UnitedHealth Group Inc. CEO Stephen Hemsley took home $48.8 million in total compensation last year, or about half as much as he took home in 2009, according to the company's proxy statement filed Wednesday. About-to-expire stock options granted about 10 years ago contributed the bulk of his compensation in both years.
In 2010, Hemsley realized a gain of $43.5 million on exercised options. Those options were originally issued in 2000 and 2001 and were near their expiration dates. The options had exercise prices ranging from about $15.62 to $18.05.
Hemsley exercised those options at prices ranging from $33.12 to $37.03. Since those options were granted, UnitedHealth's stock has split at least 4-for-1, and the bulk of Hemsley's option gains in 2010 were from an option grant in 2000 that has since split 8-for-1.
In 2009 Hemsley exercised $98.6 million worth of previously issued stock options that contributed to his overall 2009 compensation of $102 million.
Hemsley maintained control of most of those shares after they were exercised although he has sold some to settle tax obligations, the company said. UnitedHealth's executive stock ownership guidelines ask the CEO to own shares valued at five times his base salary. Hemsley now holds shares valued at 88 times his base salary, according to the company's proxy statement.
An external pay analysis done for the company showed that Hemsley's compensation for 2010 was below the median level for CEOs in UnitedHealth's peer group. The compensation committee and Hemsley agree that his compensation plan "is sufficient to motivate and retain him," according to the proxy.
Paul Hodgson, senior research associate with GovernanceMetrics International in Portland, Maine, agreed that some elements of Hemsley's compensation are below what other health insurers are paying their CEOs -- but not all. His salary is below-market, and possibly his bonus, which is tied to performance, Hodgson said.