8-KLeadership ChangesExhibits & Filings

QUEST DIAGNOSTICS INC 8-K Report, Executive Changes (May 16, 2012)

Filed May 16, 2012For Securities:DGX

Summary

Quest Diagnostics Incorporated (DGX) filed an 8-K on May 16, 2012, reporting on an amendment to its Executive Officer Severance Plan, effective May 10, 2012. The most significant change for investors is the elimination of excise tax gross-ups on Section 280G "excess parachute payments." This means that going forward, any executive severance payments that trigger excise taxes will either be reduced to avoid the tax, or the executive will be responsible for paying the tax themselves. Additionally, the filing notes that Stephen H. Rusckowski, the President and CEO, has been added as a Schedule A participant under the amended plan. This amendment to the severance plan is a governance and compensation-related change, aimed at aligning executive compensation practices with shareholder interests by removing a benefit that provided executives with a tax shield on potential large severance payouts.

Key Highlights

  • 1Quest Diagnostics amended and restated its Executive Officer Severance Plan (the "Plan") on May 10, 2012.
  • 2The primary change is the elimination of excise tax gross-ups for Section 280G "excess parachute payments."
  • 3Under the amended plan, executives will receive the greater of (i) severance payments capped at the 280G safe harbor amount, or (ii) full severance payments with the executive paying any applicable excise tax.
  • 4This change removes a previous benefit that shielded executives from excise taxes on certain severance packages.
  • 5The Company's President and CEO, Stephen H. Rusckowski, is now included as a Schedule A participant under the amended plan.
  • 6The filing incorporates the amended and restated Plan as an exhibit.
  • 7This amendment reflects a shift in executive compensation policy, potentially reducing future cash outflows related to executive severance.

Frequently Asked Questions

This 8-K filing announces an amendment to Quest Diagnostics' Executive Officer Severance Plan. The key change is the removal of excise tax gross-ups on 'excess parachute payments' for executives, which could impact the total value of severance packages.

Previously, the company would cover any excise taxes on certain large severance payments. Now, executives will either have their severance payments reduced to avoid triggering the excise tax, or they will be responsible for paying the excise tax themselves on the full severance amount.

Section 280G of the Internal Revenue Code deals with "golden parachute" payments made to executives. If these payments exceed a certain threshold (the 'safe harbor amount'), they are considered 'excess parachute payments' and are subject to an excise tax for the executive and a loss of tax deduction for the company. The gross-up provision in the old plan helped executives avoid this tax.

Stephen H. Rusckowski, the CEO, is now explicitly included as a participant under the amended severance plan. This formalizes his eligibility for severance under the new terms, which do not include the excise tax gross-up benefit.