UnitedHealth CEO reaps nearly $100 million from stock options

By David S. Hilzenrath
Washington Post Staff Writer
Friday, April 16, 2010; 6:07 AM

The chief executive of UnitedHealth Group, one of the nation's largest health insurers, reaped almost $100 million from exercising stock options last year, the company reported Thursday.

Stephen J. Hemsley exercised 4.9 million options in February 2009 at a gain of $98.6 million, the company said in a regulatory filing. The options were awarded almost a decade earlier.

After using some of the shares to pay for the transactions and cover related taxes, Hemsley held onto the stock he acquired instead of cashing it in, the company reported.

The disclosure comes at a time when executive pay in general and compensation of health insurance executives in particular have been flash points for the public. During the often emotionally charged debate over the recently enacted legislation to overhaul the nation's health care system, some advocacy groups advanced their cause by calling attention to executives' multi-million dollar pay packages and their expensive homes.

According to measurement standards used by the Securities and Exchange Commission, Hemsley's compensation for 2009 was a less stratospheric $8.9 million, up from $3.2 million in 2008. The 2009 total included a salary of $1.3 million, which was unchanged from the previous year, and a cash bonus of $2 million, up from $1.8 million the year before. It also included $5.6 million attributed to stock-related awards.

The compensation committee of UnitedHealth's board believed that Hemsley's 2009 compensation package "was appropriate to recognize Mr. Hemsley's overall leadership in positioning the Company for long-term success in a very difficult overall economic environment," UnitedHealth said in the report filed with the SEC Thursday.

The committee credited Hemsley with "enhancing the Company's reputation, ethical culture and tone at the top."

"Although Mr. Hemsley's total compensation is below the median as compared to other CEOs in the Company's peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him," the company reported.

Company spokespeople did not respond to telephone and e-mail messages late Thursday. Hemsley has been president and chief executive since November 2006. He succeeded William W. McGuire, who stepped down in a scandal over his stock options.

Stock options give the holder the right to buy shares at a set price, typically the price at which the stock was trading when the option was originally granted. If the market price of the stock subsequently rises, the holder can exercise the option at a gain.

Hemsley's options allowed him to buy shares for $8.72 when they were trading on the stock market at $28.94. UnitedHealth shares closed Thursday at $30.63.

The health care overhaul that President Obama recently signed into law could put pressure on some insurers to restrain executive pay by requiring them to pay rebates to customers unless they devote a minimum percentage of their premium revenue to paying medical claims and improving health care. The more insurance companies pay executives, the harder it will be for them to meet the new targets. However, executive pay may pale in comparison to revenue from premiums, and reining in executive pay is just one of many ways insurers could make the targets easier to reach.

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