experience and perspective that may be useful to Genomic Health and the board of directors, and several of our directors have served as directors of other public companies. The Nominating and Corporate Governance Committee believes it appropriate for at least one, and, preferably, multiple, members of the board of directors to meet the criteria for an “audit committee financial expert” as defined by rules of the SEC, and for a majority of the members of the board of directors to meet the definition of “independent director” under the rules of The Nasdaq Stock Market. The Nominating and Corporate Governance Committee also believes it appropriate for key members of our management to participate as members of the board of directors.

Prior to each annual meeting of stockholders, the Nominating and Corporate Governance Committee identifies nominees by first evaluating the current directors whose term will expire at the annual meeting and who are willing to continue in service. These candidates are evaluated based on the criteria described above, including as demonstrated by the candidate’s prior service as a director, and the needs of the board of directors with respect to the particular talents and experience of its directors. In the event that a director does not wish to continue in service, the Nominating and Corporate Governance Committee determines not to re‑nominate the director, or a vacancy is created on the board of directors as a result of a resignation, an increase in the size of the board or other event, the Nominating and Corporate Governance Committee will consider various candidates for board membership, including those suggested by the committee members, by other board of directors members, by any executive search firm engaged by the committee or by stockholders. The Nominating and Corporate Governance Committee recommended all of the nominees for election included in this Proxy Statement.

A stockholder who wishes to suggest a prospective nominee for the board of directors should notify Genomic Health’s Secretary or any member of the Nominating and Corporate Governance Committee in writing with any supporting material the stockholder considers appropriate.

In addition, our Bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the board of directors at our annual meeting of stockholders. In order to nominate a candidate for director, a stockholder must give timely notice in writing to Genomic Health’s Secretary and otherwise comply with the provisions of our Bylaws. To be timely, our Bylaws provide that we must have received the stockholder’s notice not less than 90 days nor more than 120 days prior to the first anniversary date of the preceding year’s annual meeting; however, if we have not held an annual meeting in the previous year or the date of the annual meeting is called for a date that is more than 30 days before or more than 60 days after the first anniversary date of the preceding year’s annual meeting, we must have received the stockholder’s notice not later than the close of business on the later of the 90th day prior to the date of the scheduled annual meeting or the 7th day following the earlier of the day on which notice

of the annual meeting date was mailed or the day of the first public announcement of the annual meeting date. An adjournment or postponement of an annual meeting will not commence a new time period or extend any time period for the giving of the stockholder’s notice described above. Information required by the Bylaws to be in the notice includes the name and contact information for the candidate and the person making the nomination, and other information about the nominee that must be disclosed in proxy solicitations under Section 14 of the Securities Exchange Act of 1934 and the related rules and regulations under that Section.

Stockholder nominations must be made in accordance with the procedures outlined in, and include the information required by, our Bylaws and must be addressed to: Secretary, Genomic Health, Inc., 301 Penobscot Drive, Redwood City, California 94063. You can obtain a copy of our Bylaws by writing to the Secretary at this address.

Majority Voting in Uncontested Director Elections

Our Bylaws contain a majority voting standard for the election of directors in an uncontested election. An “uncontested election” is one in which the number of nominees equals the number of directors to be elected in such election. In an uncontested election, each nominee must be elected by the vote of a majority of the votes cast by the shares present in person or represented by proxy. A “majority of the votes cast” means that the number of shares voted “for” a director’s election must exceed the number of votes to withhold authority or votes against, excluding abstentions and broker non‑votes.

In addition, our board of directors has adopted a policy that the board will nominate or elect as a director only candidates who agree to tender, promptly following his or her election or re‑election to the board, an irrevocable resignation that will be effective upon (i) the failure of the candidate to receive the required vote at the next annual meeting at which he or she faces re‑election and (ii) the acceptance by our board of such resignation.

If an incumbent director fails to receive the required vote for re‑election in an uncontested election, the Nominating and Corporate Governance Committee will evaluate and make a recommendation to the board with respect to whether such director’s resignation should be accepted. The board must take action on the recommendation within 90 days following certification of the stockholder vote. The director whose resignation is under consideration cannot participate in any decision regarding his or her resignation. The Nominating and Corporate Governance Committee and the board of directors may consider any factors they deem relevant in deciding whether to accept a director’s resignation. If a director’s resignation is accepted by the board, then the board may fill the resulting vacancy or may decrease the size of the board.

