UnitedHealth Officials To Return Stock Options
UnitedHealth Group CEO William McGuire and company Chief Operating Officer Stephen Hemsley on Wednesday agreed to return about $390 million in stock option compensation, the Wall Street Journal reports (Stecklow/Fuhrmans, Wall Street Journal, 11/9).
McGuire in October agreed to resign after the release of a report that found he likely received backdated stock options. McGuire resigned as chair immediately and will resign as CEO by Dec. 1. Hemsley will replace McGuire as UnitedHealth CEO. The report, part of an internal investigation conducted by the law firm Wilmer Cutler Pickering Hale & Dorr at the request of the UnitedHealth board, found that 1.5 million stock options, most of which McGuire received from his 1999 contract, were "likely backdated."
UnitedHealth officials said that the company would reprice the likely backdated stock options from the lowest share price for the years in question to the highest price and would require company officials who received them to return some of them (California Healthline, 10/16).
According to the Journal, the amount of stock options that Hemsley and McGuire agreed to return is "by far the biggest sum returned to a company under scrutiny for backdating options awards."
Hemsley has agreed return $190 million, both in unexercised stock options and gains from exercised options. Hemsley in a statement said, "My decision is in keeping with my personal goal of avoiding even the appearance of any unintended benefit from any past option grants to me."
McGuire has agreed to return about $200 million, both in unexercised stock options and gains from exercised options, but he has not agreed to return other options valued at $250 million for which "he and other employees were effectively able to get the same options twice at favorable prices," the Journal reports (Wall Street Journal, 11/9).
As part of the agreement, UnitedHealth will reprice his stock options at the highest point of each year between 1994 and 2002 (Freed, AP/Washington Post, 11/8).
Attorney David Brodsky, who represents McGuire, said, "Dr. McGuire is pleased to have reached an agreement to reprice his options. The agreement to forgo approximately $200 million means that Dr. McGuire will receive no benefit at all from dating issues in connection with his options" (Wall Street Journal, 11/9). As of the end of 2005, McGuire had $1.78 billion in stock options, according to UnitedHealth (AP/Washington Post, 11/8).
In related news, UnitedHealth officials on Wednesday said the company likely will have to take "significantly greater" charges related to the likely backdated stock options that might affect earnings for the past 12 years (Wall Street Journal, 11/9). UnitedHealth officials in May estimated that the charges might reduce earnings from 2003 to 2005 by $286 million, but on Wednesday they said that the total amount of the restated earnings likely "will be significantly greater" (AP/Washington Post, 11/8).
UnitedHealth officials also said that the company has delayed filing third-quarter earnings with the Securities and Exchange Commission on time and is "working as quickly as possible to return to current filing status" (AP/Honolulu Advertiser, 11/8).
UnitedHealth also reached a four-year contract with Hemsley, who will receive a base salary of $1.3 million to serve as company CEO, with bonuses awarded "solely at the discretion" of the compensation committee of the company board, according to documents filed with SEC (Wall Street Journal, 11/9).
In addition, UnitedHealth said that company CFO Patrick Erlandson resigned from the position "as previously planned" but did not specify his new responsibilities (AP/Washington Post, 11/8).