AC Alert for May 1, 2012 Executive Compensation & Healthcare: An Interesting Combination of Issues For Investors, Stakeholders -- and Consumers

Primary tabs AC Alert for May 1, 2012 Executive Compensation & Healthcare: An Interesting Combination of Issues For Investors, Stakeholders -- and Consumers

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Wednesday, May 2, 2012 - 3:30pm

CONTENT: Newsletter

As the justices of the US Supreme Court mull over their anxiously-awaited decision on the constitutionality of the federal healthcare overhaul law ("Obamacare"), corporate managers, small business owners, asset owners and managers -- and "health care- consuming" citizens -- ponder what form healthcare coverage and insurance will take in the years ahead. Lots of uncertainty.

Questions include what procedures will or will not be covered and what co-pays will exist -- these constitute a major part of the great unknown for many if the legislation is declared overreaching as many critics charge (including state governors who have to change policies to comply).

While significant attention is being focused on the many possible ramifications of the Supreme Court’s coming decision, less focus has been placed on how well some of the major health insurance executives are being compensated.  There seems to be more certainty for some executives of healthcare companies, at least in their pay status.

Take for example United Health Group CEO Stephen J. Hemsley. According to a proxy statement filed with the Securities and Exchange Commission, he received a total compensation package of US $13.4 million in 2011 -- a 24% increase from the previous year.

Here’s more information on Hemsley’s compensation: “Last year, Hemsley, 59, received a $1.3 million salary, a $4.9 million performance-related bonus, and stock awards totaling $7 million. He also got $154,804 in other compensation, consisting mostly of company matching contributions under an executive savings program.

"Hemsley’s salary has stayed at $1.3 million for several years, and more than half of his compensation last year came in the form of stock awards. UnitedHealth Group did well in 2011. Earnings climbed 11% to $5.14 billion, or $4.73 per share, and revenue rose 8% to top $100 billion. The insurer raised the quarterly dividend it pays shareholders to 16.25 cents per share, and its stock price soared 40% to close the year at $50.68.

"Health insurance is UnitedHealth’s biggest business by far, and it saw enrollment grow 5% to 34.6 million people last year. Lower-than-expected growth in health-care use also helped insurers beat earnings expectations over the past several quarters, and investors gravitated more to their shares last year, as they learned that some initial provisions of the health care overhaul law would not have as big of an impact on the industry as initially thought.

"Hemsley has served as CEO since 2006, and his compensation has climbed considerably since he received a total of $3.2 million in 2008, when the company’s stock fell 54% and its earnings tumbled.” (Source: The Washington Post)

That's one example of the inflation in healthcare -- compensation at the top. The issues surrounding executive compensation -- and especially CEO pay -- have become a major topic of discussion in board rooms (where comp is decided), at annual shareholder meetings (where exec pay is now more often debated) and in the media (with increasing news and commentary devoted to the topic).

After a decade of intense debate, efforts to "control" or "rein in" executive compensation took center stage when the U.S. Department of the Treasury issued interim final rules for reporting and recordkeeping requirements under the executive compensation standards of the Troubled Asset Relief Program (TARP) in January 2009.

For the first time, the Federal government took a direct role in setting the compensation of at least some private corporations.  The actions resulted in an appointment of an Executive Compensation Czar within the Treasury Department to review compensation packages for companies receiving Federal assistance during the bailout period.

Further regulations followed with the enactment of the Dodd -Frank financial reform legislation (adopted in the Spring of 2010). “Say-on-Pay” has also become the rallying cry of shareholder groups and social and proxy activists.

Meanwhile the SEC enacted rules for publicly-held companies to give at least some "advisory voice" to shareholders through the proxy process on executive compensation. (And not enough, shareholder interests are saying.)

While the shareholder votes are not binding, they do serve to create an atmosphere of greater transparency and accountability of corporate boards to their shareholders. And they are (or could be) expressions of satisfaction or dissatisfaction with current compensation practices.

AC editors have been monitoring the issue of Executive Compensation since inception of this platform, and we created a Hot Topic section as a repository for news, commentary and research related to this subject. Here are some of our most recent articles:

Citigroup loses advisory vote on exec compensation
(Source: Reuters) Citigroup Inc shareholders have given a vote of no confidence to the bank's executive compensation plan. Only 45 percent of shareholders endorsed the pay plan in an advisory vote required under the Dodd-Frank law.

Shareholders don't often vote against huge CEO pay
(Source: USA Today) Of the approximately 200 proxy votes completed so far this year, only four received a majority negative vote on executive compensation according to a pay analysis firm Compensia. Last year, 41 companies in the Russell 3000 Index voted down executive pay packages.

Barclays shareholders revolt against boss pay awards
(Source: Yahoo news) British bank Barclays reported last week that almost a third of its shareholders had chosen not to back its annual executive pay awards amid controversy over chief executive Bob Diamond's wage package. Barclays said in a statement following its annual general meeting in London that 32 percent of shareholders had either voted against or withheld support for the bank's 2011 remuneration report.

GM's Akerson Paid $7.7 Million in 2011
(Source: General Motors CEO Dan Akerson's compensation tripled in 2011 to $7.7 million, as the company posted the biggest profit in its history. GM made $7.6 billion last year on strong sales in North America and Asia. The company reported Akerson's pay in its annual proxy filing with the federal government. Last year was his first full year as CEO.

CEO Compensation Rose Almost 40 Percent in 2010 and 2011
(Source: Slate) According to the AFL-CIO’s pay watch survey, CEO pay grew 22.8 percent on average in 2010 and another 13.9 percent in 2011 among the S&P top 500 firm for a total aggregated increase of nearly 40 percent.

Goldman Sachs Cuts CEO Blankfein’s Pay 35% for 2011
(Source: Bloomberg) Goldman Sachs has given Chairman/CEO Lloyd C. Blankfein $12.4 million in compensation for 2011, down 35 percent from a year earlier, as the firm’s profit and stock fell.

This is just a sampling of the information in our Alert. Go here for the full text of this alert, and more information on Sustainability, and other Accountability related topics.

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CONTENT: Newsletter