DEF 14A 1 d285409ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement

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UnitedHealth Group Incorporated


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LOGO

9900 Bren Road East, Minnetonka, Minnesota 55343

April 25, 2012

Dear Shareholder:

We cordially invite you to attend our 2012 Annual Meeting of Shareholders. We will hold our meeting on Monday, June 4, 2012 at 10:00 a.m. Pacific Time at Anthony Marlon Auditorium, 2700 North Tenaya Way, Las Vegas, Nevada 89128. This is the operating site of our UnitedHealthcare plan servicing Nevada.

As a shareholder of UnitedHealth Group, you play an important role in our company by considering and taking action on the matters set forth in the attached proxy statement. We appreciate the time and attention you invest in making thoughtful decisions.

Attached you will find a notice of meeting and proxy statement that contain further information about the items upon which you will be asked to vote and the meeting itself, including:

 

   

How to obtain admission to the meeting if you plan to attend; and

 

   

Different methods you can use to vote your proxy, including by Internet, telephone and mail.

Every shareholder vote is important, and we encourage you to vote as promptly as possible. If you cannot attend the meeting in person, you may listen to the meeting via webcast. Instructions on how to access the live webcast are included in the proxy statement.

Sincerely,

 

LOGO

Stephen J. Hemsley

President and Chief Executive Officer

 

LOGO

Richard T. Burke

Chairman of the Board


LOGO

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO THE SHAREHOLDERS OF UNITEDHEALTH GROUP INCORPORATED:

UnitedHealth Group Incorporated (the “Company”) will hold its Annual Meeting of Shareholders on Monday, June 4, 2012 at 10:00 a.m. Pacific Time at Anthony Marlon Auditorium, 2700 North Tenaya Way, Las Vegas, Nevada 89128. The purposes of the meeting are:

 

  1. To elect the ten nominees that are set forth in the attached proxy statement to the Company’s Board of Directors.

 

  2. To cast an advisory vote to approve the Company’s executive compensation.

 

  3. To ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2012.

 

  4. To consider the shareholder proposal set forth in this proxy statement, if properly presented at the Annual Meeting.

 

  5. To transact other business that properly may come before the Annual Meeting or any adjournments or postponements of the meeting.

Only shareholders of record of the Company’s common stock at the close of business on April 5, 2012 are entitled to receive notice of and to vote at the meeting and any adjournments or postponements of the meeting.

BY ORDER OF THE BOARD OF DIRECTORS,

 

LOGO

Dannette L. Smith

Secretary to the Board of Directors

April 25, 2012

We cordially invite you to attend our Annual Meeting. We encourage you to vote by Internet or telephone, or complete, sign and return your proxy prior to the meeting even if you plan to attend the Annual Meeting. If you later choose to revoke your proxy, you may do so at any time before it is exercised at the Annual Meeting by following the procedures described under Question 13 of the “Questions and Answers about the Annual Meeting and Voting” section in the attached proxy statement.

 

 

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON JUNE 4, 2012:

The Notice of Internet Availability of Proxy Materials, Notice of Annual Meeting,

Proxy Statement and Annual Report are available at

www.unitedhealthgroup.com/proxymaterials.


TABLE OF CONTENTS

 

     Page  

Summary Proxy Statement

     1   

Proposal 1 — Election Of Directors

     4   

Corporate Governance

     9   

Overview

     9   

Corporate Governance Practices

     9   

Principles of Governance

     10   

Code of Conduct: Our Principles of Ethics & Integrity

     11   

Compliance & Ethics HelpCenter

     11   

Director Independence

     11   

Independent Board Leadership

     12   

Risk Oversight

     13   

Board Meetings and Annual Meeting Attendance

     14   

Board Committees

     15   

Communication with the Board of Directors

     16   

Executive Compensation

     17   

Compensation Discussion and Analysis

     19   

Compensation and Human Resources Committee Report

     33   

2011 Summary Compensation Table

     34   

2011 Grants of Plan-Based Awards

     37   

Outstanding Equity Awards at 2011 Fiscal Year-End

     41   

2011 Option Exercises and Stock Vested

     43   

2011 Pension Benefits

     46   

2011 Non-Qualified Deferred Compensation

     47   

Executive Employment Agreements

     48   

Potential Payments Upon Termination or Change-in-Control

     51   

Proposal 2 — Advisory Vote to Approve the Company’s Executive Compensation

     53   

Director Compensation

     55   

Cash Compensation

     55   

Equity-Based Compensation

     55   

Stock Ownership Guidelines

     56   

Other Compensation

     56   

Equity Conversion Program

     56   

Cash Deferral Plan

     56   

2011 Director Compensation Table

     57   

Certain Relationships and Transactions

     59   

Compensation Committee Interlocks and Insider Participation

     59   

Audit Committee Report

     60   

Independent Registered Public Accounting Firm

     61   

Proposal 3 — Ratification of Independent Registered Public Accounting Firm

     62   

Proposal 4 — Shareholder Proposal

     62   

Questions and Answers About the Annual Meeting and Voting

     64   

Security Ownership of Certain Beneficial Owners and Management

     70   

Section 16(a) Beneficial Ownership Reporting Compliance

     72   

Householding Notice

     72   

Other Matters at Meeting

     72   


SUMMARY

This summary highlights information contained elsewhere in this proxy statement. We encourage you to review the entire proxy statement. This proxy statement and our Annual Report for the year ended December 31, 2011 are first being mailed to the Company’s shareholders and made available on the Internet at www.unitedhealthgroup.com/proxymaterials on or about April 25, 2012.

UnitedHealth Group

We are a diversified health and well-being company whose mission is to help people live healthier lives and enhance the performance of the health care system. We achieved strong business results in 2011, including:

 

   

Revenues increased 8% to $101.9 billion from $94.2 billion in 2010;

 

   

Net earnings increased 11% to $5.1 billion from $4.6 billion in 2010;

 

   

Cash flow increased 11% to $7.0 billion as compared to $6.3 billion in 2010;

 

   

Earnings per share increased 15% to $4.73 per share from $4.10 per share in 2010; and

 

   

Total shareholder return was 42% compared to 2.1% for the S&P 500 generally.

Achievement of this strong financial performance was driven by our success on a broad range of initiatives that were intended to position the Company for future growth.

Corporate Governance

UnitedHealth Group is committed to meeting high standards of ethical behavior, corporate governance and business conduct in everything we do, every day. This commitment has led us to implement the following practices:

 

   

Board Structure and Composition Our directors are elected annually by a majority vote of our shareholders. We have independent Board leadership, and all directors, other than our Chief Executive Officer (“CEO”), are independent.

 

   

CEO Succession Planning — Our succession plan, which is reviewed annually, addresses both an unexpected loss of our CEO and longer-term succession.

 

   

Stock Ownership Guidelines — Each of our executive officers satisfied our stock ownership guidelines as of December 31, 2011. Mr. Hemsley, our CEO, owned shares equal to 118 times his base salary as of March 1, 2012.

 

   

Stock Retention Policy — We require executive officers to hold, for at least one year, 1/3 of the net shares acquired upon vesting or exercise of any equity award granted after October 2009.

 

   

Clawback Policy — We may recover cash incentive compensation and equity awards from senior executives, including all of our named executive officers, in the event of fraud or misconduct resulting in a restatement of the Company’s financial statements.

 

   

Independent Compensation Consultant — Our Compensation and Human Resources Committee (the “Compensation Committee”) uses an independent compensation consultant, which performs no consulting or other services for the Company.

 

 

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Political Contributions Policy — We disclose our political contributions, and the contributions of our federal and state political action committees, semi-annually and as required by law.

 

   

Environmental Policy — We seek to minimize our environmental impact, and to heighten our employees’ awareness of the importance of the environment.

 

   

Transactions in Company Securities — Our insider trading policy prohibits short sales of shares of our common stock by all directors and employees, and discourages hedging transactions.

See the “Corporate Governance” portion of this proxy statement for further information on our governance practices.

Enterprise-Wide Risk Oversight

Our Board of Directors, assisted by its committees, oversees management’s enterprise-wide risk management activities. Risk management activities include assessing and taking actions necessary to manage risk incurred in connection with the long-term strategic direction and operation of our business.

Executive Compensation

Our executive compensation program utilizes a mix of base salary, annual and long-term cash incentives, equity awards and standard benefits to attract and retain highly qualified executives and maintain a strong relationship between executive pay and Company performance. As evidenced by the results of our “say-on-pay” vote at our 2011 Annual Meeting of Shareholders, we believe that shareholders have indicated strong support for our executive compensation program.

 

   

Our Overall Compensation Program Principles

 

  §  

Pay-for-performance — Total compensation of executive officers is generally based on achievement of enterprise-wide goals that impact shareholder value.

 

  §  

Enhance the value of the business — Incentive compensation is designed to favor the longer-term value of the Company and avoid excessive risk-taking in the short-term.

 

  §  

Reward long-term growth and focus management on sustained success and shareholder value creation — Compensation of our executive officers is weighted toward long-term awards that encourage sustained performance and positive shareholder returns.

 

  §  

Modest benefits and limited perquisites — We provide standard employee benefits and limited perquisites to our named executive officers.

 

   

Summary of Compensation Paid to Stephen Hemsley, our CEO, in 2011

 

  §  

Base salary — $1.3 million, which has been at this level since 2006.

 

  §  

Cash incentive awards — Annual cash incentive award of $3.6 million and long-term cash incentive award of $1.3 million, which reflect the Company’s strong performance against pre-set targets.

 

  §  

Equity awards — Performance shares with a targeted grant date value of $3.5 million and restricted stock units with a grant date fair value of $3.5 million.

 

  §  

Company matching contributions — $152,025 under our 401(k) and executive savings plans.

 

 

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Mr. Hemsley’s total compensation is well below the CEO median in the Company’s peer group. Information regarding compensation paid to each of our named executive officers in 2011 is described in the “Compensation Discussion and Analysis” below.

 

   

Strong Governance Standards in Oversight of Executive Compensation Policies

We endeavor to maintain strong governance standards in the oversight of our executive compensation policies and practices, including:

 

  §  

No ongoing pension obligations for any of our named executive officers.

 

  §  

No excise tax gross-ups and limited perks.

 

  §  

Performance-based compensation arrangements that use a variety of performance measures, including performance-based equity awards.

 

  §  

Double-trigger change-in-control arrangements for equity granted after 2010.

 

  §  

Our 2011 Stock Incentive Plan prohibits the repricing of stock options or stock appreciation rights without shareholder approval.

 

  §  

Annual advisory shareholder vote to approve the Company’s executive compensation.

Proposal 1 — Election of Directors (see pages 4-8)

The Board has nominated ten candidates for election to our Board of Directors. Each of these candidates was elected to the Board by the vast majority of the shares voted at the 2011 Annual Meeting. The Board recommends that shareholders vote FOR the election of each nominee.

Proposal 2 — Advisory Vote to Approve the Company’s Executive Compensation (see pages 53-54)

The Board is seeking an advisory vote to approve the Company’s executive compensation. Before considering this proposal, please read our Compensation Discussion and Analysis, which explains the Compensation Committee’s compensation decisions and how our executive compensation program aligns the interests of our executive officers with those of our shareholders. Although the vote is advisory and is not binding on the Board, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions. At the 2011 Annual Meeting, more than 97% of the votes cast on this proposal were in favor of our executive compensation. The Board recommends that shareholders vote FOR the approval of the Company’s executive compensation.

Proposal 3 — Ratification of Independent Registered Public Accounting Firm (see page 62)

The Audit Committee has appointed Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2012. The Board is seeking shareholder ratification of this appointment. The Board recommends that shareholders vote FOR ratification of the selection of Deloitte & Touche LLP.

Proposal 4 — Shareholder Proposal (see pages 62-64)

We have been informed that a group of shareholders intends to introduce a resolution requesting that the Board authorize the preparation of a report addressing lobbying expenditures and oversight. The Board has concluded that the proposal is not in the best interests of the Company and its shareholders. The Board recommends that shareholders vote AGAINST the shareholder proposal.

 

 

3


PROPOSAL 1 — ELECTION OF DIRECTORS

Director Nomination Process

Criteria for Nomination to the Board

The Nominating Committee Charter, which is available on our website, provides that the Nominating and Corporate Governance Committee (the “Nominating Committee”) analyzes, on an annual basis, Board member skills and attributes, and recommends to the Board of Directors appropriate individuals for nomination as Board members.

Based on the Company’s strategic plan, the Nominating Committee developed a skills matrix to assist it in considering the appropriate balance of experience, skills and attributes required of a director and to be represented on the Board as a whole. The skills matrix is periodically reviewed and updated by the Nominating Committee. The Nominating Committee evaluates potential Board candidates against the skills matrix.

The skills matrix has two sections – a list of core criteria that every member of the Board should meet and a list of skills and attributes desired to be represented collectively on the Board. The skills matrix reflects the following core director criteria that should be satisfied by each director or nominee:

 

   

Independence under the Company’s Standards for Director Independence and New York Stock Exchange (“NYSE”) listing requirements, subject to waiver based on the Nominating Committee’s business judgment;

 

   

Service on no more than three other public company boards;

 

   

High integrity and ethical standards;

 

   

Standing and reputation in the individual’s field;

 

   

Risk oversight ability with respect to the particular skills of the individual director;

 

   

Understanding of and experience with complex public companies or like organizations; and

 

   

Ability to work collegially and collaboratively with other directors and management.

The skills matrix reflects the following skills and attributes desired to be represented collectively on the Board as a whole:

 

   

Corporate governance expertise;

 

   

Financial expertise;

 

   

Health care industry expertise;

 

   

Direct consumer marketing expertise;

 

   

Brand marketing/public relations expertise;

 

   

Diversity;

 

   

Legal expertise;

 

   

Capital markets expertise;

 

   

Political/health care policy expertise;

 

   

Clinical practice; and

 

   

Technology/business process expertise.

 

4


Our Nominating Committee strives to maintain a balance of tenure on the Board. Long-serving directors bring valuable experience with our company and familiarity with the challenges it has faced over the years, while newer directors bring fresh perspective and new ideas.

Diversity

UnitedHealth Group embraces and encourages a culture of diversity and inclusion. We believe that valuing diversity makes good business sense and helps to ensure our future success. Diversity is included as one of the collective attributes in our directors’ skills matrix. Our Board has not adopted a formal definition of diversity.

Our Board assesses its overall effectiveness through an annual evaluation process. This evaluation includes, among other things, an assessment of the overall composition of the Board, including the diversity of its members.

Nominating Advisory Committee

The Board of Directors formed the Nominating Advisory Committee in 2006 to provide its Nominating Committee with additional input from shareholders and others regarding desirable characteristics of director candidates and the composition of the Board of Directors. The Nominating Committee considers, but is not bound by, input provided by the Nominating Advisory Committee. The Nominating Advisory Committee currently includes four individuals affiliated with long-term shareholders of the Company and one individual who is a member of the medical community. Members of the Nominating Advisory Committee do not receive any compensation from the Company for serving on the Nominating Advisory Committee. The Nominating Advisory Committee held one meeting in 2011. A description of the Nominating Advisory Committee can be found on the Company’s website at www.unitedhealthgroup.com. We have included website addresses here and throughout this proxy statement for reference only. The information contained on our website is not incorporated by reference into this proxy statement.

Process for Identifying and Evaluating Nominees

In the case of incumbent directors, in addition to the factors listed above under “Criteria for Nomination to the Board,” the Nominating Committee reviews the directors’ overall performance on the Board of Directors and other relevant factors.

In considering potential candidates to the Board who are not incumbent directors, the Nominating Committee, with input from the full Board of Directors, assesses the potential candidate’s qualifications and how these qualifications fit with the desired composition of the Board of Directors as a whole. The Nominating Committee considers views expressed by members of the Nominating Advisory Committee and other shareholders regarding skill sets that would be valuable for a new director to possess.

Shareholder Recommendations for Nominees

The Nominating Committee will consider candidates recommended by shareholders upon timely written notice to the Secretary to the Board of Directors. For the 2013 Annual Meeting, this notice must be received at our principal executive offices, directed to the Secretary to the Board of Directors, on or before December 26, 2012. The notice must include the information set forth in the Bylaws about each proposed nominee, including: (i) the name, age, business address, residence address and principal occupation or employment, (ii) the number of shares of the Company’s common stock which are beneficially owned, and (iii) other information concerning the nominee as would be required in soliciting proxies for the election of that nominee. The notice must also include the information set forth in the Bylaws about the shareholder making the nomination and any associated person, including information about the direct and indirect ownership of or derivative positions in the Company’s common stock and arrangements and understandings related to the proposed nomination or the voting of the Company’s

 

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common stock. The notice must also include a signed consent of each nominee to serve as a director of the Company, if elected. If we do not receive a notice and the required information regarding the shareholder and any associated person by the deadline described above, the proposed nominee may be excluded from consideration by the Nominating Committee. The Nominating Committee will only evaluate shareholder-recommended candidates if those recommendations meet the requirements described in this proxy statement and our Bylaws.

