UnitedHealth Group is asking shareholders to support a $60 million stock option award for its new CEO.
In a May 20 letter to shareholders, Christopher Zaetta, UnitedHealth’s chief legal officer, urged shareholders to approve the company’s executive compensation. Institutional Shareholder Services, a proxy advisory firm, has advised shareholders to vote no on UnitedHealth’s “say-on-pay” proposal.
The company appointed Stephen Hemsley, who led the company from 2006 to 2017, as CEO in May. Mr. Hemsley will receive a $1 million annual salary, but will not receive any annual cash incentives. Instead, he will receive a $60 million stock option after three years as CEO.
ISS recommended shareholders vote no because nearly all of Mr. Hemsley’s compensation will be in stock option awards, and fluctuations in stock price could lead to a “windfall” for the CEO.
In its May 20 filing, Mr. Zaetta said the structure is necessary to incentivize Mr. Hemsley to remain CEO for a three-year term.
“The Compensation Committee carefully designed a compensation package that was reasonable, provided the appropriate incentives for Mr. Hemsley, and strongly aligned with shareholder interest,” Mr. Zaetta wrote.
A significant portion of Mr. Hemsley’s net worth is invested in UnitedHealth Group, according to the filing. After taking the CEO role, he purchased an additional $25 million in shares, “further signaling his commitment to and stake in building long-term shareholder value,” Mr. Zaetta wrote.
Glass Lewis, another proxy advisory firm, has recommended shareholders approve Mr. Hemsley’s compensation.
“Say-on-pay” votes allow shareholders to express their approval or disapproval with companies’ executive compensation, but are non-binding advisory votes. Shareholders must submit their votes before UnitedHealth Group’s annual meeting on June 2.
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