Item 11. Executive Compensation

Compensation Committee Report

The Compensation Committee has discussed and reviewed the following Compensation Discussion and Analysis with management. Based upon this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2020.

Submitted by the Compensation Committee of the Board of Directors:

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

Our executive compensation plan is designed to attract and retain individuals with qualifications to manage and lead our Company, as well as to motivate them to contribute to the achievement of our financial goals and ultimately create and grow our equity value. Compensation of our executives is structured around the achievement of individual performance and near-term corporate targets as well as long-term business objectives.

Our named executive officers (the “NEOs”) for 2020 are:

COVID-19 Impact on Business and Compensation

We entered 2020 with a continued focus on sustaining our significant revenue and earnings growth. However, the COVID-19 pandemic had a significant impact on our business, including a significant decrease in clinical activities, lack of access to investigator sites and an inability to screen and enroll patients due to stay at home orders and travel restrictions. As a result, we suspended our quarterly and annual earnings guidance for the second quarter, and reinstated revised guidance beginning in the third quarter.

Our early 2020 compensation program and incentive plan targets reflected our initial expectations of continued top and bottom line growth. However, as the impact of COVID-19 on our business became clear, the Compensation Committee took several actions impacting compensation for our NEOs in response, including:

Executive Compensation Objectives and Philosophy

Our primary executive compensation objectives are to:

To achieve our objectives, we deliver executive compensation through a combination of the following components:

Our total executive compensation plan is inclusive of base salaries and other benefits and perquisites, including severance benefits, which are designed to attract and retain senior management talent. We also use annual cash incentive compensation and long-term equity incentives to ensure a performance-based delivery of pay that aligns, as closely as possible, the rewards of our NEOs with the long-term interests of our equity-owners while enhancing executive retention.

In 2020, Pearl Meyer also provided the Compensation Committee with (1) market data regarding the Company’s short and long-term incentive plans to assist with plan design reviews, particularly with respect to the 2020 Plan, (2) an analysis of pay-for-performance alignment, and (3) a market assessment of compensation levels for our NEOs.

Peer Group

We use a comparator group to assist us in making certain compensation decisions. In August 2020, our compensation consultant, Pearl Meyer, provided a review of our prior year peer group and made recommendations for changes to ensure we were considering including companies of an appropriate size and similarity. Generally, we target to evaluate between 10 and 20 companies that have between one-third to three times our revenue. Other companies may be included that do not meet this criteria if they are directly aligned to our industry. Based on the review, it was determined that the peer group continued to be appropriate given the market. Medidata Solutions, Inc. was removed from our previously disclosed peer group due to merger and acquisition activity. The Compensation Committee approved the following peer group (the “Peer Group”) in based on the review:

Following is a summary of the revenues, market capitalization and number of employees for the Peer Group companies at the time of the review:

(1)        Reflects trailing 12 months based on information that was publicly-available as of May 29, 2020.

(2)       As of May 29, 2020.

Compensation Practices

When making any compensation decisions, the Compensation Committee also evaluates how those decisions align to our compensation policies and practices.

Say-on-Pay

At our annual meeting of stockholders in May 2020, the compensation of our named executive officers reported in our 2020 proxy statement was approved by 95.7% of the votes present in person or represented by proxy and entitled to vote. The Compensation Committee believes this affirms our stockholders’ support of our approach to executive compensation and that significant changes were not warranted. The Compensation Committee will continue to consider the outcome of our say-on-pay votes when making future compensation decisions for our NEOs. The Company currently intends to hold such votes annually.

Compensation Elements

The following is a discussion and analysis of each component of our executive compensation program. The Compensation Committee reviews each component of our executive compensation program on an annual basis. Multiple resources are considered when making compensation decisions, including but not limited to external market data, Peer Group data, each participating executive’s experience in her or his role with us, and the level of responsibility held by each executive. Generally, total compensation levels at target are aligned to market median for each respective role, which is based on the median compensation of our Peer Group and additional compensation survey data. Historically, these reviews have been completed in July; however, in 2020, the review cycle was moved to February to ensure that compensation changes are made earlier in the start of our fiscal year and in alignment with our talent reviews and performance management processes.

Base Salary

Annual base salaries compensate our executive officers for fulfilling the requirements of their respective positions and provide them with a level of cash income predictability and stability with respect to a portion of their total compensation. We believe that the level of an executive officer’s base salary should reflect such executive’s performance, experience and breadth of responsibilities, salaries for similar positions within our industry and any other factors relevant to that particular job.

Base salaries may be adjusted from time to time based upon the Compensation Committee’s assessment of each executive officer’s individual performance and the Company’s overall budgetary guidelines. In addition, base salaries may be adjusted in connection with promotions or increased responsibilities or to maintain competitiveness within the market.

In February 2020, the Compensation Committee approved salary increases for our NEOs; however, after further review and discussion in April 2020 it was determined that, due to the financial implications of COVID-19, no salary increases would be provided to NEOs for the 2020 fiscal year:

Bonuses

Terms and Conditions of Discretionary Annual Bonuses Under the Management Incentive Plan

We maintain the Management Incentive Plan (the “MIP”) pursuant to which we award annual bonuses to our executive officers, including our NEOs, and other employees who are eligible to participate in the MIP. Our Board, together with the Compensation Committee, directly links the amount of the annual cash bonuses we pay to our corporate financial performance for the particular year. For each of the NEOs, their target bonus opportunity was originally set forth in his or her employment agreement, although such targets may be adjusted from time to time by the Compensation Committee. The actual amount of each bonus is determined by the Compensation Committee in its sole discretion and may be higher or lower than the target amount.