2012 Director Nominees

Under our Articles of Incorporation and Bylaws, each member of our Board of Directors is elected annually. The Board of Directors has nominated the ten directors set forth below for election by the shareholders at the 2012 Annual Meeting. All of the nominees were elected by our shareholders at the 2011 Annual Meeting and have informed the Board that they are willing to serve as directors if elected. If any nominee should decline or become unable to serve as a director for any reason, the persons named as proxies will elect a replacement.

The Board of Directors recommends that you vote FOR the election of each of the nominees. Proxies will be voted FOR the election of each nominee unless you specify otherwise.

 

Name

   Age      Director Since  

William C. Ballard, Jr.

     71         1993   

Richard T. Burke

     68         1977   

Robert J. Darretta

     65         2007   

Stephen J. Hemsley

     59         2000   

Michele J. Hooper

     60         2007   

Rodger A. Lawson

     65         2011   

Douglas W. Leatherdale

     75         1983   

Glenn M. Renwick

     56         2008   

Kenneth I. Shine, M.D.

     77         2009   

Gail R. Wilensky, Ph.D.

     68         1993   

The director nominees, if elected, will serve until the 2013 Annual Meeting or until their successors are elected and qualified. The following is a brief biographical description of each director nominee, which includes a discussion of the skills and attributes held by each director that are reflected in the skills matrix, as described above, and that, in part, led the Board to conclude that each respective director should continue to serve as a member of the Board.

Mr. Ballard served as Of Counsel to Greenebaum Doll & McDonald PLLC, a law firm in Louisville, Kentucky, from June 1992 until July 2008. In 1992, Mr. Ballard retired from Humana, Inc., a company operating managed health care facilities, after serving with Humana in various roles for 22 years, including as the Chief Financial Officer and a director. Mr. Ballard has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Ballard also has health care industry, legal and financial/capital markets expertise and qualifies as a financial expert under applicable Securities and Exchange Commission (“SEC”) regulations. Mr. Ballard currently serves as a director of Health Care REIT, Inc.

Mr. Burke is Chair of the Board of UnitedHealth Group, has been a member of our Board of Directors since inception, and was Chief Executive Officer of UnitedHealthcare, Inc., our predecessor corporation, until February 1988. From 1995 until February 2001, Mr. Burke was the owner, Chief Executive Officer and Governor of the Phoenix Coyotes, a National Hockey League team. Mr. Burke has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Burke also has health care industry expertise and qualifies as a financial expert under applicable SEC regulations. Mr. Burke currently serves as a director of Meritage Homes Corporation. In the past five years, he has also served as a director of First Cash Financial Services, Inc.

 

6


Mr. Darretta is the retired Vice Chair, Board of Directors, Chief Financial Officer and member of the Executive Committee of Johnson & Johnson, a health care products company. Mr. Darretta served as Chief Financial Officer and a member of the Executive Committee of Johnson & Johnson from 1997 to March 2007. Mr. Darretta joined Johnson & Johnson in 1968. Mr. Darretta has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Darretta has corporate governance, health care industry, direct consumer markets, technology/business process and financial/capital markets expertise and qualifies as a financial expert under applicable SEC regulations. Mr. Darretta currently serves as a trustee for certain Putnam mutual funds. In the past five years, he also served as a director of Johnson & Johnson.

Mr. Hemsley is President and Chief Executive Officer of UnitedHealth Group and has served in that capacity since November 2006. He has been a member of the Board of Directors since February 2000. Mr. Hemsley joined the Company in 1997 as Senior Executive Vice President. He became Chief Operating Officer in 1998, was named President in 1999, and served as President and Chief Operating Officer from 1999 to November 2006. Mr. Hemsley has satisfied all the core director criteria set forth in the skills matrix except that he is not an independent director because he is our Chief Executive Officer. As a result of his past experiences, Mr. Hemsley has health care industry, financial and technology/business process expertise.

Ms. Hooper is President and Chief Executive Officer of The Directors’ Council, a private company which she co-founded in 2003, that works with corporate boards to increase their independence, effectiveness and diversity. She was President and Chief Executive Officer of Voyager Expanded Learning, a developer and provider of learning programs and teacher training for public schools, from 1999 until 2000. Prior to that, she was President and Chief Executive Officer of Stadtlander Drug Company, Inc., a provider of disease-specific pharmaceutical care, from 1998 until Stadtlander was acquired in 1999. Ms. Hooper has satisfied all the core director criteria set forth in the skills matrix and is a nationally recognized corporate governance expert. As a result of her past experience, she also has health care industry expertise and qualifies as a financial expert under applicable SEC regulations. She currently serves as a director of AstraZeneca plc. and PPG Industries, Inc. In the past five years, she also served as a director of Warner Music Group Corp.

Mr. Lawson is the former President of Fidelity, the world’s largest mutual fund company. Mr. Lawson served in that capacity from August 2007 to March 2010. Prior to joining Fidelity, Mr. Lawson was Vice Chairman of Prudential Financial from 2002 to 2007 where he was responsible for the International Operating Division and for Global Marketing Communications. Mr. Lawson served as Executive Vice President of Prudential from 1996 to 2002. Prior to joining Prudential, Mr. Lawson was President and Chief Executive Officer of VanEck Global from June 1994 to June 1996. Mr. Lawson was Managing Director and Partner in charge of Private Global Banking and Mutual Funds at Bankers Trust from January 1992 to April 1994. Mr. Lawson was a Managing Director and Chief Executive Officer at Fidelity Investments — Retail from May 1985 to May 1991, and President and Chief Executive Officer at Dreyfus Service Corporation and an officer of the company from May 1982 to May 1985. Mr. Lawson has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Lawson has corporate governance, direct consumer marketing, brand marketing/public relations, financial/capital markets and technology/business process expertise and qualifies as a financial expert under applicable SEC regulations. We also believe that Mr. Lawson’s past experience as an executive at a major institutional investor is of significant value to the Board. Mr. Lawson currently serves as a director of E*TRADE Financial Corporation.

Mr. Leatherdale served as the Chair and Chief Executive Officer of The St. Paul Companies, Inc. (currently known as Travelers Companies, Inc.), a property casualty insurance company, from 1990 until he retired in October 2001. Mr. Leatherdale has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Leatherdale has corporate governance and financial/capital markets expertise and qualifies as a financial expert under applicable SEC regulations. In the past five years Mr. Leatherdale has also served as a director of Xcel Energy Inc.

 

 

7


Mr. Renwick is President and Chief Executive Officer of The Progressive Corporation, an auto insurance holding company. Before being named Chief Executive Officer in 2001, Mr. Renwick served as Chief Executive Officer-Insurance Operations and Business Technology Process Leader from 1998 through 2000. Prior to that, he led Progressive’s Consumer Marketing group and served as President of various divisions within Progressive. Mr. Renwick joined Progressive in 1986 as Auto Product Manager for Florida. Mr. Renwick has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experience, Mr. Renwick has corporate governance, health care industry, direct consumer markets, brand marketing/public relations, financial/capital markets and technology/business process expertise and qualifies as a financial expert under applicable SEC regulations. Mr. Renwick currently serves as a director of The Progressive Corporation and Fiserv, Inc.

Dr. Shine has served as the Executive Vice Chancellor for Health Affairs of the University of Texas System (the “UT System”), which consists of nine academic campuses and six health institutions, since November 2003. Dr. Shine also served as the interim Chancellor of the University of Texas System from May 2008 until February 2009. Prior to July 2002, Dr. Shine served as President of the Institute of Medicine at the National Academy of Sciences from 1992 until 2002. From 1993 until 2003, Dr. Shine served as a Clinical Professor of Medicine at the Georgetown University School of Medicine. From 1971 until 1992, Dr. Shine served in several positions at the University of California School of Medicine, with his final position being Dean and Provost, Medical Sciences, and he continues to hold the position of Professor of Medicine Emeritus. Dr. Shine has also served as Chair of the Council of Deans of the Association of American Medical Colleges from 1991 until 1992 and as President of the American Heart Association from 1985 until 1986. Dr. Shine has satisfied all the core director criteria set forth in the skills matrix. He also is a nationally recognized cardiologist and has health care policy and clinical practice expertise.

Dr. Wilensky has been a senior fellow at Project HOPE, an international health foundation, since 1993. From 2008 to 2009, Dr. Wilensky was President of the Department of Defense Health Board and chaired its sub-committee on health care delivery. From December 2006 to December 2007, Dr. Wilensky co-chaired the Department of Defense Task Force on the Future of Military Health Care. During 2007 she also served as a commissioner on the President’s Commission on Care for America’s Returning Wounded Warriors. From May 2001 to May 2003, she was the Co-Chair of the President’s Task Force to Improve Health Care for our Nation’s Veterans. From 1997 to 2001, she was also Chair of the Medicare Payment Advisory Commission. From 1992 to 1993, Dr. Wilensky served as the Deputy Assistant to President George H. W. Bush for policy development, and from 1990 to 1992, she was the Administrator of the Health Care Financing Administration (now known as the Centers for Medicare and Medicaid Services) directing the Medicaid and Medicare programs for the United States. Dr. Wilensky has satisfied all the core director criteria set forth in the skills matrix. She also is a nationally recognized health care economist and has health care policy expertise. Dr. Wilensky currently serves as a director of Quest Diagnostics Incorporated. In the past five years, she has also served as a director of Cephalon, Inc., Gentiva Health Services, Manor Care, Inc. and SRA International Inc.

 

8


CORPORATE GOVERNANCE

Overview

UnitedHealth Group is committed to high standards of corporate governance and ethical business conduct. Important documents that are reflective of this commitment include our Articles of Incorporation, Bylaws, Principles of Governance, Board of Directors Committee Charters, Standards for Director Independence, Code of Conduct: Our Principles of Ethics & Integrity, Related-Person Transactions Approval Policy, Board of Directors Communication Policy, Political Contributions Policy and Corporate Environmental Policy. You can access these documents at www.unitedhealthgroup.com to learn more about our corporate governance practices.

Corporate Governance Practices

Some of our key corporate governance practices include:

Board Structure and Shareholder Rights

 

   

All members of our Board of Directors are elected annually by our shareholders.

 

   

Our Articles of Incorporation provide that each director must be elected by a majority vote in an uncontested election.

 

   

We have no supermajority shareholder approval provisions.

 

   

We have a non-executive independent Chair of the Board. If the Chair of the Board is not independent, then a Lead Independent Director will be appointed by a majority vote of the independent directors.

Board and Board Committees Composition and Performance

 

   

A Nominating Advisory Committee comprised of representatives from the shareholder and medical communities provides input into the composition of our Board of Directors.

 

   

All members of our Audit Committee are required to be financial experts as defined by the SEC.

 

   

A non-management director may not serve on more than four public company boards of directors (including the Company).

 

   

Our CEO may not serve on more than two public company boards of directors (including the Company).

 

   

Our directors are required to offer their resignations upon a change in their primary careers.

 

   

Our Board of Directors and each Board committee regularly conduct executive sessions of non-management directors. Our Chair of the Board presides over each executive session of non-management directors. Committee Chairs preside over executive sessions of their respective committees.

 

   

Our Board of Directors and Board committees have the authority to retain independent advisors.

 

   

Our Board of Directors and Board committees conduct performance reviews annually.

 

   

All directors are required to complete a minimum level of director training.

 

9


Guidelines and Board Policies

 

   

Our Board of Directors developed our CEO succession plan with input from our CEO, and it reviews the plan annually. The CEO succession plan has two components: a succession plan that addresses emergency or unanticipated loss of our CEO and longer-term succession. Material features of this plan include identification of Board members to lead the succession process, identification and development of internal candidates and identification of external resources necessary to ensure a successful transition.

 

   

We maintain stock ownership and retention guidelines for directors and executive officers. See “Compensation Discussion and Analysis — Elements of Our Compensation Program — Other Compensation Practices — Executive Stock Ownership Guidelines,” “Director Compensation — Equity-Based Compensation” and “Director Compensation — Stock Ownership Guidelines” for further information.

 

   

We have a related-person transactions approval policy regarding the review, approval and ratification by our Audit Committee of all related-person transactions with consideration in excess of $1. See “Certain Relationships and Transactions.”

 

   

We have a clawback policy that allows the Company to recover cash incentive compensation and equity awards from senior executives in the event of fraud or misconduct resulting in a restatement of the Company’s financial statements or in the event of a senior executive’s violation of a restrictive covenant. See “Compensation Discussion and Analysis — Elements of Our Compensation Program — Other Compensation Practices — Potential Impact on Compensation from Executive Misconduct/Compensation Clawbacks” below.

 

   

We have an independent compensation consultant policy that requires the consultant engaged by the Compensation Committee to be independent of the Company or the Company will disclose the fees paid to the consultant in the Company’s proxy statement.

 

   

Our Board of Directors believes that effective Board-shareholder communication strengthens the Board of Directors’ role as an active, informed and engaged fiduciary, so we have a communication policy that outlines how shareholders and other interested parties may communicate with the Board of Directors. See “Corporate Governance — Communication with the Board of Directors.”

 

   

We have a political contributions policy that is overseen by our Public Policy Strategies and Responsibility Committee (the “Public Policy Committee”) and pursuant to which the political contributions of the Company and its federal and state political action committees are disclosed semi-annually.

 

   

We have an environmental policy that outlines our focus on minimizing our impact on the environment and creating a Company culture that heightens our employees’ awareness of the importance of preserving the environment and conserving energy and natural resources.

Independent Auditors

 

   

Our shareholders annually ratify the selection of our independent registered public accounting firm.

 

   

The 2011 non-audit and non-audit-related fees paid to our independent registered public accounting firm were less than 10% of total fees paid to that firm by the Company in 2011.

Principles of Governance

Our Articles of Incorporation and Bylaws, together with Minnesota law and NYSE and SEC rules, govern the Company. Our Principles of Governance set forth many of the practices, policies and

 

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procedures that provide the foundation of our commitment to strong corporate governance. The policies and practices covered in our Principles of Governance include shareholder rights and proxy voting; structure, composition and performance of the Board of Directors; use of an independent compensation consultant; stock ownership and retention requirements; Board of Directors operation; individual director responsibilities; and Board committees. Our Principles of Governance are reviewed at least annually by our Nominating Committee and are revised as necessary.

Code of Conduct: Our Principles of Ethics & Integrity

The Code of Conduct: Our Principles of Ethics & Integrity is published on the Company’s website and covers our principles and policies related to business conduct, conflicts of interest, public disclosure, legal compliance, reporting and accountability, corporate opportunities, confidentiality, fair dealing and protection and proper use of Company assets. Any waiver of the Code of Conduct for the Company’s executive officers, senior financial officers or directors may be made only by the Board of Directors or a committee of the Board. We will publish any amendments to the Code of Conduct and waivers of the Code of Conduct for an executive officer or director on the Company’s website.

Compliance & Ethics

We strongly encourage employees to raise ethics and compliance concerns, including concerns about accounting, internal controls or auditing matters. We offer several channels for employees and third parties to report ethics and compliance concerns or incidents, including by phone or online, and individuals may choose to remain anonymous in jurisdictions where anonymous reporting is permissible. We prohibit retaliatory action against any individual who in good faith raises concerns or questions regarding ethics and compliance matters or reports suspected violations. We train all employees and periodically advise them regarding the means by which they may report possible ethics or compliance issues and their affirmative responsibility to report any possible issues. In our latest employee survey, 97% of employees said they knew what to do if unethical behavior or misconduct occurred in their work area.

Director Independence

Our Board of Directors has adopted the Company’s Standards for Director Independence, which are available on the Company’s website at www.unitedhealthgroup.com. The Standards for Director Independence requirements exceed the independence standards set by the SEC and the NYSE.

Our Board of Directors has determined that each of William C. Ballard, Jr., Richard T. Burke, Robert J. Darretta, Michele J. Hooper, Rodger A. Lawson, Douglas W. Leatherdale, Glenn M. Renwick, Kenneth I. Shine, M.D. and Gail R. Wilensky, Ph.D. is “independent” under the NYSE rules and the Company’s Standards for Director Independence and that these directors have no material relationships with the Company that would prevent the directors from being considered independent. The Company’s President and CEO, Stephen J. Hemsley, is not an independent director.