Board Leadership Structure and Role in Risk Oversight

The roles of chief executive officer and chairman of the board of directors are currently combined, at the board of directors’ discretion. The board believes that Ms. Popovits is the director best suited to identify strategic opportunities and focus the activities of the board due to her extensive understanding of our business. The board also believes that the combined role of chairman of the board and chief executive officer promotes the effective execution of strategic initiatives and facilitates the flow of information between management and the board. While the board believes it is important to retain the organizational flexibility to determine whether the roles of chairman of the board and chief executive officer should be separated or combined in one individual, or whether to elect an independent non‑executive chairman, the board currently believes that the interests of the Company and its stockholders are better served with the chief executive officer serving both roles. The board believes that the appointment of a strong lead independent director and the use of regular executive sessions of the independent, non‑management directors, along with the board’s strong committee system and substantial majority of independent directors, allow it to maintain effective oversight of management. In connection with the appointment of Ms. Popovits to the role of chairman of the board, the board appointed Julian C. Baker as the board’s lead independent director. The independent directors meet in an executive session after each regular board meeting, at which time the independent directors have the opportunity to discuss management performance.

Our board of directors is responsible for overseeing the overall risk management process at the Company. The responsibility for managing risk rests with executive management while the committees of the board and the board of directors as a whole participate in the oversight process. The board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include reviews of long‑term strategic and operational planning, executive development and evaluation, regulatory and legal compliance, and financial reporting and internal controls. The board considers strategic risks and opportunities and regularly receives reports from executive management regarding specific aspects of risk management.

Stockholder Engagement

We recognize the importance of regular and transparent communication with our stockholders. Each year, we continually engage with a significant portion of stockholders that include our top institutional investors. In fiscal 2018, we held meetings and conference calls with investors on a variety of topics, including our corporate governance and risk management practices, board refreshment, sustainability initiatives, our executive compensation program, and other matters of stockholder interest.

If you wish to communicate with the board of directors, you may send your communication in writing to: Secretary, Genomic Health, Inc., 301 Penobscot Drive, Redwood City, California 94063. You must include your name and address in the written communication and indicate whether you are a stockholder of Genomic Health. The Secretary will review any communication received from a stockholder, and all material communications from stockholders will be forwarded to the appropriate director or directors or committee of the board of directors based on the subject matter.

Certain Relationships and Related Transactions

It is our policy that all employees, officers and directors must avoid any activity that is or has the appearance of conflicting with the interests of the Company. This policy is included in our Code of Business Conduct and Ethics. We conduct a review of all related party transactions for potential conflict of interest situations on an ongoing basis and all such transactions relating to executive officers and directors must be approved by the independent and disinterested members of our board of directors or an independent and disinterested committee of the board.

Director Compensation

The following table sets forth cash amounts and the value of other compensation earned by our outside directors for their service in 2018 other than Dr. Flannelly, who was not a director in 2018:

 

Directors who are our employees do not receive any fees for their service on our board of directors. During 2018,  Ms. Popovits was our only employee director.

For 2018, our outside directors received an annual retainer of $40,000. Directors other than committee chairs receive annual fees paid prospectively on a quarterly basis for membership on committees as follows: Audit Committee members—$7,000; Compensation Committee members—$5,000; Nominating and Corporate Governance Committee members—$2,000; and Science and Technology Committee members—$5,000. The annual fees paid for service as a committee chair are as follows: Audit Committee chair—$20,000; Compensation Committee chair—$15,000; Nominating and Corporate Governance Committee chair—$5,000; and Science and Technology Committee chair—$15,000. Outside directors have the option to elect to receive some or all of their retainers (other than retainers for serving as committee chair or committee membership) in the form of restricted stock that vests immediately when the associated quarterly retainer amount is paid. We also provide reimbursement to our outside directors for reasonable expenses in connection with attendance at board of director and committee meetings.