In February 2020, target bonus opportunities for the NEOs were reviewed in the context of competitive alignment to market and continuing to ensure that the majority of our executive compensation is variable and performance-based. It was determined, taking into consideration Peer Group data and additional compensation survey data provided by Pearl Meyer, that the bonus targets approved in 2019 continued to be appropriate for the 2020 fiscal year.

For fiscal year 2020, the Compensation Committee approved a change to our approach for short-term incentive compensation for our NEOs and other senior executive management. The Compensation Committee approved a Leadership Bonus Program (LBP) that was intended to apply to our NEOs and all other executive vice presidents, senior vice presidents and vice presidents. The LBP approved is formulaic in nature, and payouts were to be determined based on Company performance against adjusted earnings per share targets established in early 2020. The original Adjusted EPS targets reflected double-digit increase over 2019, reflecting robust targeted earnings growth. Adjusted EPS is our adjusted net income per share, which is GAAP net income per share, adjusted to exclude stock-based compensation expense, loss (gain) on disposal of fixed assets, loss on modification or extinguishment of debt, foreign currency losses (gains), other non operating expense (income), transaction-related costs, acquisition related costs, severance costs and restructuring charges, lease termination expense, noncash rent adjustment, amounts attributable to noncontrolling interest, amortization of intangible assets, amortization of terminated interest rate swaps, amortization of deferred financing costs, and other charges. The payout percentages that were approved were as follows:

However, in the first quarter of 2020, due to the uncertainty of the financial implications of COVID-19, we reset our Adjusted EPS guidance. As such, while it was intended that we would move forward with the newly designed incentive program for 2020 it was determined in August 2020 that we would determine 2020 payments using a discretionary approach similar to prior years. Based on our Adjusted EPS results in comparison to the newly reset guidance, the Committee approved a payout of 81.5% of target for each NEO. This resulted in payouts of $896,500 for Mr. Shannon, $285,250 for Mr. Bonello and $299,513 for Mr. Gaenzle.

Long-Term Incentive Compensation

We believe that the NEO’s long-term compensation should be directly linked to the value we deliver to our stockholders. Equity awards to the NEOs are designed to provide long-term incentive opportunities over a period of several years and promote long-term retention of key executives. In 2020, the Company granted our NEOs a combination of stock options and restricted stock units.

Equity Award Grants

For 2020, our annual equity program consisted of a combination of non-qualified stock options and restricted stock units, weighted in equal halves. Under the 2020 program, both non-qualified stock options and restricted stock will vest in equal thirds over three years, assuming continued employment on each of the respective vesting dates.

In February 2020, in connection with the Company’s 2020 annual equity grant program and upon the recommendation of the Compensation Committee, the Board approved the grant of the following equity awards to our NEOs (effective June 1, 2020):

(1) Represents a total approved grant of $6.5 million, with 50% of such award consisting of stock options and 50% consisting of restricted stock units.

(2) Represents a total approved grant of $1.75 million, with 50% of such award consisting of stock options and 50% consisting of restricted stock units.

In addition to the awards approved under the annual equity grant program, the Committee approved (effective June 1, 2020) an additional award of 8,000 restricted stock units to Mr. Shannon and 4,000 restricted stock units to Mr. Bonello to recognize their significant contributions to the Company in 2019. These awards vest 50% each year over two years, assuming continued employment on the respective vesting dates. For all such equity grants, the exercise price of the options and number of shares underlying the restricted stock units were based on the closing market price of our common stock on June 1, 2020.

The table below entitled “—Outstanding Equity Awards at 2020 Fiscal Year End” describes the material terms of these awards and other equity awards made in past fiscal years to our NEOs.

Clawback

Pursuant to award agreements issued under the PRA Health Sciences, Inc. 2014 Omnibus Incentive Plan (the “2014 Plan”) and the PRA Health Sciences, Inc. 2018 Stock Incentive Plan (the "2018 Plan"), the Company may recoup and/or cancel any equity-based compensation awarded to a recipient, including our NEOs, under the following circumstances: 

Additionally, under the 2014 Plan, the Company may recoup and/or cancel any equity-based compensation awarded to a recipient that commits fraud or engages in conduct contributing to any financial restatements or irregularities.

Subject to the discretion and approval of the Board of Directors, the Company will, to the extent permitted by law, seek to recover the amount of equity-based compensation paid or payable to a recipient in excess of the amount that would have been paid based on a financial restatement, mistake in calculations or other administrative error.

Broad-Based Employee Benefits

We provide to all our U.S.-based employees, including our NEOs, broad-based benefits that are intended to attract and retain employees while providing them with retirement and health and welfare security. Broad-based employee benefits include:

Terms and Conditions of 401(k) Plan

Our U.S. eligible employees, including our NEOs, participate in our 401(k) plan. Enrollment in the 401(k) plan is automatic for employees who meet eligibility requirements unless they decline participation. Under the 401(k) plan, we match a maximum of 50% of the first 6% of a participant’s salary contributions to the 401(k) plan beginning six months from the participant’s date of hire. Matching contributions vest progressively over an initial five year period, after which all prior and future matching contributions are fully vested. The maximum contribution to the 401(k) plan is 100% of an employee’s annual eligible compensation, subject to regulatory and plan limitations.