In determining independence, the Board of Directors considered, among other factors, all of the business relationships between the Company and our directors and nominees, their immediate family members (as defined by the NYSE) or their affiliated companies. The Board of Directors considered whether any director or any nominee was a director, partner, significant shareholder or executive officer of an organization that has a relationship with the Company, and charitable contributions that the Company or its affiliates made to organizations with which such directors or nominees are or have been associated. In particular, the Board of Directors evaluated the following relationships and determined that such relationships were in the normal course of business and did not impair the directors’ exercise of independent judgment:

 

11


   

Mr. Burke is an owner of Rainy Partners, LLC. Rainy Partners, LLC is a customer of the Company and paid the Company premiums for health insurance of approximately $122,000 in 2011. These premiums were determined on the same terms and conditions as premiums for our other customers.

 

   

Dr. Shine is the Executive Vice Chancellor for Health Affairs of the UT System, which includes six health institutions. The health institutions are part of the Company’s broad national network of hospitals and physicians and other care providers. In 2011, we paid the UT System approximately $115 million for medical expenses on behalf of consumers who obtain health insurance from us and approximately $560,000 for funded clinical trials, marketing and meeting expenses and tuition payments for employees, which in the aggregate amounts to approximately 1.2% of the 2011 operating revenues of the UT System. Some of our self-funded customers also paid approximately $244 million to the UT System for health care services on behalf of their employees and health plan participants. Dr. Shine is neither directly nor indirectly involved in the relationship between the UT System and the Company and the customers of the Company. Dr. Shine has no direct responsibilities for any contractual or other relationships with the Company or its competitors. The UT System has established a process pursuant to which Dr. Shine will not have access to any information that is maintained by the UT System that could be used to benefit or provide an advantage to the Company.

 

   

Dr. Wilensky is a senior fellow of Project HOPE. In 2011, the Company made charitable contributions of approximately $700,000 to Project HOPE in support of its mission of providing lasting solutions to health problems. In addition, the Company paid Project HOPE approximately $1.3 million in fees, or less than 1% of Project HOPE’s total revenues, related to a project to provide greater access to health care to underserved populations via a mobile telemedicine clinic. These fees were for services Project HOPE provides in the ordinary course of its business. The Company believes Project HOPE is uniquely qualified to support the mobile telemedicine clinic because of its success in providing similar health care services in underserved areas throughout the world. Dr. Wilensky is neither directly nor indirectly involved in this relationship.

 

   

Relationships between the Company and organizations on which our outside directors or their immediate family members serve only as directors.

Independent Board Leadership

Our Board of Directors believes that having independent Board leadership is an important component of our governance structure. As such, our Bylaws require the Company to have either an independent Chair of the Board or a Lead Independent Director. The Company believes the current leadership structure delineates the separate roles of managers and directors. Whereas our CEO sets the strategic direction for the Company, working with the Board, and provides day-to-day leadership, our independent Chair of the Board leads the Board in the performance of its duties and serves as the principal liaison between the independent directors and the CEO. In recognition of these distinct differences in duties, our Principles of Governance outline the specific duties of the Chair of the Board or a Lead Independent Director, including:

 

   

Chairing all meetings of the Board at which the Chair is present (Chair of the Board duty only);

 

   

Working with the CEO on the scheduling of Board meetings and the preparation of agendas and materials for Board meetings;

 

   

Coordinating the preparation of agendas and materials for executive sessions of the Board’s non-management directors;

 

   

Scheduling and leading the executive sessions of the Board’s non-management directors;

 

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Defining the scope, quality, quantity and timeliness of the flow of information between Company management and the Board that is necessary to effectively and responsibly perform their duties;

 

   

Leading the Board process for hiring, terminating and evaluating the performance of the Company’s CEO and working with the Chair of the Compensation Committee on the process for compensating and evaluating the CEO;

 

   

Recommending outside advisors and consultants, as necessary, who report directly to the Board on Board-related issues;

 

   

Serving as an ex-officio member of each committee and working with the Board Committee Chairs on the performance of their designated roles and responsibilities;

 

   

Interviewing, along with the Chair of the Nominating Committee, all Board candidates and making director candidate recommendations to the Nominating Committee;

 

   

Assisting the Board and the Company in assuring compliance with and implementation of the Company’s Principles of Governance;

 

   

Coordinating the performance evaluations of the Board and the Board committees in conjunction with the Committee Chairs and the Nominating Committee;

 

   

Working with the Nominating Committee on the membership of Board committees; and

 

   

Being available for communications with shareholders, as needed.

Risk Oversight

Enterprise-Wide Risk Oversight

Our Board of Directors oversees management’s enterprise-wide risk management activities. Risk management activities include assessing and taking actions necessary to manage risk incurred in connection with the long-term strategic direction and operation of our business. Each director on our Board is required to have risk oversight ability for each skill and attribute the director possesses that is reflected in the collective skills section of our director skills matrix set forth in “Election of Directors — Director Nomination Process — Criteria of Nomination to the Board” above. Collectively, our Board of Directors uses its committees to assist in its risk oversight function as follows:

 

   

Audit Committee oversees our controls and compliance activities. The Audit Committee also oversees management’s processes to identify and quantify material risks facing the Company. The enterprise risk management function, which reports to the Chief Accounting Officer, assists the Company in identifying and assessing the Company’s material risks. The Company’s General Auditor, who reports to the Audit Committee, assists the Company in evaluating risk management controls and methodologies. The Chief Accounting Officer and General Auditor provide periodic reports to the Audit Committee. In connection with its risk oversight role, the Audit Committee regularly meets privately with representatives from the Company’s independent registered public accounting firm and the Company’s Chief Financial Officer, General Auditor and Chief Legal Officer;

 

   

Compensation Committee oversees risk associated with our compensation practices and plans;

 

   

Nominating Committee oversees Board processes and corporate governance-related risk; and

 

   

Public Policy Committee oversees risk associated with the Company’s activities in the public policy arena, including health care reform and modernization activities, political contributions, government relations, community and charitable activities and corporate social responsibility.

 

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Our Board of Directors maintains overall responsibility for oversight of the work of its various committees by receiving regular reports from the Committee Chairs regarding the work performed by the various committees. In addition, discussions about the Company’s strategic plan, consolidated business results, capital structure, merger and acquisition related activities and other business discussed with the Board of Directors include a discussion of the risks associated with the particular item under consideration.

Enterprise-wide Incentive Compensation Risk Assessment

Our Compensation Committee requested that management conduct a risk-assessment of the Company’s enterprise-wide compensation programs. The risk assessment reviewed both cash incentive compensation plans and individual cash incentive awards paid in 2011 for the presence of potential design elements that could incent employees to incur excessive risk, the ratio and level of incentive to fixed compensation, the amount of manager discretion, the percentage of compensation expense as compared to the business units’ revenues, and the presence of other design features that serve to mitigate excessive risk taking, such as the Company’s clawback policy, stock ownership guidelines, multiple performance metrics, caps on individual or aggregate payments and similar features. The Compensation Committee also receives an annual report on the Company’s compliance with its equity award program controls.

After considering the results of the risk assessment, management concluded that the level of risk associated with the Company’s enterprise-wide compensation programs is not reasonably likely to have a material adverse effect on the Company. The results of the risk assessment were reviewed with the Compensation Committee at its February 2012 meeting. Please see “Compensation Discussion and Analysis” for a discussion of design elements intended to mitigate excessive risk taking by our executive officers.

Board Meetings and Annual Meeting Attendance

Directors are expected to attend Board meetings, meetings of committees on which they serve and the Annual Meeting of Shareholders. All of our incumbent directors attended the 2011 Annual Meeting. During the year ended December 31, 2011, the Board of Directors held twelve meetings. All incumbent directors who were members of the Board of Directors in 2011 attended at least 75% of the meetings of the Board and any Board committees of which they were members.

 

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Board Committees

The Board of Directors has established four standing committees: the Audit Committee, the Compensation Committee, the Nominating Committee and the Public Policy Committee. These committees help the Board of Directors fulfill its responsibilities and assist the Board of Directors in making informed decisions. Each committee operates under a written charter, and evaluates its charter and conducts a committee performance evaluation annually.

 

Director

   Audit    Compensation and
Human Resources
   Nominating and
Corporate Governance
   Public Policy Strategies
and Responsibility

William C. Ballard, Jr.

   Chair       X     

Richard T. Burke*

             

Robert J. Darretta

   X    X        

Stephen J. Hemsley

             

Michele J. Hooper

         Chair    X

Rodger A. Lawson

      X        

Douglas W. Leatherdale

      Chair    X     

Glenn M. Renwick

   X           

Kenneth I. Shine, M.D.

            X

Gail R. Wilensky, Ph.D.

                  Chair

 

* Mr. Burke is the Chair of the Board and ex-officio member of each Board committee. As an ex-officio member, Mr. Burke has a standing invitation to attend each Board committee meeting, but does not count for quorum purposes or vote on committee matters.

Audit Committee

The Audit Committee consists of Messrs. Ballard (Chair), Darretta and Renwick, each of whom is an independent director under the NYSE listing standards and the SEC rules. The Board of Directors has determined that Messrs. Ballard, Darretta and Renwick are “audit committee financial experts” as defined by the SEC rules. The Audit Committee has responsibility for the selection and retention of the independent registered public accounting firm, and assists the Board of Directors by overseeing financial reporting and internal controls, public disclosure and compliance activities. The Audit Committee also oversees management’s processes to identify and quantify material risks facing the Company. The Audit Committee operates as a direct line of communication between the Board of Directors and our independent registered public accounting firm, as well as our internal audit, compliance and legal personnel. The Audit Committee held ten meetings in 2011.

Compensation and Human Resources Committee

The Compensation Committee consists of Messrs. Leatherdale (Chair), Darretta and Lawson, each of whom is an independent director under the NYSE listing standards, a non-employee director under the SEC rules and an outside director under the Internal Revenue Code of 1986 (the “Internal Revenue Code”). The Compensation Committee is responsible for overseeing our policies and practices related to total compensation for executive officers, the administration of our incentive and equity-based plans and the risk associated with our compensation practices and plans. The Compensation Committee also establishes our employment arrangements with our CEO and other executive officers, conducts an annual performance review of the CEO, and reviews and monitors director compensation programs and the Company’s stock ownership guidelines. The Compensation Committee held five meetings in 2011.

Nominating and Corporate Governance Committee

The Nominating Committee consists of Ms. Hooper (Chair) and Messrs. Ballard and Leatherdale, each of whom is an independent director under the NYSE rules. The Nominating Committee’s duties include

 

15


identifying and nominating individuals to be proposed as nominees for election as directors at each Annual Meeting or to fill board vacancies, conducting the Board evaluation process, evaluating the categorical standards which the Board of Directors uses to determine director independence, and monitoring and evaluating corporate governance. The Nominating Committee also oversees Board processes and corporate governance-related risk. The Nominating Committee held four meetings in 2011.

Public Policy Strategies and Responsibility Committee

The Public Policy Committee consists of Dr. Wilensky (Chair), Ms. Hooper and Dr. Shine. The Public Policy Committee is responsible for assisting the Board of Directors in fulfilling its responsibilities relating to the Company’s public policy, health care reform and modernization activities, political contributions, government relations, community and charitable activities and corporate social responsibility. The Public Policy Committee is also responsible for overseeing the risks associated with these activities. The Public Policy Committee held four meetings in 2011.

Communication with the Board of Directors

The Board of Directors values the input and insights of our shareholders and other interested parties and believes that effective communication strengthens the Board of Directors’ role as an active, informed and engaged fiduciary. The Board of Directors has adopted a Board of Directors Communication Policy to facilitate communication between shareholders and the Board. Under this policy, the Board of Directors has designated the Company’s Secretary to the Board of Directors as its agent to receive and review communications.

The Company will not forward to the directors communications received which are of a personal nature or not related to the duties and responsibilities of the Board of Directors, including, without limitation, junk mail, mass mailings, business solicitations, routine customer service complaints, new product or service suggestions, and opinion survey polls. The Secretary to the Board of Directors will forward such complaints and suggestions received to the appropriate members of the Company’s management.

Appropriate Board communications include matters relating to:

 

   

Board succession planning process;

 

   

CEO succession planning process;

 

   

Executive compensation;

 

   

Use of capital;

 

   

Corporate governance; and

 

   

General Board oversight, including accounting, internal controls, auditing and other related matters.

The policy, including information on how to contact the Board of Directors, may be found in the corporate governance section of the Company’s website, www.unitedhealthgroup.com.

 

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EXECUTIVE COMPENSATION

 

Executive Summary

UnitedHealth Group’s compensation program is designed to attract and retain highly qualified executives and to maintain a strong link between pay and the achievement of enterprise-wide goals. We emphasize and reward teamwork and collaboration among executive officers, which we believe produces Company growth and performance, optimizes the use of enterprise-wide capabilities, drives efficiencies and integrates products and services for the benefit of our customers and other stakeholders.

In January 2011, UnitedHealth Group announced the next phase in the continuing alignment of the Company’s UnitedHealthcare and Optum business platforms and the resulting change in roles for a number of the Company’s senior executives. These changes were designed to further position the Company as it continues to grow in the evolving health care landscape. In determining 2011 executive compensation, the Compensation Committee considered the changes in executive responsibilities resulting from this realignment and the Company’s strong growth, operating performance and financial results, all of which were achieved in a challenging economic environment. Some of our key business results for 2011 were:

 

   

Revenues increased 8% to $101.9 billion from $94.2 billion in 2010;

 

   

Net earnings increased 11% to $5.1 billion from $4.6 billion in 2010;

 

   

Cash flow increased 11% to $7.0 billion as compared to $6.3 billion in 2010;

 

   

Earnings per share increased 15% to $4.73 per share from $4.10 per share in 2010; and

 

   

Total shareholder return was 42% compared to 2.1% for the S&P 500 generally.

Achievement of this strong financial performance was driven by our success on a broad range of initiatives that were intended to position the Company for future growth.

The Compensation Committee believes that total compensation for our named executive officers, which includes our Chief Executive Officer, our current and former Chief Financial Officer and each of our three other most highly compensated executive officers, should be heavily weighted toward long-term performance-based compensation, and this was the case for 2011. The elements of compensation for our named executive officers were unchanged from 2010, and in 2011, long-term compensation represented between 65% and 80% of the total mix of compensation granted to our named executive officers.

As discussed in detail below and reflected in the summary compensation table, in 2011, the Compensation Committee determined that our CEO, Mr. Hemsley, should receive the following compensation:

 

   

Base salary of $1.3 million, which has been at this level since 2006;

 

 

   

Annual cash incentive award of $3.6 million, which represents 160% of his target opportunity and reflects the Company’s performance against pre-set annual incentive plan performance targets;

 

 

   

Long-term cash incentive award of $1.3 million for the 2009 — 2011 performance period, which represents maximum performance and reflects the Company’s performance against pre-set 2009 — 2011 long term incentive plan performance targets;

 

 

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A performance-based restricted stock unit opportunity (“performance shares”) with a targeted grant date value of $3.5 million, and restricted stock units (“RSUs”) with a grant date fair value of $3.5 million; and

 

   

Company matching contributions of $152,025 made under the Company’s 401(k) and Executive Savings Plan.

The Compensation Committee believed this compensation was appropriate to recognize Mr. Hemsley’s overall leadership in positioning the Company for long-term success during a period of significant change and modernization in the health care marketplace; in particular, the Committee recognized the CEO’s leadership in enhancing the Company’s reputation, ethical culture and tone at the top, and strategic leadership of the Company. Although Mr. Hemsley’s total compensation is below the CEO median in the Company’s peer group, the Compensation Committee and Mr. Hemsley agree that the total compensation awarded is sufficient to retain and motivate him.

We endeavor to maintain strong governance standards in the oversight of our executive compensation policies and practices, including the following policies and practices that were in effect during 2011:

 

   

The Compensation Committee’s independent compensation consultant, Pay Governance LLC, is retained directly by the Compensation Committee and performs no other consulting or other services for the Company.

 

   

Stock ownership guidelines for our executive officers, each of whom satisfied the applicable ownership guidelines as of December 31, 2011.

 

   

A stock retention policy that requires executive officers to hold, for at least one year, 1/3 of the net shares acquired upon vesting or exercise (as applicable) of any equity award granted after October 2009.

 

   

No ongoing pension obligations (supplemental or otherwise) for any of our named executive officers.

