UnitedHealth's CEO pay giveback? Lame
Associated PressPublished December 13, 2007
Corporate chieftains may be getting the wrong message from UnitedHealth Group CEO William McGuire's $420-million settlement for his role in a stock-options backdating scandal that leaves him with several hundred million dollars in hand.
When it was announced last week, it was billed as the largest corporate giveback ever, as if that was supposed to assuage shareholders of the nation's second-largest health insurer who lost big because of McGuire's stock-options shenanigans. That payback, along previous deals with McGuire and other executives, brings the total being returned to UnitedHealth to nearly $1-billion.
While that sounds like no small change, then compare it with this: He still keeps all cash paid to him during his 15-year tenure at the company's helm and is likely to retain stock options that today have an $800-million value.
"If this penalty is returning unjust enrichment, then where is the sting?" asked Charles Elson, director of the Weinberg Center for Corporate Governance at University of Delaware. "A penalty should crimp an individual's lifestyle, but this punishment certainly would not."
That's not to say this victory isn't an important one. As some governance experts note, at least money is flowing back to this company at a value rarely seen.
The issue here has to do with "backdating," whereby corporate insiders manipulated the grant dates of stock options to when the company's share price was depressed. Such practices made it more likely executives would be able to pocket outsized and potentially illegal profits never disclosed to shareholders.
Hundreds of companies have been investigated for backdating, dozens of executives have lost jobs, and more than 10 executives have been criminally charged.
Corporate supporters argue that backdating concerns were overblown by investors and the media because they were a known practice. While that may be true, it doesn't make the practice right.
Still, there has been little recourse for investors who not only were duped by backdating but then had to stomach huge earnings restatements by companies needing to rectify such behavior in their finances.
That's why the case at UnitedHealth has gotten so much attention. McGuire is going to pay big, the headlines read, for damage done while he was CEO. The stock, which trades around $57 a share, is below where it was in the weeks before the backdating was revealed in March 2006. UnitedHealth has restated $1.52-billion in earnings dating back 12 years through 2005 and took a $55-million charge to settle claims with the IRS.
The settlement resolves a lawsuit brought by shareholders on behalf of the company, as well as a complaint by the SEC. McGuire did not admit or deny guilt.
His ability to cash in options on 24-million shares, worth more than $800-million, is in the hands of U.S. District Court Judge James Rosenbaum in Minneapolis.
Rosenbaum barred McGuire from exercising his options at least through Wednesday. If the judge decides to unfreeze the money, which legal experts say is likely, the "sting" officially will be drawn out of this settlement. That sends the wrong message to the corporate class about what happens when they play games by their own rules - not much.