Perquisites

We provide our NEOs with modest perquisites consistent with competitive practices. In 2020, the NEOs were eligible for participation in a supplemental executive medical reimbursement plan, which provides reimbursement for medical, dental, vision, prescription and other eligible expenses not covered by our standard insurance plans. Our NEOs also participated in a group life insurance plan for our executives for which we paid for the NEOs’ respective premiums. We also provide our NEOs with access to a group variable universal life and accidental death and dismemberment program that provides coverage to our NEOs at no cost to them through individual policies.

We provide these limited perquisites and personal benefits in order to further our goal of attracting and retaining our executive officers. These benefits and perquisites are reflected in the All Other Compensation column of the “Summary Compensation Table” and the accompanying footnote in accordance with SEC rules.

Severance Arrangements

Our Board believes that severance protections can play a valuable role in attracting and retaining the talent necessary for our long-term success. Severance payments and other termination benefits are an effective way to offer executives financial security to offset the risk of foregoing an opportunity with another company. Consistent with our objective of using severance payments and benefits to attract and retain executives, we generally provide each NEO with amounts and types of severance payments and benefits that we believe will permit us to attract and/or continue to employ the individual NEO.

Under the terms of their employment agreements, each NEO is entitled to severance benefits if his or her employment is terminated without “cause” by the Company or if the NEO resigns with “good reason” (each as defined in the employment agreements). The severance payments are contingent upon the affected executive’s execution of a release and waiver of claims and continued compliance with non-competition, non-solicitation and confidentiality provisions. See the narrative section entitled “Severance Arrangements and Restrictive Covenants” following the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” table for descriptions of these arrangements.

Anti-Hedging Policy

Our policies prohibit the hedging of our common stock by all executives, employees and non-employee directors.

Pledging Policy

Our policies require all executives, employees and non-employee directors to submit requests to pledge our common stock as collateral for a loan to the PRA legal department for review and consideration at least two weeks prior to the execution of the documents evidencing the proposed pledge. Approvals of such pledges will be based on the particular facts and circumstances of each request and PRA is under no obligation to approve any such request.

Employment Agreements

For retention purposes, we have entered into employment agreements with our NEOs. A full description of the material terms of these agreements is presented below in the sections entitled “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards” and “Severance Arrangements and Restrictive Covenants.” 

(1)        Amounts in this column reflect actual salary earned during fiscal year presented.

(2)        Amounts represent discretionary cash bonuses paid to our NEOs pursuant to our MIP in consideration of the services they performed in each of the years presented.

(3)        For 2020, amounts included in this column reflect the aggregate grant date fair value of restricted stock unit awards calculated in accordance with Topic 718. The assumptions applied in determining the fair value of the awards are discussed in Note 13 to our audited consolidated financial statements for the year ended December 31, 2020. See “Compensation Discussion and Analysis—Compensation Elements—Long-Term Incentive Compensation.”

(4)        For 2020, amounts included in this column reflect the aggregate grant date fair value of option awards calculated in accordance with Topic 718. The assumptions applied in determining the fair value of the awards are discussed in Note 13 to our audited consolidated financial statements for the year ended December 31, 2020. See “Compensation Discussion and Analysis—Compensation Elements—Long-Term Incentive Compensation.”

(5)        For 2020, amounts represent (i) the value of matching contributions to each NEO’s 401(k) plan account in the amount of $6,083, $6,000 and $8,550 for each of Messrs. Shannon, Bonello and Gaenzle respectively (ii) the premiums paid for the supplemental executive medical reimbursement plan for each NEO in the amount of $6,672 for Mr. Shannon, $10,800 for Mr. Bonello and $11,940 for Mr. Gaenzle (iii) premiums paid for the Executive Life Insurance Plan for each NEO in the amount of $9,000 for Mr. Shannon, $2,134 for Mr. Bonello and $3,317 for Mr. Gaenzle and (iv) disability premiums paid for each NEO in the amount of $8,050 for Mr. Shannon, $5,232 for Mr. Bonello and $5,652 for Mr. Gaenzle.

(1)        Amounts shown reflect grants of stock options and restricted stock units in 2020. For information regarding awards of stock options and restricted stock units made to our NEOs, see “Compensation Discussion and Analysis—Compensation Elements—Long-Term Incentive Compensation.”

(2)        Reflects the aggregate grant date fair value of equity awards granted in 2020 determined in accordance with Topic 718, utilizing the assumptions discussed in Note 13 to our audited consolidated financial statements for the year ended December 31, 2020.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards

This section describes the employment agreements in effect for our NEOs as of the end of fiscal year 2020. Under the terms of their employment agreements, each NEO is entitled to severance benefits following certain terminations of employment. See the narrative section entitled “Severance Arrangements and Restrictive Covenants” following the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” table for descriptions of these arrangements.

Terms and Conditions of Employment Agreement for Colin Shannon

In connection with the expiration of Mr. Shannon’s prior employment agreement, we entered into a new employment agreement with Mr. Shannon, effective as of July 1, 2018 (the “Shannon Agreement”), to continue to serve as our President and CEO and to nominate him for re-election as a member of our Board of Directors during the term of the Shannon Agreement. The Shannon Agreement provided for an initial annual base salary and an initial annual target bonus based upon achievement of specific performance goals and objectives to be established by the Compensation Committee. Mr. Shannon’s base salary is subject to annual review for possible merit increases, as our Compensation Committee deems appropriate.