 

   

No excise tax gross-ups or executive-only perks such as company cars, security systems, financial planning or vacation homes are provided to our executive officers.

 

   

A compensation clawback policy that applies to a number of senior executives, including all of our named executive officers.

 

   

Performance-based compensation arrangements that use a variety of performance measures, including performance-based equity awards.

 

   

Change-in-control benefits, including time-vested equity awards granted after 2010, are subject to double-trigger arrangements that require both a change in control and a qualifying employment termination.

 

   

Our 2011 Stock Incentive Plan prohibits the repricing of stock options or stock appreciation rights without shareholder approval.

 

   

Annual advisory shareholder vote to approve the Company’s executive compensation.

 

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Compensation Discussion and Analysis

Philosophy and Objectives of our Compensation Program

We seek to attract and retain highly qualified executives and establish a strong pay-for-performance alignment by linking senior management compensation to enterprise goals. The primary objectives of our executive compensation program are to:

 

   

Attract, motivate and retain highly qualified executive officers.

 

   

Align the economic interests of our executive officers with those of our shareholders.

 

   

Reward performance that emphasizes teamwork and close collaboration among executive officers.

 

   

Reward performance that supports the Company’s values.

 

   

Reward performance that advances our mission of helping people live healthier lives.

 

   

Foster an entrepreneurial spirit that reflects innovative thinking and action and effective and accountable management and leverages the ingenuity of our employees.

Compensation Program Principles

Our Compensation Committee uses the following principles to implement our compensation philosophy and achieve our executive compensation program objectives:

 

   

Pay-for-performance. A substantial portion of the total compensation of our executive officers is earned based on achievement of enterprise-wide goals that impact shareholder value.

 

   

Enhance the value of the business. Incentive compensation design and performance measures encourage executive officers to favor the longer-term value of the Company and avoid excessive risk-taking in the short-term.

 

   

Reward long-term growth and focus management on sustained success and shareholder value creation. Compensation of our executive officers is heavily weighted toward equity and long-term cash awards. These awards encourage sustained performance and positive shareholder returns.

 

   

Modest benefits and limited perquisites. We provide standard employee benefits and limited perquisites to our named executive officers. We believe the absence of executive-only benefits or perquisites is appropriate in our culture and does not impact our ability to attract and retain such executives.

Determination of Total Compensation

Role of the Compensation Committee

The Compensation Committee oversees the Company’s policies and philosophy related to total compensation for executive officers. The Compensation Committee approves the compensation for the named executive officers based on its own evaluation, input from our CEO (for all executive officers except for himself), internal pay equity considerations, the tenure and performance of each named executive officer, input from its independent consultant and market data.

In addition, in making 2011 compensation decisions, the Compensation Committee considered the results of the Company’s first annual advisory vote to approve the Company’s executive compensation, which was conducted at our 2011 Annual Meeting. At this meeting, more than 97% of the votes were cast in favor of the proposal. The Compensation Committee believes that this shareholder vote indicates strong support for our executive compensation program.

 

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The Compensation Committee’s Use of an Independent Compensation Consultant

The Compensation Committee retains a separate independent compensation consultant, Jon Weinstein at Pay Governance LLC, to advise the Compensation Committee on executive and director compensation matters, assess total compensation program levels and program elements for executive officers and evaluate competitive compensation trends. Pay Governance does not provide any other services to the Company and does not perform any work for management.

Competitive Positioning

The Compensation Committee believes that total compensation for named executive officers should be heavily weighted toward long-term performance-based compensation, but it does not target a specific mix of compensation between annual and long-term compensation or between equity and cash compensation.

In general, the Compensation Committee’s goal is to achieve total compensation for the named executive officers as a group that falls within a range of the fiftieth to the seventy-fifth percentiles of the market if paid at target. Target total compensation of our named executive officers as a group in 2011, consisting of base salary, target annual cash incentive award, target long-term cash incentive award and the grant date fair value of equity awards (including performance shares at target), resulted in a target compensation opportunity for our executive officers as a group between the median and the seventy-fifth percentile of the market data for our primary peer group.

In 2011, the Compensation Committee requested that its independent compensation consultant review the peer group data used by the committee. The Compensation Committee chartered this review to ensure that competitive compensation data were:

 

   

an accurate reflection of the external labor market for senior talent;

 

   

sourced from companies whose scope of operations were generally consistent with the Company’s size and complexity; and

 

   

based on a sufficient number of companies to stand up over time to predictable changes in the external market.

The Compensation Committee determined to use market data developed from a broad industry group of premier companies. This group is developed by the independent compensation consultant based on the following selection criteria:

 

   

top 100 publicly traded companies in terms of revenue or market cap;

 

   

eliminate companies in industries that have unique structures that are not relevant to UnitedHealth Group, such as oil and gas, heavy manufacturing, aerospace and defense, auto manufacturing or similar industries, because the Company is unlikely to recruit from these companies;

 

   

eliminate companies with a single line of business, so that only multi-segment companies are included; and

 

   

add major companies located near UnitedHealth Group’s significant executive locations, to consider local competitive dynamics.

The Company does not participate in the selection of the companies for inclusion in the general industry group and the Compensation Committee is not made aware of the companies in this group until the independent compensation consultant presents its benchmarking results to the committee.

The Compensation Committee also considered market data from the five largest publicly traded managed care companies with which we compete for business. However, the Compensation Committee does not utilize this group of managed care companies as a primary reference point for

 

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benchmarking compensation practices because the Company is substantially larger, more complex and more diverse than the group’s component companies, and because we believe that the Company competes primarily for talent and capital with other successful large companies across a broader group of industries. The companies that were included in the 2011 peer groups are listed at the end of this Compensation Discussion and Analysis.

Role of Management and CEO in Determining Executive Compensation

The Compensation Committee has the responsibility to approve and monitor all compensation for our executive officers. Management recommends appropriate enterprise-wide financial and non-financial performance goals for use in incentive compensation. Our CEO assists the Compensation Committee by providing his evaluation of the performance of the executive officers that report directly to him and recommends compensation levels for these executive officers. Our CEO does not, however, make recommendations regarding his own compensation.

Use of Tally Sheets and Wealth Accumulation Analysis

When approving compensation decisions, the Compensation Committee reviews robust tally sheet information for each of our executive officers. These tally sheets are prepared by management and quantify the elements of each executive officer’s total compensation. The tally sheets include a summary of all equity awards previously granted to each executive officer, the gain realized from past vesting or exercise of equity awards and the projected value of accumulated equity awards based upon various stock price scenarios. This is done to effectively analyze the compensation each executive officer has accumulated to date and to fully understand the amount the executive officer could accumulate in the future.

Change in Named Executive Officer Responsibilities in 2011

In January 2011, UnitedHealth Group announced the next phase in the continuing alignment of its UnitedHealthcare and Optum business platforms and related changes in roles for a number of the Company’s senior executives, including:

 

   

Gail K. Boudreaux assumed overall responsibility for all UnitedHealthcare health benefits businesses;

 

   

David S. Wichmann became Chief Financial Officer while retaining his existing corporate responsibilities for leading enterprise-wide information technology and operations;

 

   

George L. Mikan III ceased being Chief Financial Officer and assumed responsibility for the Company’s Optum business platform, including OptumHealth and OptumInsight, and working with another executive officer to oversee OptumRx; and

 

   

Larry C. Renfro and Anthony Welters joined Mr. Hemsley in the office of the Chief Executive, focused on enterprise-wide initiatives, including emerging growth and expansion opportunities, public, regulatory and governmental affairs, reputation and market image efforts, and external relationships for the Company.

These changes were designed to further position the Company as it continues to grow in the evolving health care landscape. On July 6, 2011, we announced that Mr. Renfro was named Chief Executive Officer of Optum, and that Mr. Mikan would be leaving the Company in February 2012. Additional details about the terms of Mr. Mikan’s departure can be found in “Departure of George L. Mikan III” below.

 

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Elements of our Compensation Program

Overview

The compensation program for our named executive officers consists of the following elements:

 

Compensation Element   Objective  

Type of

Compensation

Base salary

  To provide a base level of cash
compensation for executive officers
  Annual cash compensation,
not variable

Annual cash incentive awards

  To encourage and reward executive
officers for achieving annual
corporate performance goals
  Annual performance
compensation, variable

Long-term cash incentive awards

  To encourage and reward executive
officers for achieving three-year
corporate performance goals
  Long-term performance
compensation, variable

Equity awards

  To motivate and retain executive
officers and align their interests with
shareholders through the use of:

 

•     Performance shares to
motivate sustained
performance and growth
and potentially assist
executives in building
ownership in the
Company; and

 

•     RSUs to retain executive
officers and build stock
ownership positions.

  Long-term performance
compensation, variable

Employee benefits

  The smallest part of total
remuneration promotes health, well-
being and financial security of
employees, including executive
officers
  Annual indirect
compensation, not variable

Annual Compensation

Base Salary

The Compensation Committee generally determines base salary levels for our named executive officers early in the fiscal year, with changes becoming effective during the first quarter of the fiscal year. For 2011, the Compensation Committee made no change to our CEO’s base salary and increased the other named executive officers’ base salaries as set forth below due to the increased scope of their responsibilities, as discussed above:

 

Name   

2011 Base

Salary ($)

    

2010 Base

Salary ($)

   

2011 to 2010

Increase (%)

 

S. Hemsley

     1,300,000         1,300,000        NA   

D. Wichmann

     850,000         700,000        21

G. Boudreaux

     850,000         700,000        21

L. Renfro

     850,000         700,000        21

A. Welters

     750,000         700,000        7

M. Mikan

     850,000         700,000        21

 

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Annual Cash Incentive Awards

2011 Annual Incentive Plan Performance Goals

Annual cash incentive awards may be paid if our Company meets or exceeds annual performance goals as determined by the Compensation Committee for that year. In February 2011, the Compensation Committee approved performance criteria and target performance goals for the 2011 annual cash incentive award. These performance goals are based on enterprise-wide measures because the Compensation Committee believes that the named executive officers share the responsibility to support the goals and performance of the Company as key members of the Company’s leadership team. The following table sets forth these performance measures, as well as actual 2011 performance results in each of those categories:

 

2011

Performance

Measure

  Weight      

Threshold

Performance

  Target
Performance
  Maximum
Performance
  Actual 2011
Performance
Revenue   1/3       $95.19 billion   $100.2 billion   $105.21 billion   $101.505 billion
Operating Income   1/3       $5.997 billion   $7.055 billion   $8.113 billion   $8.449 billion
Cash Flow     $4.675 billion   $5.5 billion   $6.325 billion   $6.968 billion

Stewardship:

 

•     Customer and Physician Satisfaction

 

•     Employee Engagement

 

•     Employee Teamwork

  1/3       2010 results   2 points above threshold, except customer and physician satisfaction is 5 points above 2010 results   2 points above 2011 target   Between 2011 target and maximum

Context for the 2011 Annual Cash Incentive Plan Performance Goals

In establishing the performance measures for the 2011 annual cash incentive awards, the Compensation Committee sought to align broadly the compensation of our executive officers to key elements of the Company’s 2011 business plan. Development of the Company’s 2011 business plan was a robust process that involved input from all of the Company’s business units and was reviewed with the Company’s Board of Directors in the fourth quarter of 2010 and the first quarter of 2011. At the target level, these financial performance measures were consistent with or higher than the 2010 financial outlook presented publicly in November 2010 at the Company’s annual Investor Conference.

The 2011 financial performance measures at target level represented year-over-year growth in revenues of $6.0 billion but also included an expected year-over-year decline in operating income of $809 million and an expected decline in operating cash flow of $773 million. This reflected the Company’s view that there would be a continued difficult business environment in 2011, including expectations that:

 

   

the general unemployment rate would remain in a range of 9% to 10%;

 

   

operating earnings would be reduced by the new minimum loss ratio regulations of the Patient Protection and Affordable Care Act (“Health Care Reform Legislation”) that became effective in 2011;

 

   

there would not be development in prior year medical costs;

 

   

there would be continued downward rate pressure in both Medicare Advantage and Medicaid payment rates received from the federal and state governments; and

 

 

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operating cash flows would be negatively impacted year-over-year as certain state premium payments were advanced from 2011 into 2010 on a one-time basis.

The 2011 non-financial target levels represented an increase over 2010 performance in all categories. These measures were viewed to be important to obtaining longer-term financial successes that might not be immediately reflected in annual financial results. The Compensation Committee was of the view that the breadth of financial and non-financial performance measures for the 2011 annual cash incentive award would motivate the executive officers to achieve results that should contribute to value creation for our shareholders on a long-term basis and avoid excessive risks. At the beginning of 2011, the Company believed that achievement of these 2011 goals required substantial performance on a broad range of initiatives contained in the 2011 business plan. These initiatives included the following:

 

   

grow enrollment across all product categories for a total increase in UnitedHealthcare medical enrollment of approximately one million individuals;

 

   

continue to execute our major multi-track Medicare Advantage remediation plan to compensate for ongoing reductions in funding rates from the federal government that are projected to be less than the rate of medical cost inflation;

 

   

continue our innovation in commercial products;

 

   

deliver ever more effective and comprehensive clinical management;

 

   

execute on integration and alignment of the Optum companies acquired in 2010;

 

   

execute on Optum growth initiatives; and

 

   

further improve our consolidated operating cost ratio.

The Company made substantial progress with regard to these initiatives and, in addition, enrollment in the Company’s commercial business significantly exceeded the Company’s expectations. As a result, 2011 revenues, operating income, cash flows and non-financial measures were all above target levels, with several measures above maximum levels. In addition, 2011 results represented increases over 2010 results in every measure. The Company’s total shareholder return was 42.0% in 2011, reflecting successful performance in an uncertain environment.

The Compensation Committee retains discretion to pay an annual incentive award that is higher or lower than the performance level achieved based on these considerations once threshold performance is achieved on any metric. The Company’s 2008 Executive Incentive Plan allows for adjustments to the Company’s reported earnings for the impact of changes in accounting principles, extraordinary items and unusual or non-recurring gains or losses, including significant differences from the assumptions contained in the financial plan upon which the incentive targets were established. Adjustments to reported earnings are intended to better reflect executives’ line of sight/ability to affect payouts, align award payments with growth of the Company’s business, avoid artificial inflation or deflation of awards due to unusual or non-recurring items in the applicable period and emphasize the Company’s preference for long-term and sustainable growth. The only discretion exercised by the Compensation Committee with respect to the annual incentive awards had the effect of decreasing 2011 revenue and operating income from the results reported in accordance with GAAP.

Determination of 2011 Annual Cash Incentive Award Opportunities

At the beginning of each year, the Compensation Committee approves an “annual incentive target percentage” for each executive officer as a percentage of the executive officer’s base salary. In 2011, the maximum cash incentive award that each executive officer could earn, as set by the Compensation Committee, was equal to two times the applicable annual incentive target percentage.

 

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The Compensation Committee believes that it was important to provide the same relative target opportunity to all of the named executive officers, other than Mr. Hemsley, to increase collaboration, teamwork and accountability across the enterprise, to recognize the skills and versatility of each executive officer and to reflect internal parity of contributions. The target percentages for annual cash incentive awards to our named executive officers and the actual 2011 annual cash incentive awards paid are set forth in the table below:

 

2011 Annual Cash Incentive Awards  
Name  

Target
Percentage

(% of Salary)

   

Target Award
Value

($)

   

Actual
Award Paid

($)

   

Paid Award

(% of Target)

 

S. Hemsley

    175     2,275,000        3,640,000        160

D. Wichmann

    150     1,275,000        2,050,000        160

G. Boudreaux

    150     1,275,000        2,050,000        160

L. Renfro

    150     1,275,000        2,050,000        160

A. Welters

    150     1,125,000        1,800,000        160

M. Mikan

    150     1,275,000        1,275,000        100

The primary factor considered by the Compensation Committee in determining the 2011 annual cash incentive award amounts for each executive officer was achievement of 2011 annual incentive plan performance measures, as discussed below.

Long-Term Incentive Compensation

Long-term incentive compensation, consisting of the long-term cash incentive program and equity awards, represents the largest portion of executive officer compensation. This combination of long-term incentives provides a compelling performance-based compensation opportunity, aids in aligning and retaining the senior management team and accelerates the optimization of business unit capabilities across the enterprise.