In addition to cash compensation for services as a member of the board, outside directors also are eligible to receive nondiscretionary, automatic grants of stock options under our 2005 Stock Incentive Plan. An outside director who joins our board is automatically granted an initial option to purchase 20,000 shares upon first becoming a member of our board of directors. The initial option vests and becomes exercisable over four years, with the first 25% of the shares subject to the initial option vesting on the first anniversary of the date of grant and the remainder vesting monthly thereafter. On the first business day following each regularly scheduled annual meeting of stockholders, each outside director is automatically granted a nonstatutory option to purchase 10,000 shares of our common stock, provided the director has served on our board of directors for at least six months. These options vest and become exercisable on the first anniversary of the date of grant or immediately prior to our next annual meeting of stockholders, if earlier. The options granted to outside directors under our 2005 Stock Incentive Plan have a per share exercise price equal to 100% of the fair market value of the underlying shares on the date of grant, a term of 10 years, and become fully vested in the event of a change in control. At December 31, 2018, options granted to outside directors with respect to an aggregate of 67,500 shares would automatically accelerate upon a change of control.

Fiscal Year 2019 Director Compensation

Our independent compensation consultant periodically conducts an independent review of the Company’s outside director compensation program on behalf of the Compensation Committee. The Compensation Committee, having been advised by our independent compensation consultant in April of 2019, recommended modifications to compensation for outside directors in order to maintain the competitive positioning of overall compensation relative to the market. In April 2019, our board of directors approved the following modifications to director compensation to be effective as of the date of the Annual Meeting:

There were no other significant changes to the terms of the compensation for outside directors, including no changes to vesting, proration, and deferral.

 

 

Executive Compensation

Compensation Discussion and Analysis

An Overview of 2018 Performance

2018 was a record year for our Company. Below are performance and compensation highlights at a glance:

Our Compensation Philosophy and Objectives

We believe that compensation of our executive officers should:

Our philosophy is to align the interests of our stockholders and management by linking compensation with our annual and long‑term corporate and financial objectives, including through equity ownership by management. In order to attract and retain qualified personnel, we strive to offer a total compensation package competitive with select companies in the life sciences industry, taking into account relative company size, performance and geographic location as well as individual responsibilities and performance. Our compensation philosophy with respect to our executive officers currently focuses on the use of a combination of cash and equity‑based compensation to recruit and retain qualified, skilled and dedicated executives.

Implementing Our Objectives

The Compensation Committee of our board of directors administers and interprets our executive compensation and benefits policies, including our stock incentive plan, and reviews and makes recommendations to the independent members of the board of directors with respect to major compensation plans, policies and programs.

For 2018, the Compensation Committee evaluated the performance in 2017 of Kimberly J. Popovits, our President and Chief Executive Officer, or CEO, and made recommendations to the independent members of the board regarding Ms. Popovits’s compensation in light of the goals and objectives of our compensation program, the Company’s financial results and progress towards its strategic goals, and compensation levels of peer companies. Ms. Popovits and the Compensation Committee together assessed the performance of our executive officers, other than Ms. Popovits, and other members of our management team, based on initial recommendations from Ms. Popovits. This assessment took into account the Company’s financial results, its progress towards its strategic goals, compensation levels of peer companies, and the goals and objectives of the Company’s compensation program. The Committee’s recommendations were then submitted to the independent members of the board for their consideration and approval.

Market Reference Data.  While the Compensation Committee did not rely on market benchmarks to determine its recommendations for executive compensation for 2018, the Committee reviewed market reference data to evaluate the competitiveness of our executive officers’ compensation and to determine whether the total compensation paid to each of our named executive officers was reasonable in the aggregate. However, the Compensation Committee did not limit its decision to any particular range or level of total compensation paid to executive officers at these companies. In connection with its analysis, the Committee reviewed information prepared by Compensia Inc., an independent executive compensation consultant, comparing the compensation for members of our management team, which includes our executive officers, with data from the Radford Global Life Sciences Compensation Survey with respect to companies with revenues between $130 million and $850 million and with 400 to 1,700 employees and data from SEC filings for a peer group composed of the following 16 diagnostics and biotechnology companies:

 

The peer group used for 2018 compensation was revised from the peer group used for 2017 primarily to delete companies that had been acquired by another company, had acquired a division of another company, had a substantial decrease in market capitalization from the prior year or had a business model that was no longer relevant. Additions to the list were made primarily based upon similar industry companies whose market capitalizations were between 0.3 and 3.0 times our Company’s  market capitalization.