Terms and Conditions of Employment Agreement for Michael J. Bonello

In connection with his promotion to serve as our Executive Vice President and Chief Financial Officer, we entered into an employment agreement with Mr. Bonello, effective as of May 1, 2018 (the “Bonello Agreement”). The Bonello Agreement provided for an initial annual base salary and an initial annual target bonus based upon achievement of specific performance goals and objectives to be established by the Compensation Committee. Mr. Bonello’s base salary and target bonus are subject to periodic review for possible merit increases, as our Compensation Committee deems appropriate.

Terms and Conditions of Employment Agreement for Christopher Gaenzle

In connection with his hire to serve as our Executive Vice President, Chief Administrative Officer, and General Counsel, we entered into an employment agreement with Mr. Gaenzle, effective as of August 10, 2018 (the “Gaenzle Agreement”). The Gaenzle Agreement provided for an initial annual base salary of $525,000 and an initial annual target bonus of $225,000. Mr. Gaenzle’s base salary and target bonus are subject to periodic review for possible merit increases, as our Compensation Committee deems appropriate.

(1)       Calculations are based on the closing price of our common stock on December 31, 2020, the last trading day of 2020 ($125.44), multiplied by the number of outstanding shares.

(2)       These time based option awards were granted on December 20, 2013 and vested 20% (of the total grant) per year on each anniversary of September 23, 2013.

(3)       These performance vesting options were granted on December 20, 2013 and 50% of such options vested on each of March 2, 2016 and November 16, 2016.

(4)       These options were granted on August 29, 2017 and were scheduled to vest 20% (of the total grant amount) on each of the first and second anniversary of the date of grant, and 30% (of the total grant amount) on each of the third and fourth anniversary of the date of grant. The number shown is the portion of the award that had vested as of December 31, 2020.

(5)       Reflects unvested outstanding time vesting options awards that were granted on August 29, 2017 that will vest on the fourth anniversary of the date of grant, subject to the holder continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below.

(6)       These options were granted on August 16, 2018 and were scheduled to vest in equal installments over a four-year period ending on August 16, 2022. The number shown is the portion of the award that had vested as of December 31, 2020.

(7)       These options were granted on August 16, 2018 and were scheduled to vest in equal installments over a four-year period ending in August 16, 2022, subject to Mr. Shannon continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below. The number shown is the portion of the award that had not vested as of December 31, 2020.

(8)       These shares of restricted stock were granted on August 16, 2018 and will cliff vest on the third anniversary of the grant date, subject to Mr. Shannon continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below.

(9)       These options were granted on August 13, 2019 and were scheduled to vest in equal installments over a three-year period ending August 13, 2022. The number shown is the portion of the award that had vested as of December 31, 2020.

(10)     These options were granted on August 13, 2019 and were scheduled to vest in equal installments over a three-year period ending August 13, 2022, subject to the holder continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below. The number shown is the portion of the award that had not vested as of December 31, 2020.

(11)     These shares of restricted stock were granted on August 13, 2019 and were scheduled to vest in equal installments over a two-year period ending August 13, 2021, subject to the holder continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below. The number shown is the portion of the award that had not vested as of December 31, 2020.

(12)     These options were granted on June 1, 2020 and will vest 33% on each of the first, second, and third anniversary of the date of grant, subject to the holder continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below.

(13)      These restricted stock units were granted on June 1, 2020 and will vest 33% on each of the first, second, and third anniversary of the grant date, subject to the holder continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below.

(14)     These restricted stock units were granted on June 1, 2020 and will vest 50% on each anniversary of the grant date, subject to the holder continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below.

(15)     These options were granted on April 26, 2018 and were scheduled to vest in equal installments over a four-year period ending April 26, 2022. The number shown is the portion of the award that had vested as of December 31, 2020.

(16)     These options were granted on April 26, 2018 and were scheduled to vest in equal installments over a four-year period ending April 26, 2022, subject to Mr. Bonello continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below. The number shown is the portion of the award that had not vested as of December 31, 2020.

(17)     These shares of restricted stock were granted on April 26, 2018 and will vest on the third anniversary of the grant date, subject to Mr. Bonello continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below.

(18)     These options were granted on August 10, 2018 and were scheduled to vested in equal installments over a four-year period ending August 10, 2022. The number shown is the portion of the award that had vested as of December 31, 2020.

(19)     These options were granted on August 10, 2018 and were scheduled to vest in equal installments over a four-year period ending August 10, 2022, subject to Mr. Gaenzle continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below. The number shown is the portion of the award that had not vested as of December 31, 2020.

(20)     These shares of restricted stock were granted on August 10, 2018 and will cliff vest on the third anniversary of the grant date, subject to Mr. Gaenzle continuing to provide services to us through such vesting date and subject to certain accelerated vesting provisions, which are described in the “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control” section below.

(1)      Value realized on exercise is determined by multiplying the number of stock options by the difference between the exercise price of the option and the closing price of our common stock on the date of exercise.

(2)      Value realized on vesting is determined by multiplying the number of stock awards that vested by the closing price of our common stock on the vesting date.

Pension Benefits

We have no pension benefits for our NEOs.

Nonqualified Deferred Compensation for 2020

We have no nonqualified defined contribution or other nonqualified deferred compensation plans for our NEOs.