Long-Term Awards

2009 – 2011 Long-Term Cash Incentive and Performance Shares Goals and Context

The long-term cash incentive award and performance share programs create a financial incentive for achieving or exceeding three-year financial goals for the enterprise. The earned long-term cash incentive award and performance shares for the 2009 – 2011 performance period were based on achieving the following performance versus the pre-set targets:

 

2009-2011

Performance

Measure

  Weight    Threshold
Performance
  Target
Performance
  Maximum
Performance
  Actual 2009-
2011
Performance

Cumulative EPS

  50%   $9.08   $10.02   $10.99   $12.07

Return on Equity

  50%   14%   16%   18%   18.3%

The performance measures for the 2009 – 2011 performance period were established during the first quarter of 2009 based on the Company’s Long-Term Plan. The first year of the Long-Term Plan was based on the Company’s 2009 business plan. Subsequent years were based on assumptions and growth initiatives developed in conjunction with the Company’s business units and reviewed by the Board of Directors. Some key elements of the Long-Term Plan were:

 

   

expectation of increasing unemployment levels following the 2008 financial crisis, resulting in commercial enrollment declines in 2009;

 

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enrollment growth across all Medicare and Medicaid product categories in all years, and commercial enrollment growth in 2010 and 2011;

 

   

delivering ever more effective and comprehensive clinical management; and

 

   

ongoing improvements to our consolidated operating cost ratio.

To achieve maximum performance for both the Long-Term Cash Incentive Plan and the Performance Share Plan, cumulative three-year earnings per share (EPS) performance of $10.99 and an average return on equity (ROE) of 18.0% were required. This maximum performance level corresponded to a compound annual growth rate in EPS of 19.9% over the three-year period on a GAAP basis (12.0% when adjusting 2008 for the settlement of class-action lawsuits and other items). The Company had year-over-year GAAP EPS growth of 35.0% in 2009, 26.5% in 2010 and 15.4% in 2011, resulting in a compound annual growth rate of 25.4%. The resulting cumulative EPS of $12.07 was $1.08 above the maximum performance level.

The 18.0% average ROE maximum performance level represented an increase from the actual ROE at the time the goal was established. The ROE for 2009 was 17.3%, increasing to 18.7% in 2010 and 18.9% in 2011. The resulting three-year average ROE was 18.3%, 30 basis points above the maximum performance level.

Environmental factors influencing these results, both positively and negatively, included:

 

   

a continued movement to managed care in state-based Medicaid programs;

 

   

a lower rate of overall inflation and slower total health care cost growth;

 

   

an unemployment rate that remained near 10% for much of 2009 through 2011;

 

   

adoption of the Health Care Reform Legislation, including new coverage requirements and minimum loss ratio regulations;

 

   

increased costs associated with the H1N1 influenza outbreak during 2009 and 2010 that were not contemplated in our Long-Term Plan; and

 

   

downward rate pressure in both Medicare Advantage and Medicaid payment rates received from the federal and state governments.

Similar to the Annual Incentive Plan, the Company’s 2008 Executive Incentive Plan allows for adjustments to the Company’s reported results in determining long-term incentive plan awards, namely the impact of changes in accounting principles, extraordinary items and unusual or non-recurring gains or losses. The performance share award allows for more limited adjustments. No adjustments were made to the Company’s financial results in determining long-term incentive award and performance share payout levels for the 2009 — 2011 performance period.

2009 – 2011 Long-Term Cash Incentive Awards

At the beginning of each three year performance period, the Compensation Committee approves a “long-term cash incentive target percentage” for each executive officer as a percentage of the executive officer’s average base salary over the performance period. For the 2009 – 2011 performance period, the maximum cash incentive award that an executive officer could earn, was set by the Compensation Committee to be equal to two times the applicable long-term cash incentive target percentage.

 

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The Compensation Committee believes that it was important to provide the same relative target opportunity to all of the named executive officers to increase collaboration, teamwork and accountability across the enterprise and to recognize the skills and versatility of each executive officer. The long-term incentive target percentages for long-term cash incentive awards to our executive officers and the actual long-term cash incentive awards paid for the 2009 – 2011 long-term performance period are set forth in the table below:

 

Long-Term Cash Incentive Award
Name  

Target

Percentage 

(% of 3-Yr.
Avg.

Base
Salary)

 

Target

Award

Value

($)

 

Maximum

Award

Value

($)

 

Actual

Award Paid

($)

 

Paid Award

(% Target)

S. Hemsley

  50%   650,000   1,300,000   1,300,000   200%

G. Boudreaux

  50%   372,100   744,200   744,200   200%

L. Renfro

  50%   342,300   684,600   684,600   200%

D. Wichmann

  50%   372,100   744,200   744,200   200%

A. Welters

  50%   357,300   714,600   714,600   200%

M. Mikan

  50%   372,100   744,200   0   0%

Mr. Renfro became a participant in the long-term cash incentive program on January 30, 2009 and, as a result, the target value of his long-term cash incentive award was prorated. The primary factor considered by the Compensation Committee in the determination of the long-term cash incentive award amounts was achievement of 2009 — 2011 long-term incentive plan measures above the maximum goal.

2009 – 2011 Performance Share Awards

The Compensation Committee granted performance shares for the first time for the 2009 – 2011 performance period. The introduction of performance shares as a component of the overall equity awards granted was based upon the Compensation Committee’s consideration of competitive market data, the desirability of utilizing a balanced system to mitigate risk, encourage superior performance and build ownership and was also informed by conversations with shareholders about the desirability of this type of equity award as a component of a pay-for-performance program. The actual shares that were earned for the 2009 – 2011 performance period are set forth in the table below as well as reflected in the “2011 Options Exercises and Stock Vested” table below:

 

Long-Term Performance Shares
Name  

Target
Shares

(#)

 

Maximum
Shares

(#)

 

Actual
Shares Paid 

(#)

 

Paid Award

(% of

Target)

S. Hemsley

  115,385   230,770   230,770   200%

G. Boudreaux

  76,923   153,846   153,846   200%

D. Wichmann

  76,923   153,846   153,846   200%

A. Welters

  76,923   153,846   153,846   200%

M. Mikan

  76,923   153,846   153,846   200%

 

 

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Equity Awards

Equity Award Practices

Awards of equity-based compensation to our executive officers serve the purposes described above under “Long-Term Incentive Compensation.” The Compensation Committee determined that equity-based compensation for 2011 should include grants of RSUs and performance shares to achieve better balance and effectiveness in our equity-based compensation and to align better the interests of our executive officers and our shareholders. RSU grants were selected because they are full value shares with time vesting and, as such, provide added retention value. Performance share grants were selected to strengthen the pay-for-performance alignment of the Company’s compensation program. The Compensation Committee’s decision to grant performance shares was informed, in part, by discussions held between the Company and certain of its shareholders regarding the merits of performance shares in a pay-for-performance executive compensation program.

The Compensation Committee’s equity award policy requires that all grants of equity be made at set times, and the Compensation Committee does not delegate authority to management to grant equity awards. We do not have a specific program, plan or practice to time equity compensation awards to named executive officers in coordination with our release of material information.

The Company does not pay dividend equivalents on unvested performance shares granted to employees. After considering general market practices, the Compensation Committee amended the RSU award agreements to permit the payment of dividend equivalents on RSUs awarded in 2011 and after. The dividend equivalents are subject to the same terms as the RSUs and will be forfeited if the underlying RSUs do not vest.

The aggregate number of shares subject to equity awards made in 2011 was less than 1% of the Company’s shares outstanding at the end of 2011.

Equity Awards — 2011

In February 2011, the Compensation Committee granted the following target number of performance shares and RSUs to Messrs. Hemsley, Renfro, Wichmann, Welters and Mikan and Ms. Boudreaux:

 

Name  

        Target Number of        

Performance

Shares

 

        Annual        

RSU

Award

 

Special

        RSU Grant        

S. Hemsley

  83,195   83,195  

G. Boudreaux

  53,483  

53,483

  59,425

L. Renfro

  53,483   53,483   59,425

D. Wichmann

  53,483  

53,483

  59,425

A. Welters

  53,483   53,483  

G. Mikan

  53,483  

53,483

  59,425

The special RSU grants to Ms. Boudreaux and Messrs. Renfro, Wichmann and Mikan were in recognition of additional responsibilities assumed in connection with the Company’s business realignment, as discussed above, and have a four-year “cliff” vesting provision to provide for additional retention. The number, mix and value of the remaining equity awards was determined by the Compensation Committee at its February 2011 meeting, at which time determinations were also made regarding the 2010 annual cash bonus and the 2008-2010 long-term cash incentive payments. The value and mix of equity awards for all named executive officers were determined by the Compensation

 

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Committee after considering competitive market data; the desirability of utilizing a balanced system to mitigate risk, encourage superior performance, and build ownership; and the need to retain and motivate the executives to deliver sustained performance that enhances the longer-term prosperity of the business. The mix of equity awards was intended to enhance long-term performance and strengthen the Company’s long-term pay-for-performance alignment. See “Departure of George L. Mikan III” below for a further discussion of the impact of Mr. Mikan’s departure on the equity awards granted to him.

The grant date fair values and terms of these equity awards are discussed further in the “Grants of Plan Based Awards” table and related footnotes below.

Other Compensation

Benefits

In addition to generally available benefits, our executive officers are eligible to receive supplemental long-term disability coverage equal to 60% of base salary (up to $420,000) and all of our named executive officers, other than Mr. Hemsley, receive supplemental group term life insurance coverage of $2 million. Executive officers are also eligible to participate in our non-qualified Executive Savings Plan. See the “2011 Non-Qualified Deferred Compensation” table below for additional information regarding contributions, earnings and distributions for each named executive officer under the Executive Savings Plan. Our Executive Savings Plan does not provide for guaranteed or above-market interest.

As part of our continued focus on the community, the Company implemented an Executive Board Service Matching Program. This program is available to approximately 200 senior leaders of the Company, including the named executive officers. This program provides for Company matching contributions on a 1:1 or 2:1 basis to certain charitable and nonprofit organizations up to a maximum amount of $10,000 per organization and a maximum annual Company match amount of $40,000 per senior leader. In order to receive the matching contribution, the employee must serve on the board of the charitable or nonprofit institution and make an equivalent personal financial contribution.

Perquisites

We do not believe that providing generous executive perquisites is either necessary to attract and retain executive talent or consistent with our pay-for-performance philosophy. Therefore, other than the benefits described above, we do not provide perquisites such as excise tax gross-ups, company automobiles, security services, private jet services, financial planning services, club memberships, apartments or vacation homes to our executive officers. Our corporate aircraft use policy prohibits personal use of corporate aircraft by any executive officer. Because there is essentially no incremental cost to the Company, however, the policy does permit an executive officer’s family member to accompany the executive officer on a business flight on Company aircraft provided a seat is available.

Employment Agreements and Post-Employment Payments and Benefits

The Company has a policy of entering into employment agreements with each of our named executive officers. These employment agreements are described in greater detail in “Executive Employment Agreements.”

None of the employment agreements provides for ongoing fixed minimum annual equity awards or fixed cash incentive awards except for certain limited duration commitments made to Gail Boudreaux and Larry Renfro in connection with the commencement of employment with the Company. The Company’s policies related to post-employment payments and benefits do not provide for enhanced cash severance payments upon termination in connection with a change in control or for excise tax

 

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gross up payments payable in connection with a change in control. The Company also does not have any ongoing supplemental executive retirement plan obligations for its named executive officers.

The employment agreements with our executive officers provide for certain severance payments in connection with their termination of employment under various circumstances, typically termination by the Company without “cause” or by the executive officer for a “good reason.” See “Executive Employment Agreements” and “Potential Payments Upon Termination or Change-in-Control” for additional information regarding potential severance payments that may be made to named executive officers. We have provided these post-employment payments and benefits and severance payment triggers because they have enabled us to obtain specific post-employment non-competition, non-solicitation and non-disclosure agreements with our executive officers that we believe are of value to the Company and our shareholders.

Prior to 2011, our equity award agreements typically provided that the awards become fully vested and exercisable if the executive officer’s employment ends due to death or disability, or if a change in control of the Company occurs. Beginning in 2011, equity award agreements that contain time-based vesting features no longer provide for “single-trigger” accelerated vesting upon a change in control. These agreements now include a “double-trigger” provision, which provides for accelerated vesting only if there is a change in control and within two years of the change in control the executive officer’s employment is terminated without “cause” or the executive officer terminates his or her employment for “good reason.” For performance shares, the target number of performance shares will immediately vest upon a change in control of the Company. The Compensation Committee determined that “double-trigger” acceleration of vesting for time-based equity better preserved the retentive value of the equity award and was more consistent with the interests of our shareholders. Our equity award agreements also generally provide for continued vesting and exercisability during any period in which an executive officer receives severance and for continued exercisability of vested awards for a limited period of time after termination of employment for other reasons. In addition, stock option awards granted in 2009 and going forward provide for continued vesting and exercisability for up to five years after retirement, subject to certain conditions. The Compensation Committee elected to provide such continued vesting and exercisability because such provisions are a common market practice and our other retirement benefits are limited to the Company’s 401(k) Plan and non-qualified deferred compensation plans.

Departure of George L. Mikan III

On July 1, 2011, we announced that George L. Mikan III would terminate his employment with the Company effective February 29, 2012 (the “Termination Date”). From July 1, 2011 through February 29, 2012, Mr. Mikan agreed to provide transitional assistance to Optum and to perform other executive level responsibilities assigned to him from time-to-time.

In connection with Mr. Mikan’s contemplated departure, the Company and Mr. Mikan entered into a Separation and Release Agreement effective July 5, 2011 (the “Separation Agreement”). The Separation Agreement provides that Mr. Mikan would be eligible to participate in the Company’s annual incentive compensation plan for 2011, but would not receive a payout under the long-term cash incentive award for the 2009 – 2011 performance period under the Company’s Executive Incentive Plan. Based on Mr. Mikan’s performance and the financial performance of the Company in 2011, the Company determined it would be appropriate to award Mr. Mikan an annual cash incentive award at the target level of performance.

The Separation Agreement also provides that upon his termination, Mr. Mikan will receive cash severance compensation pursuant to the terms of his employment agreement dated November 7, 2006, which will be payable over the two-year period following the Termination Date. Under the terms of the equity award agreements that govern Mr. Mikan’s previously granted equity awards, such awards would continue to vest and remain exercisable during the period of payment of the severance compensation as long as Mr. Mikan complies with the terms of the Separation Agreement, including

 

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non-compete and non-solicit agreements. The RSU that was awarded to Mr. Mikan in February 2011 with four-year cliff vesting will be forfeited in its entirety.

Other Compensation Practices

Executive Stock Ownership Guidelines

The Compensation Committee believes that executive stock ownership aligns management’s interests with those of shareholders and fosters a long-term outlook, while also assisting in the mitigation of compensation risk. Under our stock ownership guidelines, each executive officer must beneficially own at least the following amounts of the Company’s common stock within three years of the executive officer’s election or appointment as an executive officer:

 

   

for the CEO, five times base salary; and

 

   

for other executive officers, two times base salary.

Stock options and SARs do not count towards satisfying the ownership requirements under the guidelines, regardless of their vesting status. Time-based RSUs and restricted stock awards are counted toward the satisfaction of the ownership requirements. The Compensation Committee periodically reviews compliance with this requirement. As of the record date of this proxy statement, all of our named executive officers meet the ownership requirements, including Mr. Hemsley, who, as of March 1, 2012, holds shares with a value equal to 118 times his base salary.

Additionally, in 2009, the Board established a stock retention policy for executive officers that are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which includes our named executive officers. For equity awards received after October 23, 2009, Section 16 officers are required to retain one-third of the net shares acquired upon the vesting or exercise of any equity awards for at least one year.

Transactions in Company Securities

In general, SEC rules prohibit uncovered short sales of shares of our common stock by our executive officers, including the named executive officers. Accordingly, our insider trading policy prohibits short sales of shares of our common stock by all employees and directors, including the executive officers, and discourages all employees from engaging in any hedging transactions relating to our common stock. The policy also requires all restricted employees to consult with our Office of the General Counsel if they intend to engage in any hedging transactions. In 2011, no executive officer consulted with the Office of the General Counsel regarding hedging transactions.

Potential Impact on Compensation from Executive Misconduct/Compensation Clawbacks

If the Board of Directors determines that an executive officer has engaged in fraud or misconduct, the Board of Directors may take a range of actions to remedy the misconduct, prevent its recurrence and impose such discipline as would be appropriate, including, without limit: (1) a termination of employment and (2) initiating legal action against the executive officer. In addition, with respect to our senior executives, including our named executive officers, if the fraud or misconduct causes, in whole or in part, a material restatement of the Company’s financial statements, action may include (a) seeking reimbursement of the entire amount of cash incentive compensation awarded to the executive officer, if the executive officer would have received a lower (or no) cash incentive awards if calculated based on the restated financial results and (b) canceling all outstanding vested and unvested equity awards subject to the clawback policy and requiring the executive officer to return to the Company all gains from equity awards realized during the twelve-month period following the filing of the incorrect financial statements.