Equity Grant Practices.  The Compensation Committee administers our stock incentive plan for executive officers, employees and consultants, under which it grants RSUs and options to purchase our common stock. Options are granted with an exercise price equal to the fair market value of a share of our common stock on the date of grant, which is the closing price of our common stock on the date of grant. For purposes of determining grant amounts, RSUs are valued based on the fair market value of a share of our common stock on the date of grant. We do not coordinate the timing of equity award grants with the release of financial results or other material announcements by the Company; our annual equity grants are made at regularly scheduled board and Compensation Committee meetings.

Under our equity incentive guidelines, most employees receive grants of RSUs. Employees with titles of vice president and above, including our executive officers, are eligible to receive stock options and RSUs. The target percentages of equity grant value for employees with titles during 2018 of vice president and above other than our CEO, Chief Operating Officer, Chief Financial Officer, Chief Scientific Officer and Chief U.S. Commercial Officer are 50% stock options and 50% RSUs, and the target percentages for our other executive officers are 75% stock options and 25% RSUs. The stock options generally vest over four years and no shares vest before the one‑year anniversary of the option grant. We spread the vesting of our options over four years to compensate executives and other employees receiving options for their contribution over a period of time and to provide an incentive to focus on our longer term goals. The RSUs generally vest in three equal annual installments. The Compensation Committee has also approved in the past awards of performance‑based vesting RSUs to our executive officers, as discussed below, and may in the future consider awarding additional or alternative forms of equity incentives, such as grants of restricted stock and other performance‑based awards.

Post-Employment Compensation. We generally do not enter into employment agreements with our executive officers as we do not believe these types of arrangements facilitate our compensation goals and objectives. However, we have adopted a severance plan pursuant to which our executive officers may receive severance benefits, as described below under “Potential Payments Upon Change-in-Control and Termination.” The Compensation Committee believes these

severance payments and benefits are important from a retention perspective to provide some level of protection to our executive officers from having their employment terminated without cause or constructively terminated in connection with a change in control of the Company, and that the amounts are reasonable when compared with similar arrangements adopted by other life sciences and healthcare companies. In addition, the Compensation Committee believes that these severance payments and benefits align our executive officer and stockholder interests by securing the continued services, dedication, and objectivity of the executive officers and enabling them to consider corporate objectives and possible transactions that are in the best interests of the stockholders and other constituents of the Company without being hindered or distracted by personal uncertainties and risks in connection with a change in control of the Company.

Stock Ownership Guidelines.  The Compensation Committee and board of directors approved a stock ownership guideline policy in 2018 that requires executive officers and outside directors to own a target amount of stock in Genomic Health or retain shares of common stock underlying options they exercise. As of the beginning of April 2019, each executive officer and outside director satisfied the policy.

Elements of Executive Compensation

Our compensation structure for executive officers consists of a combination of base salary, bonus and equity‑based compensation. The Compensation Committee makes recommendations with respect to executive officer compensation. Compensation other than grants under our stock incentive plan are approved by the independent members of our board of directors.

Base Salary.  The Compensation Committee reviews base salaries for executive officers on an annual basis, adjusting salaries based on individual and Company performance and other factors discussed below.

The Compensation Committee and independent members of our board of directors will consider adjustments to base salaries for our executives, which may be implemented over time and will depend on the Company’s operating results and comparative market data. In January 2018, the independent members of our board of directors, based on the recommendation of the Compensation Committee, approved salary increases of between 0% and 6% for our named executive officers other than our CEO, Ms. Popovits. Ms. Popovits received a base salary increase of 2.9% in 2018.

In January 2019, the independent members of our board of directors, based on the recommendation of the Compensation Committee, approved salary increases of between 0% and 3.5% for our named executive officers other than Ms. Popovits. Ms. Popovits received a base salary increase of 3.0% in 2019.