Potential Payments to Named Executive Officers Upon Termination of Employment

or Change in Control

The following table describes the potential payments and benefits that would have been payable to our NEOs under existing plans and arrangements assuming a termination of their employment for reasons other than willful misconduct or a voluntary resignation on December 31, 2020.

The amounts shown in the table do not include payments and benefits to the extent they are provided generally to all salaried employees upon termination of employment and do not discriminate in scope, terms or operation in favor of the NEOs. These include accrued but unpaid salary and distributions of plan balances under our 401(k) savings plan. The Company has a policy that executive officers cannot carry over any accrued but unused vacation days. Therefore, the following table assumes no payment for a NEO’s unused vacation days since, as of December 31, 2020, any of such NEO’s accrued but unused vacation days would be forfeited. However, if a NEO’s employment was to terminate mid-year, such NEO would be entitled to payment for his or her accrued but unused vacation days as of such date.

(1) Cash severance payment for an involuntary termination without cause or a voluntary termination for good reason includes the following:

Cash severance payment for an involuntary termination without cause or a voluntary termination for good reason following a change in control includes the following:

(2) Reflects the cost of providing the executive officer and his family with continued medical, dental, and other health benefit coverage as enrolled at the time of his termination for a period of (i) twelve months for an involuntary termination without cause or a voluntary termination for good reason, and (ii) 24 months for an involuntary termination without cause or a voluntary termination for good reason following a change in control.

(3) Represents the value of the acceleration of certain unvested time vesting options (as set forth below), valued as the difference between the closing price of Company shares on December 31, 2020 ($125.44) and the exercise price for each such option.

With respect to the options granted to our NEOs, (i) upon a termination for death or disability, the amount that would become vested and exercisable includes that portion of a NEO’s unvested time vesting options that would have become exercisable on the next scheduled vesting date for each option grant after the date of such termination, assuming such NEO had remained employed with the Company through such date and (ii) upon a “qualifying termination” (as defined in the PRA Health Sciences, Inc. 2020 Stock Incentive Plan (the “2020 Plan”) and applicable award agreements), all unvested options will fully vest on the date of termination and remain exercisable for one (1) year.

A “qualifying termination” under the 2020 Plan for purposes of the NEOs’ outstanding equity-based awards generally includes (i) a termination without “cause” (as defined in the applicable NEO’s employment agreement), (ii) a termination by the NEO due to a material diminution in compensation, a material reduction in duties or responsibilities, or a relocation of the NEO’s principal place of employment by more than fifty miles from the current location, or (iii) a termination due to the NEO’s death or disability, in each case that occurs during the three months prior to or the 18 months following a change in control.

(4) Represents the value of the acceleration of unvested shares of restricted stock and unvested restricted stock units (as set forth below), based on the closing price of Company shares on December 31, 2020 ($125.44).

With respect to the shares of restricted stock and restricted stock units granted to our NEOs, upon (i) a termination for death or disability or (ii) a “qualifying termination” (as defined in the 2020 Plan and applicable award agreements), all unvested shares of restricted stock and unvested restricted stock units will fully vest on the date of termination.

Severance Arrangements and Restrictive Covenants

The Shannon Agreement

Pursuant to the Shannon Agreement, in the event Mr. Shannon’s employment is terminated by us without “cause” or by the executive for “good reason” (each as defined below) and Mr. Shannon executes and does not revoke a general release of claims in favor of us, then Mr. Shannon will receive (i) a severance payment equal to the sum of his base salary plus his target bonus amount for the calendar year immediately preceding the date of the termination of employment, payable over 12 months, (ii) 12 months of continued medical, dental and other health benefit coverage with the same employee cost-sharing as is provided to employees generally and (iii) all accrued but unpaid obligations.

In the event Mr. Shannon’s employment is terminated by us without cause or by Mr. Shannon for good reason on or prior to the expiration of the one-year period immediately following a “change in control” (as defined below), then Mr. Shannon will receive in lieu of the severance set forth in the preceding paragraph: (i) a severance payment equal to two times the sum of his base salary plus his target bonus amount for the calendar year immediately preceding the date of the termination of employment, payable in a lump-sum cash payment, (ii) 24 months of continued medical, dental and other health benefit coverage with the same employee cost-sharing as is provided to employees generally and (iii) all accrued but unpaid obligations.

Under the Shannon Agreement, termination payments and benefits will be delivered to Mr. Shannon either in full or to such lesser extent as would result in no portion of such termination payments and benefits being subject to the excise tax imposed by the golden parachute rules of Section 4999 of the Code, whichever of the foregoing amounts, after taking into account all applicable taxes, results in the greatest amount of such termination payments and benefits to Mr. Shannon on an after-tax basis.

In consideration for these benefits, Mr. Shannon is also subject to certain restrictive covenants, including confidential information and non-disparagement covenants, each for the term of his employment with us and thereafter, and covenants not to compete and not to solicit, each for the term of his employment with us and for 12 months following his termination date.

For purposes of the Shannon Agreement, “cause” means the occurrence of the following: (i) a material breach of the Shannon Agreement by Mr. Shannon (where he fails to cure such breach within ten business days after being notified in writing by us of such breach); (ii) Mr. Shannon’s failure (except where due to a physical or mental incapacity) to substantially perform his material duties which continues beyond ten days after a written demand for substantial performance is delivered to him; (iii) Mr. Shannon engaging in or causing an act of willful misconduct that has a material adverse impact on our reputation, business, business relationships or financial condition; (iv) Mr. Shannon’s conviction of, or plea of guilty or nolo contendere to, a felony, or any crime involving moral turpitude not involving a traffic offense; and (v) Mr. Shannon’s willful refusal to perform the specific lawful directives of our Board of Directors which are consistent with the scope of his duties and responsibilities under the Shannon Agreement; provided, however, that no action taken by Mr. Shannon in the reasonable, good faith belief that it was in the best interest of the Company shall be treated as a basis for termination of his employment for cause under clause (i) above, and no failure of Mr. Shannon or the Company to achieve performance goals, alone, shall be treated as a basis for termination of his employment for cause under clause (ii) or (v) above.