 

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The Compensation Committee plans to review our clawback policy and revise it as necessary to comply with any forthcoming SEC rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Consideration of Risk in Named Executive Officer Compensation

Our compensation programs are balanced, focused on long-term pay-for-performance and allow for discretion. The Compensation Committee believes that the design of the compensation program for our executive officers does not encourage excessive or unnecessary risk-taking, as illustrated by the following list of features:

 

   

Our annual cash bonus program includes a variety of financial and non-financial metrics that require substantial performance on a broad range of initiatives;

 

   

The Compensation Committee has capped the maximum amount of annual cash bonus and long-term cash bonus that can be earned;

 

   

Our equity awards include a mix of RSUs and performance shares to encourage sustained performance over time;

 

   

We have stock ownership guidelines for our executive officers;

 

   

We require executive officers to retain one-third of net equity awards granted after October 2009 for a period of at least twelve months; and

 

   

We have a clawback policy that deters misconduct or fraudulent behavior by recouping the entire bonus paid, not just the amount that would not have been earned.

In addition, our Compensation Committee retains discretion to adjust compensation for quality of performance, adherence to Company values and other factors.

Accounting and Tax Considerations

Internal Revenue Code Section 162(m) imposes a $1 million corporate deduction limit for compensation to the Company’s CEO and its three other highest-paid executive officers employed at the end of the year, unless the compensation is “performance-based,” as defined in Section 162(m), and provided under a plan that has been approved by the shareholders. The Compensation Committee seeks to structure most elements of our executive compensation program to meet this exception. However, to maintain flexibility, we have not adopted a policy requiring all compensation to be deductible. For example, time-based RSUs do not qualify as performance-based compensation. Stock options granted under the Company’s 1998 Broad-Based Stock Incentive Plan (the “1998 Plan”) and exercised by named executive officers also do not qualify as performance-based compensation; however no equity awards have been granted under the 1998 Plan since April 2002.

As part of the Health Care Reform Legislation enacted in 2010, Section 162(m) was revised as it pertains to compensation paid by health insurers, including the Company. Starting in 2013, an annual tax deduction limit of $500,000 per person will apply to compensation that we pay to any of our employees and certain service providers, regardless of whether such compensation is deemed performance-based under Section 162(m) or not. This tax deduction limitation also applies to compensation earned in 2010 through 2012, to the extent that the receipt of the compensation is deferred until after 2012. This tax deduction limitation has already begun to impact the Company. As described in the Company’s Annual Report on Form 10-K for the year ending December 31, 2011, the Company lost some tax benefits that would otherwise have been available in 2011 for deferred compensation that will be paid after 2012 that the Company believes will be in excess of the $500,000 deduction limit.

 

32


Compensation and Human Resources Committee Report

The Compensation and Human Resources Committee has reviewed and discussed the above Compensation Discussion and Analysis with management. Based on the review and discussions, the Compensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. This report was provided by the following independent directors who comprise the Compensation and Human Resources Committee:

Douglas W. Leatherdale (Chair)

Robert J. Darretta

Rodger A. Lawson

UnitedHealth Group Executive Compensation Peer Groups

 

Managed Care Competitors

 

Aetna Inc.

 

CIGNA Corp.

 

Coventry Health Care Inc.

 

Humana Inc.

 

WellPoint Inc.

 

Large Company Peer Group

 

3M Company

 

Home Depot, Inc. (The)

Abbott Laboratories

 

Intel Corporation

Amazon.com Inc.

 

International Business Machines Corp.

American Express Co.

 

Johnson & Johnson

American International Group, Inc.

 

JPMorgan Chase & Co.

Ameriprise Financial Inc.

 

Kraft Foods Inc.

AmerisourceBergen Corporation

 

Kroger Co. (The)

Amgen Inc.

 

Lowe’s Companies Inc.

Apple Inc.

 

McDonald’s Corp.

Archer Daniels Midland Company

 

McKesson Corporation

AT&T, Inc.

 

MedcoHealth Solutions Inc.

Bank of America Corp.

 

Medtronic, Inc.

Berkshire Hathaway Inc.

 

Merck & Co. Inc.

Best Buy Co. Inc.

 

MetLife, Inc.

Bristol-Myers Squibb Co.

 

Microsoft Corporation

Bunge Limited

 

Morgan Stanley

CVS Caremark Corp.

 

News Corp.

Cardinal Health Inc.

 

Oracle Corp.

Cargill, Incorporated

 

PepsiCo, Inc.

Cisco Systems Inc.

 

Pfizer Inc.

Citigroup, Inc.

 

Procter & Gamble Co.

Coca-Cola Company (The)

 

Prudential Financial Inc.

Comcast Corporation

 

QUALCOMM Incorporated

Costco Wholesale Corporation

 

Safeway Inc.

Dell Inc.

 

Sears Holdings Corporation

Dow Chemical Company (The)

 

SUPERVALU Inc.

eBay Inc.

 

Sysco Corp.

El DuPont de Nemours & Co.

 

Target Corp.

Eli Lily and Co.

 

Travelers Companies, Inc. (The)

EMC Corporation

 

U.S. Bancorp

Emerson Electric Co.

 

United Parcel Service, Inc.

Express Scripts Inc.

 

Verizon Communications Inc.

General Electric Co.

 

Visa, Inc.

General Mills, Inc.

 

Walgreen Co.

Goldman Sachs Group, Inc. (The)

 

Wal-Mart Stores Inc.

Google Inc.

 

WellPoint Inc.

Hewlett-Packard Company

 

Wells Fargo & Company

 

33


2011 Summary Compensation Table*

The following table provides certain summary information for the years ended December 31, 2011, 2010 and 2009 relating to compensation paid to, or accrued by us on behalf of, our named executive officers.

 

Name and

Principal
Position

  Year    

Salary

($) (1)

   

Bonus

($)

   

Stock
Awards

($) (2)

   

SAR
Awards

($) (3)

    Non-Equity
Incentive Plan
Compensation
($) (4)
   

Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings

($) (5)

    All Other
Compensation
($) (6)
   

Total

($)

 
                     

Stephen J. Hemsley

President and Chief Executive Officer

   

 

 

2011

2010

2009

  

  

  

   

 

 

1,300,000

1,300,000

1,300,000

  

  

  

   

 

 

—  

—  

—  

  

  

  

   

 

 

7,000,028

4,500,045

4,122,694

  

  

  

   

 

 

—  

1,500,007

1,442,306

  

  

  

   

 

 

4,940,000

3,400,000

1,950,000

  

  

  

   

 

 

—  

—  

—  

(7) 

  

  

   

 

 

154,804

110,079

86,916

  

  

  

   

 

 

13,394,832

10,810,131

8,901,916

  

  

  

   

David S. Wichmann

Executive Vice President and Chief Financial Officer

    2011        832,692        —          7,000,070        —          2,794,200        —          84,212        10,711,174   
                     

Gail K. Boudreaux

Executive Vice President and Chief Executive Officer, UnitedHealthcare

   

 

2011

2010

  

  

   

 

832,692

700,000

  

  

   

 

205,000

205,000

(8) 

  

   

 

7,000,070

3,000,063

  

  

   

 

—  

1,000,004

  

  

   

 

2,794,200

1,400,000

  

  

   

 

—  

—  

  

  

   

 

93,353

68,679

  

  

   

 

10,925,315

6,373,746

  

  

                   

    

                                                                       

Larry C. Renfro

Executive Vice

President and Chief Executive Officer, Optum

   

 

 

2011

2010

2009

  

  

  

   

 

 

832,692

692,308

535,385

  

  

  

   

 

 

—  

—  

600,000

  

  

  

   

 

 

7,000,070

3,000,063

3,170,284

  

  

  

   

 

 

—  

1,000,004

944,704

  

  

  

   

 

 

2,734,600

1,400,000

1,000,000

  

  

  

   

 

 

—  

—  

—  

  

  

  

   

 

 

35,825

240,300

520,298

  

  

  

   

 

 

10,603,187

6,332,675

6,770,671

  

  

  

                     

Anthony Welters

Executive Vice President

   

 

 

2011

2010

2009

  

  

  

   

 

 

744,231

700,000

700,000

  

  

  

   

 

 

—  

—  

—  

  

  

  

   

 

 

4,500,060

3,000,063

2,748,471

  

  

  

   

 

 

—  

1,000,004

978,505

  

  

  

   

 

 

2,514,600

1,400,000

1,240,000

  

  

  

   

 

 

—  

—  

—  

  

  

  

   

 

 

112,118

119,687

372,885

  

  

  

   

 

 

7,871,009

6,219,754

6,039,861

  

  

  

    

                                                                       

George L. Mikan III

Former Executive Vice

President and

Chief Financial Officer

   

 

 

2011

2010

2009

  

  

  

   

 

 

832,692

700,000

700,000

  

  

  

   

 

 

—  

—  

—  

  

  

  

   

 

 

7,000,070

3,000,063

2,748,471

  

  

  

   

 

 

—  

1,000,004

746,605

  

  

  

   

 

 

1,275,000

1,400,000

1,240,000

  

  

  

   

 

 

—  

—  

—  

  

  

  

   

 

 

83,012

87,264

321,314

  

  

  

   

 

 

9,190,774

6,187,331

5,756,390

  

  

  

 

* Please see “Compensation Discussion and Analysis” above for a description of our executive compensation program necessary to an understanding of the information disclosed in this table. Please see “Executive Employment Agreements” below for a description of the material terms of each named executive officer’s employment agreement.

 

34


(1) Amounts reported reflect the base salary earned by named executive officers in the years ended December 31, 2011, 2010 and 2009. Amounts reported include the following salary amounts deferred by the named executive officers under our Executive Savings Plan:

 

Name

   Year      Amount
Deferred
 

Stephen J. Hemsley

     2011       $ 78,000   

David S. Wichmann

     2011       $ 49,615   

Gail K. Boudreaux

     2011       $ 49,615   

Larry C. Renfro

     2011       $ 49,615   

Anthony Welters

     2011       $ 44,538   

George L. Mikan III

     2011       $ 49,615   

 

(2) The amounts reported in this column reflect the aggregate grant date fair value of the RSUs and performance shares (at target) granted in 2011, 2010 and 2009 and computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. The grant date fair value of RSUs granted in 2011 and the grant date value of performance shares if target performance and maximum performance is achieved are as follows:

 

Name

   Year      Restricted
Stock Units
     Performance-Based
Restricted Stock Units
 
         Target      Maximum  

Stephen J. Hemsley

     2011       $ 3,500,014       $ 3,500,014       $ 7,000,028   

David S. Wichmann

     2011       $ 4,750,040       $ 2,250,030       $ 4,500,060   

Gail K. Boudreaux

     2011       $ 4,750,040       $ 2,250,030       $ 4,500,060   

Larry C. Renfro

     2011       $ 4,750,040       $ 2,250,030       $ 4,500,060   

Anthony Welters

     2011       $ 2,250,030       $ 2,250,030       $ 4,500,060   

George L. Mikan III

     2011       $ 4,750,040       $ 2,250,030       $ 4,500,060   

See the “2011 Grants of Plan-Based Awards” table for more information on stock awards granted in 2011.

 

(3) The actual value to be realized by a named executive officer related to SARs depends upon the appreciation in value of the Company’s stock and the length of time the SARs are held. No value will be realized with respect to any SAR if the Company’s stock price does not increase following the award’s grant date.

The amounts reported in this column reflect the aggregate grant date fair value of SARs granted in 2010 and 2009 computed in accordance with FASB ASC Topic 718. For a description of the assumptions used in computing the aggregate grant date fair value, see “Note 11 to Consolidated Financial Statements” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. These assumptions also have been used in computing the aggregate grant date fair value since fiscal 2003.

 

35


(4) Amounts reported include both annual and long-term cash incentive awards to our named executive officers under our 2008 Executive Incentive Plan. The annual incentive awards earned in 2011 and paid in 2012, including amounts deferred by the named executive officers, were the following:

 

Name

   Year      Total Amount of
Annual Cash
Incentive Award
     Amount of Annual
Cash Incentive
Award Deferred
 

Stephen J. Hemsley

     2011       $ 3,640,000       $ 218,400   

David S. Wichmann

     2011       $ 2,050,000       $ 123,000   

Gail K. Boudreaux

     2011       $ 2,050,000       $ 205,000   

Larry C. Renfro

     2011       $ 2,050,000         —     

Anthony Welters

     2011       $ 1,800,000       $ 108,000   

George L. Mikan III

     2011       $ 1,275,000       $ 76,500   

The long-term cash incentives earned for the 2009 – 2011 incentive period under our 2008 Executive Incentive Plan and paid in 2012 were the following:

 

Name

   Period      Total Amount of Long-term
Cash Incentive Award
 

Stephen J. Hemsley

     2009-2011       $ 1,300,000   

David S. Wichmann

     2009-2011       $ 744,200   

Gail K. Boudreaux

     2009-2011       $ 744,200   

Larry C. Renfro

     2009-2011       $ 684,600   

Anthony Welters

     2009-2011       $ 714,600   

George L. Mikan III

     2009-2011         —     

 

(5) Named executive officers participate in our Executive Savings Plan, which is a non-qualified deferred compensation plan. The Executive Savings Plan does not credit above-market earnings or preferential earnings to the amounts deferred, and accordingly, no non-qualified deferred compensation earnings have been reported. Under the Executive Savings Plan, there are no measuring investments tied to Company stock performance. The measuring investments are a collection of unaffiliated mutual funds identified by the Company.

 

(6) All other compensation includes the following:

 

Name

   Year      Company
Matching
Contributions
Under 401(k)
Savings Plan
     Company
Matching
Contributions
Under
Executive
Savings Plan
     Company
Matching
Contributions
Under
Executive
Board
Service
Matching
Program (a)
     Insurance
Premiums
(b)
 

Stephen J. Hemsley

     2011       $ 11,025       $ 141,000         —           —     

David S. Wichmann

     2011       $ 11,025       $ 66,808         —           —     

Gail K. Boudreaux

     2011       $ 11,025       $ 66,808       $ 10,000         —     

Larry C. Renfro

     2011       $ 9,429       $ 24,808         —           —     

Anthony Welters

     2011       $ 7,529       $ 64,269       $ 30,000       $ 10,320   

George L. Mikan III

     2011       $ 11,025       $ 66,808         —           —     

As permitted by SEC rules, we have omitted perquisites and other personal benefits that we provided to certain named executive officers in 2011 if the aggregate amount of such compensation to each of such named executive officers was less than $10,000. As noted above, we generally do not provide perquisites. In addition, consistent with SEC rules, we have not separately quantified and identified those items of other compensation that have a value of less than $10,000.

 

  a)

As part of its commitment to serve local communities, the Company encourages its executive officers to serve on the boards of charitable organizations and to financially contribute to

 

36


 

those organizations. The Company has adopted a policy pursuant to which it will match certain charitable contributions made by an executive officer if the executive officer also serves on the board of the charitable organization. The amounts included for Ms. Boudreaux and Mr. Welters represent donations to charitable organizations made by the Company in 2011 to match the donations they made to charitable organizations on whose boards they serve.

 

  b) The Company provides each of Messrs. Wichmann, Renfro, Welters and Mikan and Ms. Boudreaux a $2 million face value term life insurance policy. The 2011 annual premiums paid by the Company on behalf of Messrs. Wichmann, Renfro, and Mikan and Ms. Boudreaux were less than $10,000.

 

(7) The amount of Mr. Hemsley’s supplemental retirement benefit was frozen in 2006 based on his current age and average base salary and converted into a lump sum of $10,703,229. As such, there was no increase in the benefit payable to Mr. Hemsley under his supplemental retirement benefit in fiscal 2011.

 

(8) Reflects a bonus paid to Ms. Boudreaux on the thirty-sixth month anniversary of the effective date of her employment agreement.

2011 Grants of Plan-Based Awards*

The following table presents information regarding each grant of an award under our compensation plans made during 2011 to our named executive officers for fiscal 2011.

