UnitedHealth CEO Payout Could Exceed $1B
UnitedHealth Group Chair and CEO William McGuire "could walk away with about $1.1 billion in stock options, retirement payouts and other benefits," the Wall Street Journal reports . McGuire has (agreed to resign, after the release of a report that found he likely received backdated stock options (Forelle/Maremont, Wall Street Journal, 10/17).
The stock options that McGuire received were valued at $1.78 billion at the end of 2005. McGuire also received a base salary of $2.3 million (Freed, AP/Los Angeles Times, 10/17).
UnitedHealth officials in a statement said that the company is "engaged in discussions" with McGuire over the terms of his resignation. Under his contract, McGuire is entitled to a lump sum payment of $6.4 million and $5.09 million annually in retirement benefits (Phelps et al., Minneapolis Star Tribune, 10/17).
According to the Journal, the contract "deems just about any departure short of firing to be a 'retirement,' under which all of his options immediately vest and continue in force for another six years." In addition, the contract "takes a fairly restrictive view of what constitutes grounds for firing: in effect, either a felony conviction or repeated failure to remedy a serious problem despite repeated notices demanding that he clean it up," the Journal reports (Wall Street Journal, 10/17).
In related news, Stephen Hemsley, a lieutenant to McGuire who will replace him as CEO in December, also received backdated stock options, although he does not face accusations of wrongdoing, the New York Times reports.
According to the Wilmer Cutler report, after Hemsley joined UnitedHealth in June 1997, he received 400,000 stock options based on the company stock price five months earlier for a gain of $7.26 per share. In addition, almost half of the nine stock option grants that Hemsley received between 1997 and 2002 were issued when the stock price was at or near a low point, the report found.
The report said that Hemsley played a "more limited role in the option-granting process" and that he had claimed he "was unaware of how the grant dates were selected." However, the report "does raise some questions about Mr. Hemsley," the New York Times reports.
Patrick McGurn, a corporate governance expert at Institutional Shareholder Services, said, "That obviously raises credibility issues. He added, "They are not claiming to know nothing, but only part of what went on" (Dash, New York Times, 10/17).
NPR's "All Things Considered" on Monday reported on the value of the stock options that McGuire received. The segment includes comments from Mercer Bullard, a law professor at the University of Mississippi, and Peter Henning, former SEC attorney and a law professor at Wayne State University (Arnold, "All Things Considered," NPR, 10/16).
The complete segment is available online in RealPlayer.