For purposes of the Shannon Agreement, “good reason” means: (i) any material breach of the Shannon Agreement by us (where we fail to cure such breach within ten business days after being notified in writing by Mr. Shannon of such breach); (ii) the material diminution, without Mr. Shannon’s written consent, of his position, title, authority, duties or responsibilities as indicated in the Shannon Agreement, including the failure to be reelected to the Board, or the appointment of any other person, without Mr. Shannon’s written consent, to perform any material part of such duties, including, without limitation, the failure of Mr. Shannon to have such duties and responsibilities with respect to the acquiring entity following a “change in control”; (iii) the involuntary material relocation of Mr. Shannon’s then current principal place of business to a location more than 50 miles from his current principal place of business; and (iv) the failure by us to obtain the assumption in writing of our obligation to perform under the Shannon Agreement by any successor to all or substantially all of our assets. Mr. Shannon may terminate his employment for good reason by providing us with 30 days’ written notice setting forth in reasonable specificity the event that constitutes good reason, within 90 days of the occurrence of such event. During such 30 days’ notice period, we have the opportunity to cure the event that constitutes good reason, and if not cured within such period, Mr. Shannon’s termination will be effective upon the expiration of such cure period.

For purposes of the Shannon Agreement, “change in control” is defined under the Prior Plan on the date of the change in control or as defined under the Prior Plan on the effective date of the Shannon Agreement, whichever is more favorable to Mr. Shannon

.

The Bonello Agreement

Pursuant to the Bonello Agreement, in the event Mr. Bonello’s employment is terminated by us without “cause” or by the executive for “good reason” (each as defined below) and Mr. Bonello executes and does not revoke a general release of claims in favor of us, then Mr. Bonello will receive (i) a severance payment equal to the sum of his base salary plus an amount equal to his annual bonus for the calendar year immediately preceding the date of the termination of employment, payable over 12 months, (ii) 12 months of continued medical, dental and other health benefit coverage with the same employee cost-sharing as is provided to employees generally and (iii) all accrued but unpaid obligations.

In the event Mr. Bonello’s employment is terminated by us without cause or by Mr. Bonello for good reason on or prior to the expiration of the one-year period immediately following a “change in control” (as defined below), then Mr. Bonello will receive in lieu of the severance set forth in the preceding paragraph: (i) a severance payment equal to two times the sum of his base salary plus an amount equal to his annual bonus for the calendar year immediately preceding the date of the termination of employment, payable in a lump-sum cash payment, (ii) 24 months of continued medical, dental and other health benefit coverage with the same employee cost-sharing as is provided to employees generally and (iii) all accrued but unpaid obligations.

Under the Bonello Agreement, termination payments and benefits will be delivered to Mr. Bonello either in full or to such lesser extent as would result in no portion of such termination payments and benefits being subject to the excise tax imposed by the golden parachute rules of Section 4999 of the Code, whichever of the foregoing amounts, after taking into account all applicable taxes, results in the greatest amount of such termination payments and benefits to Mr. Bonello on an after-tax basis.

In consideration for these benefits, Mr. Bonello is also subject to certain restrictive covenants, including confidential information and non-disparagement covenants, each for the term of his employment with us and thereafter, and covenants not to compete and not to solicit, each for the term of his employment with us and for 12 months following his termination date.

For purposes of the Bonello Agreement, “cause” means the occurrence of the following: (i) a material breach of the Bonello Agreement by Mr. Bonello (where he fails to cure such breach within ten business days after being notified in writing by us of such breach); (ii) Mr. Bonello’s failure (except where due to a physical or mental incapacity) to substantially perform his material duties which continues beyond ten days after a written demand for substantial performance is delivered to him; (iii) Mr. Bonello engaging in or causing an act of willful misconduct that has a material adverse impact on our reputation, business, business relationships or financial condition; (iv) Mr. Bonello’s conviction of, or plea of guilty or nolo contendere to, a felony, or any crime involving moral turpitude not involving a traffic offense; and (v) Mr. Bonello’s willful refusal to perform the specific lawful directives of our Board of Directors which are consistent with the scope of his duties and responsibilities under the Bonello Agreement; provided, however, that no action taken by Mr. Bonello in the reasonable, good faith belief that it was in the best interest of the Company shall be treated as a basis for termination of his employment for cause under clause (i) above, and no failure of Mr. Bonello or the Company to achieve performance goals, alone, shall be treated as a basis for termination of his employment for cause under clause (ii) or (v) above.