For both years, salary amounts were established after considering job performance and responsibilities, internal pay alignment and marketplace competitiveness, among other things.

Annual Bonus.  We have an annual bonus pool for our employees that is tied to corporate and operational goals. The potential for actual awards under the plan could either exceed or be less than the funding target depending on corporate and individual performance. For each employee, including our named executive officers, the 2018 bonus was determined as follows:

 

 

For 2018, the eligible bonus target for our named executive officers other than our CEO was 55%. The target bonus percentage for our CEO was 90%, which was lower than the market 50th percentile. The corporate performance objectives for the 2018 bonus pool for our non‑executive employees were approved by the Compensation Committee and our board of directors with the Company’s full‑year results determining the funding pool for employees and members of our management team, including our executive officers.

The corporate performance objectives for members of our executive management team for 2018 were the same as the objectives applicable to the remainder of our employees. In each case, minimum and target achievement levels were defined for certain of the financial and business performance objectives, and for certain objectives, overachievement or achievement of additional objectives enabled the addition of a fixed number of bonus percentage points for such objectives.

The corporate bonus objectives for 2018 were achieved at the 133% level. The following corporate performance objectives for 2018 had minimum, target, and maximum levels of achievement, and potential payout percentages in 2018

based on achievement of the corporate performance objectives that ranged from 0% to 162%, subject in any case to potential adjustment for individual performance.

Other specific corporate bonus objectives are not disclosed because we consider the information to be confidential and believe it would be competitively harmful if disclosed.

While bonuses for non‑executive employees were based in part on achievement of corporate goals established by our executive officers and board of directors and other factors, bonuses for executive officers were determined by the Compensation Committee and independent members of our board of directors at the time of their annual compensation review based on their assessment of corporate and individual achievements. For 2018, the Committee and the independent members of our board of directors determined to award bonuses to each executive officer based on an annual goal achievement level of 133%. Bonus amounts were calculated by multiplying that achievement level of 133% by the respective target bonus percentage of base salary for each such executive officer. Further, the Committee and the independent members of our board of directors assessed individual performance of executive team members in 2018 based on the input provided by the CEO and consequently adjusted executive team member bonus payouts by a modifier of between 85% to 105% of the 133% annual goal achievement level resulting in the following bonuses for our named executive officers:

 

In January 2019, the independent members of our board of directors approved, on the recommendation of the Compensation Committee, our 2019 corporate bonus plan. The 2019 bonus plan applies to all non‑commission‑based employees, including our executive officers, and objectives will be measured on an annual basis for all employees. The funding targets as a percentage of base salary for our named executive officers other than our CEO ranged from 45% to 55% and our CEO’s bonus target percentage was increased to 100%. Corporate performance objectives for the 2019 bonus plan have minimum, target and maximum levels of achievement, and potential payout percentages under the bonus plan based on achievement of the corporate performance objectives can range from 0% to 172%, subject in any case to potential adjustment for individual performance. Performance objectives under the 2019 bonus plan include financial and business performance objectives, representing aggregate potential payout percentages at maximum levels of achievement of 117%, commercial objectives, representing aggregate potential payout percentages at maximum levels of achievement of 16%, and product development and operational excellence related objectives, representing aggregate potential payout percentages at maximum levels of achievement of 39%.

Equity‑Based Compensation.  We believe that providing executive officers who have responsibility for our management and growth with an opportunity to increase their stock ownership aligns the interests of the executive officers with those of our stockholders. Accordingly, the Compensation Committee considers stock option and RSU grants to be an important aspect in compensating and providing incentives to management. The Compensation Committee sets annual grants as part of its and the independent members of the board’s annual compensation review process. The Compensation Committee determined the number of shares underlying each stock option or RSU grant based upon the executive officer’s and the Company’s performance, the executive officer’s role and responsibilities, the executive officer’s base salary, comparison with comparable awards to individuals in similar positions in our industry using the survey data described above and previously determined stock grant guidelines for all employees.

In January 2018, the Compensation Committee approved the following grants of stock options and RSUs to our named executive officers in connection with the evaluation of our named executive officers’ 2017 performance by the Compensation Committee and the independent members of our board.

