QUEST DIAGNOSTICS INC
For the period ended May 16, 2024. Filed Apr 5, 2024.
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May 16, 2024 · Filed Apr 5, 2024
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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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
| [_] | Preliminary Proxy Statement |
|---|---|
| [_] | CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (as permitted by Rule 14a-6(e)(2)) |
| [X] | Definitive Proxy Statement |
| [_] | Definitive Additional Materials |
| [_] | Soliciting Material Pursuant to Section 240.14a-12 |
Quest Diagnostics Incorporated
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| [X] | No fee required |
|---|---|
| [_] | Fee paid previously with preliminary materials |
| [_] | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 |
Notice of 2024 Annual Meeting of Stockholders
and
Proxy Statement
April 5, 2024
The Quest Way
| Purpose Why we exist | Working together to create a healthier world, one life at a time | |
| We help people make the best decisions to improve health by providing high-quality, innovative, convenient and affordable diagnostic testing insights and services using our scale and extensive reach | ||
| Strategy How we grow | • | Collaborating with healthcare providers and partners to leverage our broad access | |
| • | Offering an industry-leading menu of testing and other services | ||
| • | Leveraging our data assets and services to improve population health and enable value-based care | ||
| • | Continuously improving our quality and efficiency by leveraging the Quest Management System and by embracing innovative technologies, such as automation and artificial intelligence (“AI”) | ||
| Who we serve: physicians, hospitals, patients and consumers, health plans, employers, emerging retail healthcare providers, government agencies, pharmaceutical companies and other commercial clinical laboratories | |||
| Culture How we work | Customer first, Care, Collaboration, Continuous improvement, Curiosity |
Notice of 2024 Annual Meeting of StockholdersQuest Diagnostics Incorporated One Insights Drive Clifton, New Jersey May 16, 2024, 10:30 a.m. Eastern Time
April 5, 2024
Dear Fellow Stockholder:
It is my pleasure to invite you to attend Quest Diagnostics’ 2024 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, stockholders will vote on the following, in addition to any other business as may properly come before the Annual Meeting or any adjournment or postponement thereof:
| • | to elect nine directors; |
| • | to approve, on an advisory basis, the executive compensation disclosed in the accompanying proxy statement; |
| • | to ratify the appointment of our independent registered public accounting firm for 2024; |
| • | to adopt an amendment to our Restated Certificate of Incorporation, the full text of which is attached to the proxy statement as Annex C and is incorporated herein by reference, to provide for the exculpation of officers as permitted by law; and |
| • | a stockholder proposal, as described in the accompanying proxy statement, if properly presented at the Annual Meeting. |
Attendance at the Annual Meeting is limited to stockholders at the close of business on March 18, 2024, or their duly appointed proxy holder.
We enclose our proxy statement, our Annual Report and a proxy card; distribution of these materials is scheduled to begin on April 5, 2024. Your vote is very important. We urge you to submit your proxy even if you plan to attend the Annual Meeting. Most stockholders may submit a proxy via mail, telephone or the Internet. Instructions on how to submit your proxy are included with your proxy card and these proxy materials. Please submit your proxy promptly.
Thank you for your continued support of Quest Diagnostics.
Sincerely,
James E. Davis
Chairman of the Board,
Chief Executive Officer and President
PROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
2024 Annual Meeting of Stockholders
| Time and Date: | 10:30 a.m. Eastern Time, May 16, 2024 |
|---|---|
| Place: | One Insights Drive, Clifton, New Jersey |
| Record date: | March 18, 2024 |
| Voting: | Record date stockholders only: One vote per share |
| Meeting Agenda | Board Recommendation | |
| 1. | Elect nine directors | FOR EACH NOMINEE |
| 2. | To approve, on an advisory basis, the compensation of our named executive officers disclosed in our Proxy Statement | FOR |
| 3. | To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2024 | FOR |
| 4. | To adopt an amendment to our Restated Certificate of Incorporation, the full text of which is attached to the proxy statement as Annex C and is incorporated herein by reference, to provide for the exculpation of officers as permitted by law | FOR |
| 5. | To consider a stockholder proposal regarding managing climate risk through science-based targets and transition planning, if properly presented at the Annual Meeting | AGAINST |
2025 Annual Meeting of Stockholders
Stockholder proposals submitted pursuant to SEC Rule 14a-8 must be received by Quest Diagnostics Incorporated (“Quest Diagnostics,” the “Company,” “we” or “our”) by December 6, 2024.