For purposes of the Bonello Agreement, “good reason” means: (i) any material breach of the Bonello Agreement by us; (ii) the material diminution, without Mr. Bonello’s written consent, of his position, authority, duties or responsibilities as indicated in the Bonello Agreement, or the appointment of any other person, without Mr. Bonello’s written consent, to perform any material part of such duties, including, without limitation, the failure of Mr. Bonello to have such duties and responsibilities with respect to the acquiring entity following a “change in control”; and (iii) the failure by us to obtain the assumption in writing of our obligation to perform under the Bonello Agreement by any successor to all or substantially all of our assets. Mr. Bonello may terminate his employment for good reason by providing us with 30 days’ written notice setting forth in reasonable specificity the event that constitutes good reason, within 90 days of the occurrence of such event. During such 30 days’ notice period, we have the opportunity to cure the event that constitutes good reason, and if not cured within such period, Mr. Bonello’s termination will be effective upon the expiration of such cure period.

For purposes of the Bonello Agreement, “change in control” is defined under the 2014 Plan on the date of the change in control or as defined under the 2014 Plan on the effective date of the Bonello Agreement, whichever is more favorable to Mr. Bonello.

The Gaenzle Agreement

Pursuant to the Gaenzle Agreement, in the event Mr. Gaenzle’s employment is terminated by us without “cause” or by the executive for “good reason” (each as defined below), then Mr. Gaenzle will receive (i) a severance payment equal to the sum of his base salary plus an amount equal to his target annual bonus for the calendar year immediately preceding the date of the termination of employment, payable over 12 months, (ii) 12 months of continued medical, dental and other health benefit coverage with the same employee cost-sharing as is provided to employees generally and (iii) all accrued but unpaid obligations.

In the event Mr. Gaenzle’s employment is terminated by us without cause or by Mr. Gaenzle for good reason on or prior to the expiration of the one-year period immediately following a “change in control” (as defined below), then Mr. Gaenzle will receive in lieu of the severance set forth in the preceding paragraph: (i) a severance payment equal to two times the sum of his base salary plus an amount equal to his target annual bonus for the calendar year immediately preceding the date of the termination of employment, payable in a lump-sum cash payment, (ii) 24 months of continued medical, dental and other health benefit coverage with the same employee cost-sharing as is provided to employees generally and (iii) all accrued but unpaid obligations.

Under the Gaenzle Agreement, termination payments and benefits will be delivered to Mr. Gaenzle either in full or to such lesser extent as would result in no portion of such termination payments and benefits being subject to the excise tax imposed by the golden parachute rules of Section 4999 of the Code, whichever of the foregoing amounts, after taking into account all applicable taxes, results in the greatest amount of such termination payments and benefits to Mr. Gaenzle on an after-tax basis.

In consideration for these benefits, Mr. Gaenzle is also subject to certain restrictive covenants, including confidential information and non-disparagement covenants, each for the term of his employment with us and thereafter, and covenants not to compete and not to solicit, each for the term of his employment with us and for 12 months following his termination date.

For purposes of the Gaenzle Agreement, “cause” means the occurrence of the following: (i) a material breach of the Gaenzle Agreement by Mr. Gaenzle (where he fails to cure such breach within ten business days after being notified in writing by us of such breach); (ii) Mr. Gaenzle’s willful refusal (except where due to a physical or mental incapacity) to substantially perform his material duties which continues beyond ten days after a written demand for substantial performance is delivered to him; (iii) Mr. Gaenzle engaging in or causing an act of willful misconduct that has a material adverse impact on our reputation, business, business relationships or financial condition; (iv) Mr. Gaenzle’s conviction of, or plea of guilty or nolo contendere to, a felony, or any crime involving moral turpitude not involving a traffic offense; and (v) Mr. Gaenzle’s willful refusal to perform the specific lawful directives of our Board of Directors which are consistent with the scope of his duties and responsibilities under the Bonello Agreement; provided, however, that no action taken by Mr. Gaenzle in the reasonable, good faith belief that it was in the best interest of the Company shall be treated as a basis for termination of his employment for cause under clause (i) above, and no failure of Mr. Gaenzle or the Company to achieve performance goals, alone, shall be treated as a basis for termination of his employment for cause under clause (ii) or (v) above.

For purposes of the Gaenzle Agreement, “good reason” means: (i) any material breach of the Gaenzle Agreement by us; (ii) the material diminution, without Mr. Gaenzle’s written consent, of his position, authority, duties or responsibilities as indicated in the Gaenzle Agreement, or the appointment of any other person, without Mr. Gaenzle’s written consent, to perform any material part of such duties, including, without limitation, the failure of Mr. Gaenzle to have such duties and responsibilities with respect to the acquiring entity following a “change in control”; (iii) any required relocation of Mr. Gaenzle’s principal place of employment by more than 50 miles; and (iv) the failure by us to obtain the assumption in writing of our obligation to perform under the Gaenzle Agreement by any successor to all or substantially all of our assets. Mr. Gaenzle may terminate his employment for good reason by providing us with 30 days’ written notice setting forth in reasonable specificity the event that constitutes good reason, within 90 days of the occurrence of such event. During such 30 days’ notice period, we have the opportunity to cure the event that constitutes good reason, and if not cured within such period, Mr. Gaenzle’s termination will be effective upon the expiration of such cure period.

For purposes of the Gaenzle Agreement, “change in control” is defined under the 2018 Plan on the date of the change in control or as defined under the 2018 Plan on the effective date of the Gaenzle Agreement, whichever is more favorable to Mr. Gaenzle.

