At Troubled UnitedHealth Group, it’s a very unusual pay package and worth $60 million for Boomerang CEO.
Will the new CEO of UnitedHealth Group get the hefty pay package the board wants to give him?
This eight-digit question has risen amid UHG’s unprecedented loss of value over the past few weeks. UHG is America’s largest healthcare company and ranks third in the Fortune 500, but in April it reported an incredibly awful first quarter performance. The stock price plunged, and then continued to plummet for several weeks. CEO Andrew Witty suddenly resigned for unspecified personal reasons, with Chairman Stephen Hemsley taking over as CEO.
Hemsley, who turned 73 in June, tries to save the Colossus, who helped build as CEO from 2006 to 2017. The very unusual pay package they created for Hemsley shows how.
He earns a base salary of $1 million a year. This is one times more money, but in reality it’s below the normal salary of CEOs of such large companies. More importantly, he has a twist with a one-off $60 million stock options grant. He will only get reward if he remains CEO for three years. He would not have received any other stock-based awards during that period.
Shareholders will be able to vote for its unconventional salary plan at UHG’s June 2nd annual meeting. Institutional Shareholders Services, the largest company that advises key shareholders on how to vote, advises vote numbers.
ISS We see multiple issues with Hemsley pay package. Such a large, front-loaded multi-year award “limits the committee’s ability to meaningfully coordinate future pay opportunities,” says the ISS. Furthermore, Hemsley did not have to meet performance standards to win the Mammoth Stock Options Award. He got it all on the first day. Hemsley also has the worst news of its stock price reduction in nearly five years. This means that you may get a “wind defeat” due to “rebounding the stock price.” According to the ISS, when these factors are combined, there are no “currently guaranteed” votes.
UHG returned and sent shareholders an explanation of what the ISS allegedly missed and why they should vote for Hemsley’s wage package. The company’s central point: “This award is only valuable if shareholder value is generated.” Regarding the ISS’s “windfall” discussion, UHG said: all Shareholders (underlined in UHG documents) get from rising stock prices in the company compared to current levels. ”
Who could win this vote? In conclusion, Hemsley and UHG will probably get the paid package they negotiated. ISS recommendations are taken seriously, but shareholders usually vote in the favor of management. Even if UHG loses shareholder votes on wages, which companies must keep it by law, the outcome is non-binding and only advice. The board can simply ignore the wishes of its shareholders. Additionally, UHG points out that Glass Lewis, the main competitor of the ISS, is recommending shareholder votes in favor of Hemsley’s pay package. “A rough look,” he tells his client. “(Hemsley’s) annual pay is not excessive.”
Regardless of the outcome, the votes contested will be important. It raises UHG, its director, Hemsley already high interests. Three years later, the success in the face of opposition looks even more heroic. And failure will be even more bitter.
This story was originally introduced Fortune.com