 

Name         

Estimated Future Payouts
Under
Non-Equity Incentive Plan

Awards

    Estimated Future Payouts
Under Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number
of Shares
of Stock
   

All Other
Option/
SAR

Awards:
Number of
Securities
Underlying

    Exercise
or Grant
Price of
Option/
SAR
   

Grant

Date Fair

Value of
Stock or

Option/

SAR

 
  Grant
Date
    Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
   

Target

(#)

    Maximum
(#)
    or Units
(#)
    Options/
SARs (#)
    Awards
($/Sh)
    Awards
($) (1)
 

Stephen J. Hemsley President and Chief Executive Officer

                                 

Annual Cash Incentive Award (2)

    —          2,047,500        2,275,000        4,550,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          4,276        650,000        1,300,000        —          —          —          —          —          —          —     

RSU Award (4)

    2/9/2011        —          —          —          —          —          —          83,195        —          —          3,500,014   

Performance Share Award (5)

    2/9/2011        —          —          —          547        83,195        166,390        —          —          —          3,500,014   

David S. Wichmann Executive Vice President and Chief Financial Officer

                                 

Annual Cash Incentive Award (2)

    —          1,147,500        1,275,000        2,550,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          2,777        422,115        844,230        —          —          —          —          —          —          —     

RSU Award (6)

    2/9/2011        —          —          —          —          —          —          112,908        —          —          4,750,040   

Performance Share Award (5)

    2/9/2011        —          —          —          352        53,483        106,966        —          —          —          2,250,030   

Gail K. Boudreaux Executive Vice President and Chief Executive Officer, UnitedHealthcare

                                 

Annual Cash Incentive Award (2)

    —          1,147,500        1,275,000        2,550,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          2,777        422,115        844,230        —          —          —          —          —          —          —     

RSU Award (6)

    2/9/2011        —          —          —          —          —          —          112,908        —          —          4,750,040   

Performance Share Award (5)

    2/9/2011        —          —          —          352        53,483        106,966        —          —          —          2,250,030   

 

37


Name         

Estimated Future Payouts
Under
Non-Equity Incentive Plan

Awards

    Estimated Future Payouts
Under Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number
of Shares
of Stock
   

All Other
Option/
SAR

Awards:
Number of
Securities
Underlying

    Exercise
or Grant
Price of
Option/
SAR
   

Grant

Date Fair

Value of
Stock or

Option/

SAR

 
  Grant
Date
    Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
   

Target

(#)

    Maximum
(#)
    or Units
(#)
    Options/
SARs (#)
    Awards
($/Sh)
    Awards
($) (1)
 

Larry C. Renfro Executive Vice President and Chief Executive Officer, Optum

                                   

Annual Cash Incentive Award (2)

    —          1,147,500        1,275,000        2,550,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive
Award (3)

    —          2,777        422,115        844,230        —          —          —          —          —          —          —     

RSU Award (6)

    2/9/2011        —          —          —          —          —          —          112,908        —          —          4,750,040   

Performance Share Award (5)

    2/9/2011        —          —          —          352        53,483        106,966        —          —          —          2,250,030   

Anthony Welters Executive Vice President

                                   

Annual Cash Incentive Award (2)

    —          1,012,500        1,125,000        2,250,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive
Award (3)

    —          2,461        374,038        748,076        —          —          —          —          —          —          —     

RSU Award (4)

    2/9/2011        —          —          —          —          —          —          53,483        —          —          2,250,030   

Performance Share Award (5)

    2/9/2011        —          —          —          352        53,483        106,966        —          —          —          2,250,030   

George L. Mikan III Former Executive Vice President and Chief Financial Officer

                                   

Annual Cash Incentive Award (2)

    —          1,147,500        1,275,000        2,550,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive
Award (3)

    —          2,777        422,115        844,230        —          —          —          —          —          —          —     

RSU Award (6)

    2/9/2011        —          —          —          —          —          —          112,908        —          —          4,750,040   

Performance Share Award (5)

    2/9/2011        —          —          —          352        53,483        106,966        —          —          —          2,250,030   

 

* Please see “Compensation Discussion and Analysis” above for a description of our executive compensation program necessary for an understanding of the information disclosed in this table.

 

(1) The actual value to be realized by a named executive officer depends upon the appreciation in value of the Company’s stock and the length of time the award is held. The grant date fair value of each restricted stock unit award and targeted grant date value of the performance share award was computed in accordance with FASB ASC Topic 718 based on the closing stock price on the grant date.

 

(2)

Amounts represent estimated payouts of annual cash incentive awards granted under our Executive Incentive Plan in 2011. The Executive Incentive Plan permits a maximum annual bonus pool for executive officers equal to 2% of the Company’s net income (as defined in the plan) and no executive officer may receive more than 25% of such annual bonus pool. The Compensation Committee has limited annual cash incentive payouts to not more than two times the target amount, which is reflected in the maximum payout column. In order for any amount to be paid, the Company must achieve approved performance metrics of (i) revenue, (ii) operating income, (iii) cash flow, (iv) consumer, customer and physician satisfaction, (v) employee engagement and (vi) employee teamwork. The estimated threshold award represents the amount that may be paid if threshold performance is achieved on each of the performance metrics. Once threshold performance is achieved, the Compensation Committee has the discretion to pay an award ranging from 0% up to a maximum of 200% of target. The actual annual cash

 

38


 

incentive amounts earned in connection with the 2011 awards were paid in 2012, and are reported in the “2011 Summary Compensation Table.”

 

(3) Amounts represent estimated future payouts of long-term cash incentive awards granted under our Executive Incentive Plan in 2011 for the 2011-2013 incentive period, to be paid in 2014. The Executive Incentive Plan permits a maximum long-term bonus pool for executive officers equal to 2% of the Company’s average net income (as defined in the plan) during the performance period and no executive officer may receive more than 25% of such long-term bonus pool. The Compensation Committee has limited the long-term cash incentive payout maximum amount to not more than two times each named executive officer’s target amount, which is reflected in the maximum payout column. In 2011, upon recommendation by management, the Compensation Committee approved a cumulative EPS metric and an average return on equity metric for the 2011-2013 incentive period, either one of which must be achieved before the threshold amount shown above becomes earned and payable. Each measure is weighted equally. The Compensation Committee will determine whether the goals have been achieved at the end of the performance period. The estimated threshold award represents the amount that may be paid if threshold performance on one of the performance metrics is exceeded. Once threshold performance is achieved, the Compensation Committee has the discretion to pay an award ranging from 0% up to a maximum of 200% of target. The estimated threshold, target and maximum awards listed in the table were computed based on participants’ estimated average salary over the 2011 to 2013 performance period. This three year average salary was determined using their actual 2011 salary earned with their current salary used to estimate their 2012 and 2013 salaries.

 

(4) Amounts represent the number of RSUs granted under our 2002 Stock Incentive Plan. These RSUs proportionately vest on February 9, 2012, December 28, 2012 and February 9, 2014, other than for Messrs. Hemsley and Welters as described in footnote 4 to the “Outstanding Equity Awards at 2011 Fiscal Year End” table. These RSUs are subject to earlier termination upon certain events related to termination of employment. Unvested RSUs will vest in full upon death or disability. Unvested RSUs will also vest in full if, within two years of a change in control, an executive terminates employment for good reason or is terminated without cause (i.e., “double-trigger” vesting), as these terms are defined in each executive’s equity-award agreement. RSUs may also continue to vest following retirement if the executive officer is retirement eligible or over any severance period following termination of employment.

 

(5)

Amounts represent the estimated future number of the performance shares that may be earned under our 2002 Stock Incentive Plan at each of the threshold, target and maximum levels. The performance share award will be paid out in shares of Company common stock. The number of performance shares that the executive officer will receive will be determined at the conclusion of the 2011 — 2013 performance period and will be dependent upon the Company’s achievement of a cumulative EPS metric and an average return on equity metric approved by the Compensation Committee. The Compensation Committee has the discretion to reduce the number of performance shares an executive officer is entitled to receive. The estimated threshold award represents the number of performance shares that may be awarded if threshold performance is achieved on one of the performance metrics. The full target number of performance shares will immediately vest upon a change in control of the Company, as this term is defined in each executive’s equity-award agreement. Upon retirement, if the executive officer is retirement eligible, the executive officer will vest in the full number of performance shares that are earned at the end of the performance period as if the executive officer had been continuously employed throughout the entire performance period, provided the executive officer had served for at least one year of the performance period. Upon death, disability or termination of employment for “Good Reason” or other than for “Cause” (as these terms are defined in the performance share award agreement), the executive officer will receive at the end of the applicable performance period, a pro-rata

 

39


 

number of performance shares that are earned based on the number of full months employed plus, if applicable, the number of months for any severance period.

 

(6) Amounts represent the number of RSUs granted under our 2002 Stock Incentive Plan. Of the total number of RSUs granted, 53,483 RSUs proportionately vest on February 9, 2012, December 28, 2012 and February 9, 2014 and 59,425 RSUs vest on the fourth anniversary of the grant date, February 9, 2015. These RSUs are subject to earlier termination upon certain events related to termination of employment. Unvested RSUs will vest in full upon death or disability Unvested RSUs will also vest in full if, within two years of a change in control, an executive terminates employment for good reason or is terminated without cause (i.e., “double-trigger” vesting), as these terms are defined in each executive’s equity-award agreement. RSUs may also continue to vest following retirement if the executive officer is retirement eligible or over any severance period following termination of employment.

 

40


Outstanding Equity Awards at 2011 Fiscal Year-End

The following table presents information regarding outstanding equity awards held at the end of 2011 by our named executive officers for fiscal 2011.

 

          Option/SAR Awards          Stock Awards  
Name        Date of
Option/
SAR
Grant
   

Number of
Securities
Underlying
Unexercised
Options/
SARs (#)

Exercisable

    Number of
Securities
Underlying
Unexercised
Options/
SARs (#)
Unexercisable
    Option/
SAR
Exercise/
Grant
Price ($)
    Option/
SAR
Expiration
Date (1)
         Stock
Award
Grant
Date
 

Number of
Shares or
Units of
Stock
That

Have
Not
Vested (#)

   

Market
Value of
Shares or
Units of
Stock
That

Have
Not
Vested
($) (2)

    

Equity

Incentive
Plan
Awards:
Number of
Unearned
Shares or
Units That
Have
Not
Vested  (#)

    Equity
Incentive
Plan
Awards:
Market
Value of
Unearned
Shares or
Units
That
Have Not
Vested ($)
(2)
 

Stephen J. Hemsley

President and Chief Executive Officer

       

 

 

 

 

 

 

 

 

 

 

 

2/9/2010

2/23/2009

1/31/2006

5/2/2005

5/2/2005

2/3/2005

2/3/2005

2/11/2004

2/11/2004

2/11/2004

2/12/2003

2/12/2003

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

28,509

84,842

200,000

62,500

187,500

450,000

150,000

300,000

300,000

600,000

300,000

900,000

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

85,527

84,841

—  

—  

—  

—  

—  

—  

—  

—  

—  

—  

(3) 

(5) 

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

33.0000

29.7400

59.4200

57.4183

48.3550

45.2800

55.3583

29.7000

36.2382

58.3600

58.3600

58.3600

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

2/9/2020

2/23/2019

1/31/2016

5/2/2015

5/2/2015

2/3/2015

2/3/2015

2/11/2014

2/11/2014

2/11/2014

2/12/2013

2/12/2013

  

  

  

  

  

  

  

  

  

  

  

  

     

2/9/2011

2/9/2011

2/9/2010

2/9/2010

2/23/2009

   

 

 

 

 

82,173

—  

34,091

—  

28,846

(4) 

  

(7) 

  

(8) 

   

 

 

 

 

4,164,528

—  

1,727,732

—  

1,461,915

  

  

  

  

  

    

 

 

 

 

—  

124,793

—  

181,820

—  

  

(6) 

  

(6) 

  

   

 

 

 

 

—  

6,324,509

—  

9,214,638

—  

  

  

  

  

  

David S. Wichmann

Executive Vice President and Chief Financial Officer

       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2/9/2010

2/23/2009

6/5/2008

5/28/2007

5/28/2007

5/2/2006

10/31/2005

5/2/2005

5/2/2005

12/7/2004

12/7/2004

8/6/2004

8/6/2004

11/28/2003

11/28/2003

2/12/2003

8/5/2002

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,006

56,562

152,732

—  

150,000

150,000

65,000

25,000

75,000

154,000

154,000

75,000

75,000

37,500

112,500

200,000

200,000

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,018

56,560

50,910

25,000

—  

—  

—  

—  

—  

—  

—  

—  

—  

—  

—  

—  

—  

(3) 

(5) 

(3) 

(10) 

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33.0000

29.7400

33.9400

54.4100

54.4100

48.5800

59.0000

49.7886

48.3550

39.8500

42.2986

33.1236

31.5350

26.9500

29.3986

22.5086

22.1100

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2/9/2020

2/23/2019

6/5/2018

5/28/2017

5/28/2017

5/2/2016

10/31/2015

5/2/2015

5/2/2015

12/7/2014

12/7/2014

8/6/2014

8/6/2014

11/28/2013

11/28/2013

2/12/2013

8/5/2012

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

     

2/9/2011

2/9/2011

2/9/2011

2/9/2010

2/9/2010

2/23/2009

6/5/2008

   

 

 

 

 

 

 

54,162

60,180

—  

22,728

—  

19,230

9,113

(4) 

(9) 

  

(7) 

  

(8) 

(3) 

   

 

 

 

 

 

 

2,744,930

3,049,922

—  

1,151,855

—  

974,576

461,847

  

  

  

  

  

  

  

    

 

 

 

 

 

 

—  

—  

80,225

—  

121,214

—  

—  

  

  

(6) 

  

(6) 

  

  

   

 

 

 

 

 

 

—  

—  

4,065,803

—  

6,143,126

—  

—  

  

  

  

  

  

  

  

Gail K. Boudreaux

Executive Vice President and Chief Executive Officer, UnitedHealthcare

       

 

 

2/9/2010

2/23/2009

6/5/2008

  

  

  

   

 

 

19,006

56,562

96,825

  

  

  

   

 

 

57,018

56,560

32,275

(3) 

(5) 

(3) 

   

 

 

33.0000

29.7400

33.9400

  

  

  

   

 

 

2/9/2020

2/23/2019

6/5/2018

  

  

  

     

2/9/2011

2/9/2011

2/9/2011

2/9/2010

2/9/2010

2/23/2009

6/5/2008

   

 

 

 

 

 

 

54,162

60,180

—  

22,728

—  

19,230

29,225

(4) 

(9) 

  

(7) 

  

(8) 

(3) 

   

 

 

 

 

 

 

2,744,930

3,049,922

—  

1,151,855

—  

974,576

1,481,123

  

  

  

  

  

  

  

    

 

 

 

 

 

 

—  

—  

80,225

121,214

—  

—  

  

  

(6) 

  

(6)(7) 

  

  

   

 

 

 

 

 

 

—  

—  

4,065,803

—  

6,143,126

—  

—  

  

  

  

  

  

  

  

Larry C. Renfro

Executive Vice President and Chief Executive Officer, Optum

       

 

2/9/2010

2/3/2009

  

  

   

 

19,006

46,400

  

  

   

 

57,018

46,400

(3) 

(5) 

   

 

33.0000

29.7400

  

  

   

 

2/9/2020

2/3/2019

  

  

     

2/9/2011

2/9/2011

2/9/2011

2/9/2010

2/9/2010

2/3/2009

   

 

 

 

 

 

54,163

60,180

—  

22,728

—  

53,300

(4) 

(9) 

  

(7) 

  

(7)

   

 

 

 

 

 

2,744,930

3,049,922

—  

1,151,855

—  

2,701,244

  

  

  

  

  

  

    

 

 

 

 

 

—  

—  

80,225

—  

121,214

—  

  

  

(6) 

  

(6)(7) 

  

   

 

 

 

 

 

—  

—  

4,065,803

—  

6,143,126

—  

  

  

  

  

  

  

 

41


          Option/SAR Awards          Stock Awards  
Name        Date of
Option/
SAR
Grant
   

Number of
Securities
Underlying
Unexercised
Options/
SARs (#)

Exercisable

    Number of
Securities
Underlying
Unexercised
Options/
SARs (#)
Unexercisable
    Option/
SAR
Exercise/
Grant
Price ($)
    Option/
SAR
Expiration
Date (1)
         Stock
Award
Grant
Date
  Number of
Shares or
Units of
Stock
That Have
Not
Vested (#)
   

Market
Value of
Shares or
Units of
Stock
That

Have
Not
Vested
($) (2)

    

Equity

Incentive
Plan
Awards:
Number of
Unearned
Shares or
Units That
Have
Not
Vested  (#)

