Tuesday, October 17, 2006

McGuire's Exit Strategy

Doctor William McGuire, for all he's done for UnitedHealth (bless his soul) will "retire" (asked to get the *%^$# out) from Unitedhealth with the following:
  • $6.4 million "see-ya-later" fee

  • $5.1 million a year for life

  • $2.55 million a year for his wife for life should he die before her (and what, exactly, was her role for Unitedhealth?)

  • Lifetime health coverage for him and his wife

  • Health coverage for his kids until age 25

  • Use of his supplied aircraft

  • Company-paid office and secretary for three years

  • Company-paid "allowance" for tax-planning and financial planning

  • Company-paid "allowance" for security

Now, if that's not enough, it seems he "doubled down" on the options issued. As reported by the Wall Street Journal this AM:
The internal report that led to Dr. McGuire's departure gave one example of how options could become so lucrative. The report, by the firm of Wilmer Cutler Pickering Hale & Dorr, described an unusual options swap in which Dr. McGuire and others managed to get the same options twice.

In October 1999, the report says, Dr. McGuire suggested in a memo that "employee morale and retention" were being hurt by old options that carried strike prices above the company's then-market price. The board agreed to suspend a total of two million out-of-the-money options and replace them with a similar number of new options, which were priced at the lowest point of the year. The Wilmer report concluded the new options likely were improperly backdated to that low point to give the insiders an extra boost.

By the following August, however, the company's stock price had risen significantly. The board then agreed to reactivate the suspended options. So in effect, Dr. McGuire and the others double-dipped, getting back their original options while also keeping the replacement options.

In Dr. McGuire's case, the Wilmer report found, the maneuver in essence got him an extra 750,000 options, with an instant paper gain of about $26 million. Those options are now valued at about $250 million because of share splits and an increased stock price.

The report also concluded that the company failed to properly disclose and account for the complex transaction.
Sick. Just sick. That $250,000,000 could fund 25,000 patients's annual health care benefit costs (if one assumes $10,000 per year of fees per patient). Such options transactions hurt our healthcare system and need to be made a felony. Remember, Dr. McGuire: primum non nocere!

Worse still: no doubt other insurer CEO's have similar deals.


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