Notice of stockholder proposals outside of SEC Rule 14a-8, including nominations (other than proxy access nominations) for the Board of Directors (the “Board”), must be received by the Company no earlier than January 16, 2025 and no later than February 15, 2025 and must comply with the requirements set forth in our by-laws. In addition to the requirements set forth in our by-laws, stockholders who intend to solicit proxies for nominations for election to the Board other than the Company’s nominees in reliance on the universal proxy rules (Rule 14a-19 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) must also comply with the additional requirements of Rule 14a-19.
Notice of proxy access director nominations must be received by the Company no earlier than November 6, 2024 and no later than December 6, 2024.
| i | 2024 Proxy Statement |
Board Nominees
The following table provides summary information about our director nominees*.
| Name | Age | Director Since | Occupation | Current Committee Memberships | Other Public Company Boards |
|---|---|---|---|---|---|
| James E. Davis | 61 | 2022 | Chairman, Chief Executive Officer and President, Quest Diagnostics Incorporated | EX | • N/A |
| Luis A. Diaz, Jr., M.D. | 53 | 2023 | Head of Solid Tumor Oncology Division, Memorial Sloan Kettering Cancer Center | CS QC | • N/A |
| Tracey C. Doi | 63 | 2021 | Retired Chief Financial Officer and Group Vice President of Toyota Motor North America, Inc. | AC/FE CS | • Pentair plc |
| Vicky B. Gregg | 69 | 2014 | Cofounder/Partner, Guidon Partners LLC and Retired CEO, Blue Cross and Blue Shield of Tennessee | CC GC QC (Chair) | • Acadia Healthcare Company |
| Wright L. Lassiter III | 60 | 2020 | CEO, CommonSpirit Health | AC QC | • Fortive Corporation |
| Timothy L. Main | 66 | 2014 | Non-Executive Chairman of WNS (Holdings) Limited | AC CS (Chair) GC | • WNS (Holdings) Limited |
| Denise M. Morrison | 70 | 2019 | Founder, Denise Morrison & Associates and Retired President and CEO, Campbell Soup Company | CC(Chair) CS GC | • MetLife, Inc. • Visa, Inc. |
| Gary M. Pfeiffer | 74 | 2004 | Retired Senior Vice President and Chief Financial Officer, E.I. du Pont de Nemours and Company | AC/FE (Chair) CC EX GC | • N/A |
| Timothy M. Ring, Lead Independent Director | 66 | 2011 | Retired Chairman and CEO, C. R. Bard, Inc. | CC EX (Chair) GC (Chair) | • Becton, Dickinson and Company |
| AC | Audit and Finance Committee | CC | Compensation and Leadership Development Committee |
|---|---|---|---|
| CS | Cybersecurity Committee | EX | Executive Committee |
| GC | Governance Committee | QC | Quality and Compliance Committee |
| FE | Financial Expert | ||
| * | In September 2023, Dr. Gail R. Wilensky informed the Board that she would not seek re-election and will retire from the Board at the Annual Meeting. |
|---|
| 2024 Proxy Statement | ii |
2023 Executive Compensation Highlights
| Type | Form | Percentage of Equity Award for Named Executive Officers (%) | Terms |
|---|---|---|---|
| Equity | • Performance Shares | 50 | • Performance metrics for 2023-2025 performance cycle: revenue growth, 50%; average return on invested capital, 30%; relative total stockholder return (relative to S&P 500 Healthcare Index companies), 20% |
| • Vest after 3-year performance period | |||
| • Stock Options | 25 | • 3-year ratable vesting | |
| • Restricted Share Units (“RSUs”) | 25 | • 3-year ratable vesting | |
| Cash | • Salary | • Reviewed and approved annually | |
| • Annual Incentive Compensation · • Based on financial and non-financial goals | |||
| Retirement | • 401(k) Plan | • Company matching contributions | |
| • Supplemental Deferred Compensation Plan · • Company matching contributions | |||
Our Board is firmly committed to pay for performance. The table above outlines the main components of our compensation program for executive officers in 2023. In 2023, the Compensation and Leadership Development Committee, due to diminished demand for COVID-19 testing, implemented a change to no longer measure base business revenue and COVID-19 testing revenue separately, as was done for 2022, and to include COVID-19 revenues in the measure of base business revenue for purposes of performance shares granted in 2023 (except for determining base year revenues).