    Equity
Incentive
Plan
Awards:
Market
Value of
Unearned
Shares or
Units
That
Have Not
Vested ($)
(2)
 

Anthony Welters

Executive Vice President

       

 

 

 

 

 

 

 

 

2/9/2010

2/23/2009

6/5/2008

5/28/2007

5/28/2007

5/2/2006

10/31/2005

5/2/2005

11/4/2004

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

19,006

—  

23,639

—  

150,000

100,000

40,000

100,000

270,000

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

57,018

56,560

21,212

25,000

—  

—  

—  

—  

—  

(3) 

(5) 

(3) 

(10) 

  

  

  

  

  

   

 

 

 

 

 

 

 

 

33.0000

29.7400

33.9400

54.4100

54.4100

48.5800

60.0700

48.5700

42.8650

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

2/9/2020

2/23/2019

6/5/2018

5/28/2017

5/28/2017

5/2/2016

10/31/2015

5/2/2015

11/4/2014

  

  

  

  

  

  

  

  

  

     

2/9/2011

2/9/2011

2/9/2010

2/9/2010

2/23/2009

6/5/2008

   

 

 

 

 

 

52,837

—  

22,728

—  

19,230

17,087

(4) 

  

(7) 

  

(8) 

(3) 

   

 

 

 

 

 

2,677,779

—  

1,151,855

—  

974,576

865,969

  

  

  

  

  

  

    

 

 

 

 

 

—  

80,225

—  

121,214

—  

—  

  

(6) 

  

(6)(7) 

  

  

   

 

 

 

 

 

—  

4,065,803

—  

6,143,126

—  

—  

  

  

  

  

  

  

George L. Mikan III

Former Executive Vice President and Chief Financial Officer

       

 

 

 

 

 

 

 

 

 

2/9/2010

2/23/2009

6/5/2008

5/28/2007

5/28/2007

5/2/2006

10/31/2005

5/2/2005

11/4/2004

5/10/2004

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

19,006

56,562

152,732

—  

175,000

125,000

45,000

100,000

190,000

150,000

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

57,018

56,560

50,910

75,000 

—  

—  

—  

—  

—  

—  

(3) 

(5) 

(3) 

(10) 

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

33.0000

29.7400

33.9400

54.4100

54.4100

48.5800

60.0700

48.5700

42.8650

30.7050

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

2/9/2020

2/23/2019

6/5/2018

5/28/2017

5/28/2017

5/2/2016

10/31/2015

5/2/2015

11/4/2014

5/10/2014

  

  

  

  

  

  

  

  

  

  

     

2/9/2011

2/9/2011

2/9/2011

2/9/2010

2/9/2010

2/23/2009

6/5/2008

   

 

 

 

 

 

 

54,163

60,180

—  

22,728

—  

19,230

9,113

(4) 

(9) 

  

(7) 

  

(8) 

(3) 

   

 

 

 

 

 

 

2,744,930

3,049,922

—  

1,151,855

—  

974,576

461,847

  

  

  

  

  

  

  

    

 

 

 

 

 

 

—  

—  

80,225

—  

121,214

—  

—  

  

  

(6) 

  

(6) 

  

  

   

 

 

 

 

 

 

—  

—  

4,065,803

—  

6,143,126

—  

—  

  

  

  

  

  

  

  

 

(1) The expiration date shown is the latest date that options/SARs may be exercised. Options/SARs may terminate earlier in certain circumstances, such as in connection with the named executive officer’s termination of employment.

 

(2) Based on the per share closing market price of our common stock on December 31, 2011 of $50.68.

 

(3) Vest 25% annually over a four-year period beginning on the first anniversary of the grant date.

 

(4) Vest 33-1/3% on February 9, 2012, December 28, 2012 and February 9, 2014, other than for retirement eligible executive officers. A portion of a retirement eligible executive officer’s award that otherwise would have vested on the next anniversary of the grant date is cancelled to pay applicable FICA taxes owed by the executive. The cancellation occurs in the year of grant if the executive officer is retirement eligible during that year or in the first year the executive officer becomes retirement eligible. The remainder of the award vests proportionally over the remaining vesting period. Messrs. Hemsley and Welters are retirement eligible. These RSUs are eligible to and did receive dividend equivalents converted into additional shares; accordingly, the number of shares shown has been rounded to the nearest whole share. For more information on RSUs cancelled in 2011, please see “2011 Option Exercises and Stock Vested” table.

 

(5) Vest 25% annually over a four-year period beginning on February 3, 2010.

 

(6) Vest 100% at the end of the three-year performance period. The number of performance shares that the executive officer will receive is dependent upon the achievement of a cumulative EPS metric and an average return on equity metric approved by the Compensation Committee. The number of performance shares reported above for 2011 is at 150% of the target number established by the Compensation Committee because we currently believe that is the probable outcome of the performance conditions based on the Company’s performance through December 31, 2011. The number of performance shares reported above for 2010 is the maximum number established by the Compensation Committee because we believe that payout at maximum is the probable outcome of the performance conditions based on the Company’s performance through December 31, 2011.

 

42


(7) Vest 25% annually over a four-year period beginning on the first anniversary of the grant date, other than for retirement eligible executive officers. A portion of a retirement eligible executive officer’s award that otherwise would have vested on the next anniversary of the grant date is cancelled to pay applicable FICA taxes owed by the executive. The cancellation occurs in the year of grant if the executive officer is retirement eligible during that year or in the first year the executive officer becomes retirement eligible. The remainder of the award vests proportionally over the remaining vesting period. Mr. Hemsley was retirement eligible on the grant date and Mr. Welters became retirement eligible in 2010.

 

(8) Vest 25% annually over a four-year period beginning on February 3, 2010, other than for retirement eligible executive officers. A portion of a retirement eligible executive officer’s award that otherwise would have vested on the next anniversary of the grant date is cancelled to pay applicable FICA taxes owed by the executive. The cancellation occurs in the year of grant if the executive officer is retirement eligible during that year or in the first year the executive officer becomes retirement eligible. The remainder of the award vests proportionally over the remaining vesting period. Mr. Hemsley was retirement eligible on the grant date and Mr. Welters became retirement eligible in 2010.

 

(9) Vest 100% on the fourth anniversary of the grant date. These RSUs are eligible to and did receive dividend equivalents converted into additional shares; accordingly, the number of shares shown has been rounded to the nearest whole share.

 

(10) Vest 100% on the sixth anniversary of the grant date.

2011 Option Exercises and Stock Vested

The following table presents information regarding the exercise of stock options during 2011 by our named executive officers and vesting of restricted stock awards held by our named executive officers for fiscal 2011.

 

Name

  Option Awards     Stock Awards  
  Number of
Shares
Acquired on
Exercise 
(#)
   

Value

Realized on
Exercise 
($) (1)

   

Number of
Shares
Acquired on
Vesting

(#)

    Value
Realized
on
Vesting
($)
 

Stephen J. Hemsley

    1,200,000        28,829,810(2)        257,514        12,851,000 (3)   

President and Chief Executive Officer

             

David S. Wichmann

    300,000        9,912,270(4)        180,151        8,974,680 (5)   

Executive Vice President and Chief Financial Officer

             

Gail K. Boudreaux

        —            —        200,263        9,957,151 (6)   

Executive Vice President and Chief Executive Officer,

UnitedHealthcare

             

Larry C. Renfro

        —            —        34,226        1,465,738 (7)   

Executive Vice President and Chief Executive Officer, Optum

             

Anthony Welters

    96,562        1,631,685(8)        187,990        9,368,334 (9)   

Executive Vice President

             

George L. Mikan III

    145,000        3,673,217(10)        180,151        8,974,680 (11)   

Former Executive Vice President and Chief Financial Officer

                               

 

(1) Computed by determining the market value per share of the shares acquired based on the difference between: (a) the per share market value of our common stock at exercise, defined as the closing price on the date of exercise, or the weighted average selling price if same-day sales occurred, and (b) the exercise price of the options.

 

43


(2) Mr. Hemsley’s value was computed as described in note (1) above and was based on the following:

 

Date of Award   Exercise Date  

Number of Options

Exercised

 

Stock Splits Since

Date of Award

 

Market Price at

Exercise

  Exercise Price

1/7/2002

  10/26/2011   550,000   4:1   $49.0037   $25.0925

1/7/2002

  10/27/2011   650,000   4:1   $49.2135   $25.0925

 

(3) Reflects the vesting of a portion of the RSUs granted to Mr. Hemsley. The value realized on vesting was computed based on the following:

 

Date of Award   Vesting Date  

Number of Shares

Acquired on Vesting

 

Market Price at

Vesting

 

Value Realized

on Vesting

2/23/2009

  2/3/2011   14,423   $43.04   $620,766

  2/9/2010

  2/9/2011   10,242   $42.07   $430,881

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award  

Performance

Period

Completion

Date

 

Number of Shares

Acquired on

Vesting

 

Market Price

at end of

Performance

Period

 

Value Realized

on Vesting

2/23/2009

  12/31/2011   230,770   $50.68   $11,695,424

Also reflects the cancellation on December 21, 2011 of 2,079 RSUs granted on February 9, 2011 with a value of $103,929 for the payment of FICA tax liability. The value realized was computed based on a closing stock price of $49.99 on December 21, 2011.

 

(4) Mr. Wichmann’s value was computed as described in note (1) above and was based on the following:

 

Date of Award   Exercise Date  

Number of Options

Exercised

 

Stock Splits Since

Date of Award

 

Market Price at

Exercise

  Exercise Price

1/7/2002

  10/28/2011   300,000   4:1   $48.8784   $18.2375

 

(5) Reflects the vesting of a portion of the RSUs granted to Mr. Wichmann. The value realized on vesting was computed based on the following:

 

Date of Award   Vesting Date  

Number of Shares

Acquired on Vesting

 

Market Price at

Vesting

 

Value Realized

on Vesting

2/23/2009

  2/3/2011   9,616   $43.04   $413,873

  2/9/2010

  2/9/2011   7,576   $42.07   $318,722

  6/5/2008

  6/5/2011   9,113   $48.85   $445,170

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award  

Performance

Period

Completion

Date

 

Number of Shares

Acquired on Vesting

 

Market Price

at end of

Performance

Period

 

Value Realized

on Vesting

2/23/2009

  12/31/2011   153,846   $50.68   $7,796,915

 

44


(6) Reflects the vesting of a portion of the RSUs granted to Ms. Boudreaux. The value realized on vesting was computed based on the following:

 

Date of Award   Vesting Date   Number of Shares
Acquired on  Vesting
  Market Price at
Vesting
  Value Realized
on Vesting

2/23/2009

  2/3/2011     9,616   $43.04   $   413,873

  2/9/2010

  2/9/2011     7,576   $42.07   $   318,722

  6/5/2008

  6/5/2011   29,225   $48.85   $1,427,641

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award   Performance
Period
Completion Date
  Number of Shares
Acquired on  Vesting
  Market Price at end of
Performance Period
  Value Realized on
Vesting

2/23/2009

  12/31/2011   153,846   $50.68   $7,796,915

 

(7) Reflects the vesting of a portion of the RSUs granted to Mr. Renfro. The value realized on vesting was computed based on the following:

 

Date of Award   Vesting Date   Number of Shares
Acquired on  Vesting
  Market Price at
Vesting
  Value Realized
on Vesting

2/3/2009

  2/3/2011   26,650   $43.04   $1,147,016

2/9/2010

  2/9/2011     7,576   $42.07   $   318,722

 

(8) Mr. Welter’s value was computed as described in note (1) above and was based on the following:

 

Date of Award   Exercise Date  

Number of Options

Exercised

  Market Price at
Exercise
  Exercise Price

2/23/2009

    7/25/2011     5,000   $51.63   $29.74

  6/5/2008

  12/13/2011   40,000   $48.20   $33.94

2/23/2009

  12/13/2011   51,562   $48.20   $29.74

 

(9) Reflects the vesting of a portion of the RSUs granted to Mr. Welters. The value realized on vesting was computed based the following:

 

Date of Award   Vesting Date   Number of Shares
Acquired on  Vesting
  Market Price at
Vesting
  Value Realized
on Vesting

2/23/2009

  2/3/2011     8,904   $43.04   $383,228

  2/9/2010

  2/9/2011     6,828   $42.07   $287,254

  6/5/2008

  6/5/2011   17,087   $48.85   $834,700

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award   Performance
Period
Completion Date
  Number of Shares
Acquired on  Vesting
  Market Price at end of
Performance Period
  Value Realized on
Vesting

2/23/2009

  12/31/2011   153,846   $50.68   $7,796,915

 

45


Also reflects the cancellation on December 21, 2011 of 1,325 RSUs granted on February 9, 2011 with a value of $66,237 for the payment of FICA tax liability. The value realized was computed based on a closing stock price of $49.99 on December 21, 2010.

 

(10) Mr. Mikan’s value was computed as described in note (1) above and was based on the following:

 

Date of Award   Exercise Date     Number of Options
Exercised
    Stock Splits Since
Date of Award
    Market Price at
Exercise
    Exercise Price  

10/28/2003

    5/2/2011        17,500        2:1      $ 49.3693      $ 26.175   

10/28/2003

    5/2/2011        52,500        2:1      $ 49.4856      $ 28.10   

2/12/2003

    5/2/2011        75,000        4:1      $ 49.3193      $ 20.725   

 

(11) Reflects the vesting of a portion of the RSUs granted to Mr. Mikan. The value realized on vesting was computed based on the following:

 

Date of Award   Vesting Date     Number of Shares
Acquired on Vesting
    Market Price at
Vesting
    Value Realized
on Vesting
 

2/23/2009

    2/3/2011        9,616      $ 43.04      $ 413,873   

2/9/2010

    2/9/2011        7,576      $ 42.07      $ 318,722   

6/5/2008

    6/5/2011        9,113      $ 48.85      $ 445,170   

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award   Performance
Period
Completion
Date
    Number of Shares
Acquired on Vesting
    Market Price
at end of
Performance
Period
    Value Realized
on Vesting
 

2/23/2009

    12/31/2011        153,846      $ 50.68      $ 7,796,915   

2011 Pension Benefits

The following table presents information regarding the present value of accumulated benefits payable under our non-qualified defined-benefit pension plans covering our named executive officers for fiscal 2011.

 

Name   Plan Name   Number of
Years Credited
Service (#)
 

Present

Value of
Accumulated
Benefit ($)

 

Payments

During Last
Fiscal Year

($)

Stephen J. Hemsley

President and Chief

Executive Officer

  Individual Agreement for Supplemental Executive Retirement Pay        —  (1)   10,703,229(1)   —  

David S. Wichmann

Executive Vice President and Chief Financial Officer

  N/A   —     —     —  

Gail K. Boudreaux

Executive Vice President and Chief Executive Officer, UnitedHealthcare

  N/A   —     —     —  

Larry C. Renfro

Executive Vice President and Chief Executive Officer, Optum

  N/A   —     —     —  

Anthony Welters

Executive Vice President

  N/A   —     —     —  

George L. Mikan III

Former Executive Vice President and Chief Financial Officer

  N/A   —     —     —  

 

(1) Upon termination of Mr. Hemsley’s employment for any reason, a lump-sum benefit of $10,703,229 will be paid six months and one day after his termination. In the event of Mr. Hemsley’s death prior to payment of his entire supplemental retirement benefit, his surviving spouse will receive any unpaid benefit. The dollar amount of this lump sum benefit was frozen in 2006 and will not vary, regardless of Mr. Hemsley’s age, years of service or average compensation at the time of his actual termination.

 

46


2011 Non-Qualified Deferred Compensation

The following table presents information as of the end of 2011 regarding the non-qualified deferred compensation arrangements for our named executive officers for fiscal 2011.

 

Name
(a)
  Executive
Contributions
in Last FY
($) (1) (2)
(b)
    Registrant
Contributions
in Last FY
($) (1) (3)
(c)
    Aggregate
Earnings
in Last
FY
($) (4)
(d)
   

Aggregate
Withdrawals/
Distributions

($) (5)
  (e)  

       Aggregate
Balance
at
Last FYE
($) (1)
(f)
 

Stephen J. Hemsley

    282,000        141,000        127,511      —         7,766,319   

President and Chief Executive Officer

                                       

David S. Wichmann

    133,615        66,808        29,431      —         1,847,201   

Executive Vice President and Chief Financial Officer

                                       

Gail K. Boudreaux

    189,615        66,808        (7,979   —         721,159   

Executive Vice President and Chief Executive, UnitedHealthcare

                                       

Larry C. Renfro