CalPERS Calls for Explanation of Executive Compensation
CalPERS officials on Tuesday asked UnitedHealth to explain the $2.4 billion in stock options issued to UnitedHealth Chair and CEO William McGuire and other executives, Bloomberg/Los Angeles Times reports (Bloomberg/Los Angeles Times, 4/26).
In a letter sent to James Johnson, chair of the compensation committee of the UnitedHealth board, Rob Feckner, president of the CalPERS board, demanded a conference call prior to the annual shareholder meeting. Feckner wrote that he seeks to discuss "serious threats to the credibility, governance and performance of UnitedHealth."
The letter criticized UnitedHealth for failure to explain how the dates for the issue of stock options to executives were determined in previous years and "inconsistent" disclosure of the program (Fuhrmans, Wall Street Journal, 4/26).
Feckner wrote, "These stock option grants are an insult and add injury in a market of skyrocketing health care costs in America, and ... we find this intolerable and unsustainable." He added, "As I'm sure you are aware, these allegations have unleashed a torrent of concern about the ability of the board of directors to properly govern UnitedHealth" (Phelps, Minneapolis Star Tribune, 4/25).
In addition, the letter raised concerns about a potential two-tier retirement package for McGuire (Chan, Sacramento Bee, 4/25).
CalPERS also threatened to withhold votes for McGuire and the two other directors who seek re-election. Pat Macht, assistant executive officer of public affairs for CalPERS, said, "We're leaning that way unless they can convince us otherwise" (Wall Street Journal, 4/26).
UnitedHealth spokesperson Mark Lindsay said, "We take very seriously the concerns raised in the letter from CalPERS." He added that UnitedHealth hopes to meet with CalPERS to explain the stock options issued to executives (Minneapolis Star Tribune, 4/25).
According to the Wall Street Journal, the move by CalPERS, which holds 6.55 million UnitedHealth shares, "could spur other investors to join in its criticism." In addition, the move "increases pressure on UnitedHealth's board to more fully explain its past option-award practices soon, even though its board only launched a probe into them earlier this month," the Journal reports (Wall Street Journal, 4/26).
In related news, Minnesota Attorney General Mike Hatch (D) on Monday in a letter asked about 135 public and private pension funds to withhold votes for four directors who seek re-election to the UnitedHealth board at an annual shareholder meeting on May 2, the Wall Street Journal reports. In the letter, sent to a group of pension funds that includes the American Federation of Teachers retirement plan and CalPERS, Hatch writes that UnitedHealth directors have not adequately overseen the issue of stock options "in the billions to top executives" and have "awarded themselves millions of dollars in stock option opportunities."
According the Journal, the letter "comes amid scrutiny of the circumstances" under which McGuire received some of the "$1.6 billion in unrealized gains he holds" in company stock options. Last week, Hatch joined a federal civil lawsuit that alleges McGuire, UnitedHealth Chief Operating Officer Stephen Hemsley and several company directors harmed shareholders through the issue of backdated stock options.
The UnitedHealth board has launched an investigation into the issue, and the company has received a related telephone call from the Securities and Exchange Commission.
Hatch said that his effort to remove the UnitedHealth directors -- McGuire, James Johnson, Douglas Leatherdale and Mary Mundinger -- likely will fail, adding, "It is more symbolic. I think directors, when they get a significant 'no' vote, pay attention to it."
A UnitedHealth spokesperson said, "We strongly urge the re-election of directors who have overseen an exceptional record of service to customers and value for shareholders."
The proxy advisory company Institutional Shareholder Services last week recommended against re-election of two of the directors but recommended re-election of McGuire as chair (Bandler, Wall Street Journal, 4/25).