UnitedHealth Group
June 7
David Wichmann, whose role as UnitedHealth Group CEO ended this year on February 2, received $17,872,713 in total compensation for 2020. Although he is no longer CEO, he is guaranteed to receive pay going forward because: “Pursuant to the terms of his employment agreement, Mr. Wichmann will receive payments approximating his most recent base salary and non-equity incentive compensation award for a two-year period.” That is the extent of the rationale given in the proxy statement.
UnitedHealth Group has faced low support on pay from shareholders in the past and this year the company stresses repeatedly in the proxy statement that it has worked closely with shareholders to improve its compensation practices. While there is a great deal of discussion on metrics and methods, the extremely unusual post-departure award is barely touched on. The full amount of the award – $5,600,000 – is disclosed in the table of post-termination benefits in the proxy statement.
A much higher figure is also noted in that table. The acceleration of equity vesting is valued at an additional $47,960,213 at retirement. This is higher than the value Wichmann would have received if his termination were due to death, disability, or change in control. Furthermore, it is not clear if this accelerated vesting applies to grants awarded this year. Nevertheless, this directly contradicts the trend of shareholders urging for increased stock retention policies and a longer-term alignment.
ISS has recommended against the advisory vote on compensation because of the size of Wichmann’s payments. In response, the company issued a special filing urging investors to ignore the ISS recommendations, stating:
“This compensation, after more than two decades of service to the company, has no bearing on the nature or effectiveness of the company’s long-standing and continuing approach to executive compensation which deserves shareholders’ support again this year.”
Statements like these are absurd because they imply that the CEO’s payments should be of no interest to shareholders. In fact, the evaluation of decisions made by the Compensation Committee and the compensation practices of the company is completely within the responsibilities of shareholders.
In defense of its compensation program generally, the chair of the compensation committee states: “The company’s compensation plan is designed to help UHG achieve its long-range strategy by closely aligning executives’ compensation with achievement of UHG’s business goals and mission and preservation of its culture.” However, there is no attempt to explain why large awards after departure make any sense at all. In essence, the company is aligning Wichmann’s wealth with things that happen after he leaves.
This takes us back to a central question: What is the purpose of CEO compensation? Is it to incentivize behavior, as shareholders are often told? Or is it really a matter of lavishing unnecessary gifts on CEOs? In this case it is clearly the latter.