Director Compensation

In June 2018, the Board adopted a non-employee director compensation policy. The objectives of the policy are to attract and retain highly qualified directors and to compensate them in a manner that closely aligns their interests with those of our stockholders. Pursuant to our non-employee director compensation policy, each director who is not employed by us is entitled to compensation as follows:

•    $60,000 in cash, paid quarterly in arrears for membership on our Board;

•    $35,000 in cash, paid quarterly in arrears for the chairperson of our Audit Committee;

•    $15,000 in cash, paid quarterly in arrears for membership on our Audit Committee (other than the chairperson);

•    $20,000 in cash, paid quarterly in arrears for the chairperson of our Compensation Committee;

•    $10,000 in cash, paid quarterly in arrears for membership on our Compensation Committee (other than the chairperson);

•    $15,000 in cash, paid quarterly in arrears for the chairperson of our Nominating Committee;

•    $7,500 in cash, paid quarterly in arrears for membership on our Nominating Committee (other than the chairperson);

•    an annual equity award in the form of restricted stock valued at approximately $125,000 (prorated for any partial year of service in connection with an initial grant), which will vest on the first anniversary of the grant date; and

•    an annual lead director retainer of $40,000, granted in the form of restricted stock that vests on the first anniversary of the grant date.

With respect to any restricted stock grants made to a director, (i) if the director’s service on our Board is terminated on the date of a regularly scheduled annual meeting of the stockholders of the Company that is prior to such restricted stock’s vesting date as a result of the director not being reelected for another term, the restricted stock will vest in full and (ii) within one year following a change in control, if a director’s service on our Board is terminated without “cause,” the restricted stock award will vest in full.

In addition, we provide reimbursement to our non-employee directors for their reasonable expenses related to their services as a member of the Board of Directors and any committees thereof.

In May 2020, Pearl Meyer provided the Compensation Committee with a review of our non-employee director compensation relative to our Peer Group. While the results of the review indicated that our non-employee director compensation levels were significantly below market relative to the Peer Group, the Compensation Committee postponed consideration of any changes due to the financial implications of COVID-19.

The following table sets forth information concerning the compensation of our non-employee directors during the fiscal year ended December 31, 2020. Our CEO did not receive compensation for serving on the Board of Directors. For information concerning the compensation of our CEO during the fiscal year ended December 31, 2020, see the Summary Compensation Table above.

(1)        Amounts represent the grant date fair value of these restricted stock awards in accordance with Topic 718 and are based on the closing market price of our common stock on the date of grant. As of December 31, 2020, Messrs. Barber and Young and Drs. Dickinson and Grais each held 1,324 unvested restricted stock awards, Mr. Momtazee held 1,748 unvested restricted stock awards, and Dr. Stettin held 799 unvested restricted stock awards, all subject to time-vesting criteria.

(2)        Dr. Stettin joined our Board on September 14, 2020.

Compensation Committee Interlocks and Insider Participation

During the 2020 fiscal year, the Compensation Committee consisted of Dr. Grais and Messrs. Momtazee and Young, none of whom were an officer or employee of the Company during the fiscal year and none of whom were formerly an officer of the Company. During 2020, none of our executive officers served as a director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity whose executive officers served on our Compensation Committee or our Board.

PAY RATIO DISCLOSURE

Pursuant to Item 402(u) of Regulation S-K promulgated by the SEC and Section 953(b) of the Dodd—Frank Wall Street Reform and Consumer Protection Act, presented below is the ratio of annual total compensation of our CEO to the annual total compensation of our median employee (excluding our CEO).

The 2020 annual total compensation as determined under Item 402 of Regulation S-K for our CEO was $9,352,568, as reported in the Summary Compensation Table above. The 2020 annual total compensation as determined under Item 402 of Regulation S-K for our median employee (excluding our CEO) was $69,311. The ratio of our CEO’s annual total compensation to our median employee’s total compensation for fiscal year 2020 is 135 to 1. To identify, and to determine the annual total compensation of, the median employee, we used the methodology set forth below.

Under the SEC’s pay ratio rule, a company is required to identify its median employee only once every three years so long as during the last prior fiscal year there has been no change to its employee population or employee compensation arrangements that it reasonably believes would result in a significant change in its pay ratio disclosure. Because we did not experience any meaningful changes to our employee population, or changes in employee compensation arrangements, during 2019 and 2020, we believe it is reasonable to use the median employee identified and reported in 2018 for purposes of calculating the pay ratio disclosure with respect to 2020 and that using this median employee would not significantly affect our pay ratio disclosure.

Our diverse employee population includes employees located in the United States, Europe, Canada, Africa, Latin America and Asia Pacific, some of whom are represented by workers councils and labor unions, and varies in areas such as experience, education and specialized training. For purposes of our pay ratio analysis in 2018, we selected the median employee based on the approximately 15,000 individuals who were employed by the Company and our consolidated subsidiaries (whether as full-time, part-time, temporary or seasonal workers) as of October 31, 2018. For full-time and part-time employees that were hired in 2018 but did not work the full year, we annualized their compensation, but did not make any full-time equivalent adjustments.

In identifying such median employee, we calculated and annualized the gross year-to-date payroll earnings of each such employee as of October 31, 2018, using such measure as our consistently applied compensation measure. Gross payroll earnings consist of all compensation elements appearing in payroll records for each individual, including base salary, bonuses and other cash components. We converted gross payroll earnings for non-U.S. employees to U.S. dollars using applicable foreign exchange rates as of October 31, 2018 and did not make any cost-of-living adjustments for non-U.S. employees.

The ratio presented above is a reasonable estimate calculated in a manner consistent with Item 402(u) based on our payroll and employment records and the methodology described herein. 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 above, 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.