Will UnitedHealth Group’s new CEO get the hefty pay package deal the board desires to provide him?
That eight-figure query rises amid UHG’s unprecedented lack of worth up to now a number of weeks. UHG is America’s largest well being care firm, No. 3 on the Fortune 500, however in April it reported surprisingly horrible first-quarter efficiency. The inventory value plunged, then stored plunging for weeks. CEO Andrew Witty resigned abruptly for unspecified private causes, and the board chairman, Stephen Hemsley, took over as CEO.
Hemsley, who turns 73 in June, might be making an attempt to rescue the colossus he helped construct as CEO from 2006 to 2017. Whereas buyers may need anticipated he would maintain the job solely till the board of administrators finds a brand new CEO, Hemsley and the board produce other concepts. The extremely uncommon pay package deal they created for Hemsley exhibits how.
He’ll get a base wage of $1 million a 12 months—large cash however truly beneath the standard wage for CEOs of such giant corporations. Extra essential, he would get a one-time $60 million grant of inventory choices, with a twist: He would get the payoff provided that he stays CEO for 3 years. He would get no different stock-based awards in that interval.
Shareholders will get to vote on that unconventional pay plan at UHG’s June 2 annual assembly. Institutional Shareholder Companies, the biggest agency that advises main shareholders on the best way to vote, advises they vote no.
ISS sees a number of issues with Hemsley’s pay package deal. Such large, front-loaded, multiyear awards “limit the board’s ability to meaningfully adjust future pay opportunities,” ISS says. As well as, Hemsley didn’t want to fulfill any efficiency standards to earn the mammoth inventory possibility award; he acquired the entire thing on day one. Hemsley additionally acquired the award simply as unhealthy information was pounding the share value right down to its lowest in almost 5 years, that means he may get “a windfall” for a mere “rebound in the share price.” Mix these components, says ISS, and a no vote “is now warranted.”
UHG struck again, sending shareholders a proof of what ISS allegedly missed and why they need to vote for Hemsley’s pay package deal. The corporate’s central level: “The award only has value if and to the extent shareholder value is created.” As for ISS’s “windfall” argument, UHG acknowledged that “in reality all [underlined and bold in the UHG document] shareholders would gain from increases in the company’s stock price relative to current levels.”
Who’s more likely to win this vote? Backside line, Hemsley and UHG will most likely get the pay package deal they negotiated. ISS’s suggestions are taken severely, however shareholders normally vote in favor of administration. Even when UHG loses the shareholder vote on pay, which corporations should maintain by legislation, the result’s nonbinding and advisory solely; the board of administrators may merely ignore the shareholders’ needs. As well as, UHG notes that ISS’s predominant competitor, Glass Lewis, is recommending shareholders vote in favor of Hemsley’s pay package deal. “Upon a cursory glance,” it tells its shoppers, “[Hemsley’s] annualized compensation is not excessive.”
Whatever the consequence, the contested vote might be important. It would increase the already excessive stakes for UHG, its administrators, and Hemsley. Three years from now, success within the face of opposition would look all of the extra heroic—and failure can be all of the extra bitter.
This story was initially featured on Fortune.com