 

The stock options became exercisable as to 25% of the shares on January 31, 2019 with monthly vesting thereafter, and one-third of the RSUs vested on February 15, 2019, and one-third will vest on each February 2020 and 2021, which vesting, in each case, is subject to the named executive officer’s continued empoloyment.

In January 2019, the Compensation Committee approved the following grants of stock options and RSUs to our executive officers in connection with the evaluation of our executive officers’ 2018 performance by the Compensation Committee and the independent members of our board. Consistent with prior years, these grants are based on a value of compensation for each executive officer which is divided by a 50-day average price of our common stock to determine the number of options granted.

 

No Perquisites. Our executive officers do not receive any perquisites or special benefits with the exception of commuter benefits for an officer.

Tax Deductibility of Compensation. Section 162(m) of the Internal Revenue Code generally disallows a deduction for federal income tax purposes to any publicly-traded corporation for any remuneration in excess of $1 million paid in any taxable year to its CEO and each of the three other most highly-compensated executive officers (other than, prior to 2018, its chief financial officer (“CFO”)) (the “Covered Employees”). However, compensation which qualifies as

“performance-based” is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals under a plan approved by the corporation’s stockholders, although this exception is severely limited beginning in 2018, as described below. The material terms of the 2005 Stock Incentive Plan were previously approved by stockholders in 2014 for purposes of Section 162(m), which allowed us to grant certain long-term incentive awards that are designed to meet the definition of performance-based compensation under Section 162(m) in order to qualify for the performance-based exception to the $1 million deduction limit. However, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interest of the Company, we did not previously limit executive compensation to amounts deductible under Section 162(m) if the Compensation Committee determined that doing so was in the best interests of the Company.

 

The Tax Cuts and Jobs Act, enacted on December 22, 2017, substantially modified Section 162(m) and, among other things, eliminated the performance-based exception to the $1 million deduction limit effective as of January 1, 2018. As a result, in 2018, compensation paid to certain executive officers in excess of $1 million was generally non-deductible, whether or not it is performance-based. In addition, beginning in 2018, Covered Employees include any individual who served as the CEO or CFO at any time during the taxable year and the three other most highly compensated officers (other than the CEO and CFO) for the taxable year, and once an individual becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years, including following any termination of employment.

 

The Tax Cuts and Jobs Act includes a transition rule under which the changes to Section 162(m) described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017 and is not materially modified after that date. To the extent applicable to our existing contracts and awards, the Committee may avail itself of this transition rule. However, because of uncertainties as to the application and interpretation of the transition rule, no assurances can be given at this time that our existing contracts and awards, even if in place on November 2, 2017, will meet the requirements of the transition rule.

 

Compensation Committee Report

The following report of the Compensation Committee shall not be deemed to be “soliciting material” or “filed” with the SEC or to be incorporated by reference into any other filing by Genomic Health under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under those Acts.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with our management. Based on its review and those discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10‑K for the year ended December 31, 2018.

 

Named Executive Officers 

The tables that follow provide compensation information for our named executive officers.

Summary Compensation Table

CEO Pay Ratio

Under rules adopted pursuant to the Dodd-Frank Act of 2010, presented below is the ratio of annual total compensation of our median compensated employee (excluding our Chief Executive Officer) to the annual total compensation of our Chief Executive Officer.

The ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported below, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

We identified our median compensated employee from the 829 full-time and part-time workers who were included as employees on our payroll records as of December 31, 2018 based on year-to-date base salary, bonus, commissions and equity, with conforming adjustments for employees who were hired during that period but did not work the full 12 months. We did not exclude any employees from the population.

The 2018 annual total compensation as determined under Item 402 of Regulation S-K for our CEO was $4,712,889, as reported in the Summary Compensation Table of this Proxy Statement. The 2018 annual total compensation as determined under Item 402 of Regulation S-K for our median employee was $177,966. The ratio of our CEO’s annual total compensation to our median employee’s total annual compensation for fiscal year 2018 is 26 to 1.

 

Grants of Plan‑based Awards—2018

Outstanding Equity Awards at Fiscal Year‑End