The objectives of our program are to attract and retain talented executives who have the skills and experience required to help us achieve our strategic objectives, and to align the interests of our executives to those of our stockholders, in each case to advance the long-term interests of our stockholders. The compensation opportunity for our named executive officers is directly tied to corporate performance, including both financial and non-financial results, and individual performance. We are making changes in the program, highlighted in the Compensation Discussion and Analysis, for 2024.
The average 2023 annual incentive payout for our named executive officers on our annual cash incentives under the Senior Management Incentive Plan (“SMIP”) was 78% of target. Payout on performance shares for the 3-year performance period ended December 31, 2023 was 186% of target. The following table summarizes annual incentive plan and performance share payouts for the two most recent performance periods for our named executive officers.
| Annual Incentive Payout (% of target) | Performance Share Payout for 3-year performance period (% of target) | |
|---|---|---|
| Performance period ended December 31, 2023 | 78 (average) | 186 |
| Performance period ended December 31, 2022 | 131 (average) | 196 |
Our Compensation Discussion and Analysis, which includes a discussion of our program’s “Best Practices,” begins on page 23. The 2023 compensation of our named executive officers is set forth in tables beginning at page 43.
| iii | 2024 Proxy Statement |
2023 Business Performance Highlights
Leveraging our Capabilities and Collaborating
| • | We increased base business (excluding COVID-19 testing) revenues by 7.1% to $9.03 billion. |
| • | We generated diluted earnings per share (“EPS") of $7.49 and adjusted diluted EPS of $8.71. |
| • | Our strong relationships with health plans were a key driver of growth in 2023, as we grew revenues from health plans by high single digits versus the prior year. We successfully completed negotiations for all our strategic health plan renewals that were scheduled for 2023. |
| • | We continued to work with health systems to help them execute their lab strategy. We entered into an agreement to provide laboratory supply chain expertise with Tower Health, a regional integrated healthcare system in Pennsylvania. |
| • | In Advanced Diagnostics, we invested in areas to further differentiate and grow our advanced diagnostics value proposition. We acquired Haystack Oncology, Inc. (“Haystack Oncology”), a cancer testing company that has developed a highly sensitive testing technology for detecting minimal-residual disease by circulating tumor DNA due to residual or recurring cancer. We also launched our QUEST AD-DETECT® test portfolio for assessing Alzheimer’s disease risk using blood specimens, as opposed to testing by more costly or invasive methods, such as testing of cerebral spinal fluid by lumbar puncture. |
| • | Our Consumer-initiated testing service, QuestHealth.com, generated strong base business growth in 2023. We increased to approximately 33 million registered users in our MyQuest® health portal at the end of 2023. |
| • | We are taking advantage of opportunities to work with emerging retail healthcare providers, not only to offer new access partners (e.g., Rite-Aid retail locations) and new access points for our services (e.g., our collaboration with Safeway), but also to grow our business by expanding our service offerings (e.g., our collaborations with CVS and Walmart). |
| • | We consummated important acquisitions, including Haystack Oncology, certain assets of the laboratory services business of New York-Presbyterian, one of the nation’s largest and most comprehensive academic medical centers, and select assets of the outreach laboratory services business of Northern Light Health, a large integrated healthcare system in Maine. |
Continuous Improvement
| • | We delivered our Invigorate cost excellence program goal of annual savings and productivity improvements of 3% of our costs. |
| • | We continue to make progress in using front end automation to enhance specimen processing. In 2023, we completed front end automation upgrades in our Pittsburgh and Dallas laboratories, which is expected to improve quality and productivity. |
| • | We expanded our use of AI in 2023 to improve quality, efficiency and workforce experience in several clinical areas, including in microbiology to help identify bacteria as well as in cytogenetics to identify chromosomal abnormalities. |
| • | We are leveraging automation and AI to improve productivity and quality across our entire value chain, not just in the laboratory. Other areas of focus include reducing denials and patient concessions, enhancing the digital experience, and selecting and retaining talent. |
| • | We created an initiative to deploy generative AI to improve several areas of our business, including software engineering, customer service, claims analysis, scheduling optimization, specimen processing and marketing. We expect to further develop these projects in 2024. |
| • | We implemented several initiatives to improve talent retention, including capability-building programs. |
| • | We improved retention of our frontline employees by 11%. |
Disciplined Capital Deployment
| • | In February 2024, we announced the thirteenth increase in our quarterly common stock cash dividend since the beginning of 2012, increasing the dividend by approximately 5.6%, from $0.71 per share of common stock to $0.75 per share of common stock. |
| • | We repurchased approximately $276 million of our common stock in 2023. |
| • | Through the end of 2023, since the beginning of 2012 we have returned approximately $10.5 billion to stockholders: $7.5 billion through common stock repurchases (including $1.8 billion associated with pre-tax proceeds from divestitures), and $3.0 billion through common stock dividends. |
| 2024 Proxy Statement | iv |
Management Transition
On April 1, 2023, James E. Davis, Chief Executive Officer and President of the Company, was appointed Chairman of the Board, succeeding Stephen H. Rusckowski, who served as our Chief Executive Officer and President for more than a decade and as Chairman of our Board through March 2023.
