BUSINESS

Health plan CEO pay declines in weakened economy

Executives at the largest stockholder-owned plans still make millions, but many saw their incomes drop in 2008.

By Emily Berry, AMNews staff. Posted June 1, 2009.

Health plan executives, who for years enjoyed
billion-dollar profits for their companies, saw a reversal of fortune
in 2008 as stock options, retirement contributions and perquisites
dried up with profits and stock prices.

Chief executive officers at the seven largest publicly traded health
plans experienced an average 12% drop in total compensation in 2008,
compared with 2007, according to documents filed with the Securities
and Exchange Commission.

That decrease is steeper than the average among the CEOs of
companies in the S&P 500 Index, who saw an average drop of 6.8%,
according to an analysis by executive compensation research firm
Equilar.

For the top brass at the big health plans, there also was a wide
range in pay changes between 2007 and 2008. Three executives -- Jay
Gellert, president and CEO of Health Net; Angela Braly, president and
CEO of WellPoint; and Aetna Chair and CEO Ronald Williams -- saw boosts
in total compensation. Williams' went up by 5%, from $23 million to
$24.3 million; Braly's by 8%, from $9 million to $9.8 million; and
Gellert's by 20%, from $3.6 million to $4.4 million.

On the other end of the spectrum, the pay package for UnitedHealth
Group President and CEO Stephen Hemsley dropped 75%, from $13.1 million
in 2007 to $3.2 million in 2008.

Total compensation also dropped for three of his counterparts at the
largest health plans: Cigna Chair and CEO H. Edward Hanway's total pay
dropped 53% from $25.8 million in 2007 to $12.2 in 2008. Coventry
Health Care's President and CEO Dale Wolf, who was replaced in January
2009, made $9 million in 2008 compared with $14.8 million in 2007
(-39%). Humana's President and CEO Mike McCallister made $10.3 million
in 2007 and $4.7 million in 2008 (-54%).

The recession has prompted health plans to make adjustments to
executives' other compensation, from bonuses to stock options, and many
plans announced further changes to take effect this year.

"One of the huge challenges with bonuses is setting performance
targets in the future," said Alexander Cwirko-Godycki, research manager
at Equilar. "There's still a lot of uncertainty."

For a few health plan CEOs whose bonuses were based on per-share
earnings or growth, 2008 was considerably less lucrative than 2007.
Bonuses, or "nondeferred incentive pay," were $0 for CEOs of Health
Net, Humana and Coventry Health Care.

But bonuses didn't disappear completely: Hanway took home $6.6
million in performance-based pay; Williams made a $1.9 million bonus;
Hemsley made $1.8 million in incentive pay; and Braly received $73,810
as a performance-based bonus.

Health plan "clawback" policies

Health plans were part of some broader trends in executive pay,
including passing so-called "clawback" policies that allow a company to
take back incentive pay if an executive is found to have done something
illegal or harmful to the company.

UnitedHealth Group was party to one well-known clawback, when former
Chair and CEO William McGuire, MD, was forced to return some of his
stock options after a backdating scandal. He forfeited some of his
options upon his resignation, then gave up more to settle a government
investigation and a lawsuit brought by United shareholders.

"The situation at UnitedHealth is still unique, and it's one of
still a small handful of cases you've actually seen a clawback,"
Cwirko-Godycki said. "The threshold a company would need to take back
money is coming down."

Among Fortune 100 companies, 18% had clawback policies in place in 2006; 64% did by 2008, he said.

Another widespread trend

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