| v | 2024 Proxy Statement |
| PROXY STATEMENT | QUEST DIAGNOSTICS INCORPORATED |
|---|---|
| Contents |
| Proxy Summary | i |
|---|---|
| Information About Our Corporate Governance | 1 |
| Proposal No. 1—Election of Directors | 1 |
| Governance Practices | 6 |
| Corporate Responsibility | 7 |
| Director Independence | 7 |
| Stockholder Access and Outreach | 8 |
| Board Nomination Process | 9 |
| Board Committees | 12 |
| Board Leadership Structure | 16 |
| Board Oversight of Company Culture and Human Capital | 17 |
| Board, Committee and CEO Evaluation Process | 17 |
| Board Role in Risk Oversight | 18 |
| Related Person Transactions | 19 |
| Policies Regarding Hedging and Pledging our Common Stock; Window Periods | 19 |
| 2023 Director Compensation Table | 20 |
| Stock Ownership Information | 21 |
| Information Regarding Executive Compensation | 23 |
| Proposal No. 2—Advisory Resolution to Approve Executive Officer Compensation | 23 |
| Compensation Discussion and Analysis | 23 |
| Executive Summary | 23 |
| Executive Compensation Philosophy | 26 |
| Independent Compensation Consultant | 29 |
| Say on Pay, Stockholder Outreach, and Feedback | 30 |
| Setting Executive Compensation | 30 |
| Pay Components | 31 |
| Base Salary | 31 |
| Annual Cash Incentive Compensation | 32 |
| Long-Term Incentive Awards | 36 |
| 2024 Actions | 40 |
| Other | 41 |
| Risk Assessment | 42 |
| Share Ownership and Retention Guidelines | 42 |
| Policies Regarding Hedging or Pledging our Common Stock | 42 |
| Compensation and Leadership Development Committee Report | 43 |
| 2023 Summary Compensation Table | 43 |
| 2023 Grants of Plan-Based Awards Table | 44 |
| Additional Information Regarding 2023 Summary Compensation and Grants of Plan-Based Awards Tables | 45 |
| Outstanding Equity Awards at 2023 Fiscal Year-End | 46 |
| 2023 Option Exercises and Stock Vested Table | 47 |
| 2023 Nonqualified Deferred Compensation Table | 47 |
| 2023 Potential Payments Upon Termination or Change in Control | 48 |
| Pay Ratio | 51 |
| Equity Compensation Plan Information | 52 |
| Pay Versus Performance | 53 |
| Description of Pay Versus Performance Relationships | 58 |
| Audit | 61 |
| Proposal No. 3—Ratification of Appointment of Independent Registered Public Accounting Firm | 61 |
| Pre-Approval of Audit and Permissible Non-Audit Services | 62 |
| Fees and Services of PwC | 62 |
| Audit and Finance Committee Report | 63 |
| Additional Action Items | 64 |
| Proposal No. 4—Amending our Restated Certificate of Incorporation to Provide for the Exculpation of Officers as Permitted by Law | 64 |
| Proposal No. 5—Stockholder Proposal Regarding Managing Climate Risk Through Science-Based Targets and Transition Planning | 66 |
| Frequently Asked Questions | 69 |
| Annex A Reconciliation of Non-GAAP and GAAP Information | A-1 |
| Annex B Performance Share Units and Annual Incentive Compensation Payouts | B-1 |
| Annex C Proposed Amendment to Paragraph 11(a) of Restated Certificate of Incorporation | C-1 |
2024 Proxy Statement
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.