Shareholder Forum for Options Policies

Forum Home Page

Options Policies Home Page

Program Reference


For a copy of the referenced Hermes letter to shareholders in support of their December 2006 example of a proposal for U.S. adaptation of advisory voting practices, see

For additional information about the Forum's project relating to the development of a model for advisory voting on executive compensation policies, see

Advisory Voting


Dow Jones Newswires, May 22, 2007 article


The Wall Street Journal  

May 22, 2007 4:44 p.m. EDT


UPDATE: UnitedHealth Holders Seek More Say On Governance

May 22, 2007 4:44 p.m.

(Updates with non-binding nature of nominating proposal in third paragraph, and similar proposal introduced at Hewlett-Packard in ninth paragraph.)

   By Dinah Wisenberg Brin 

UnitedHealth Group Inc. (UNH) shareholders want a greater voice in governance at the giant managed-care company, which has been trying to shake the dust from a stock options-backdating scandal.

Investors are pushing proposals, to be considered at UnitedHealth's annual meeting on May 29, that could give shareholders an important role in nominating directors and a say in endorsing or opposing executive pay.

The California Public Employees' Retirement System, the nation's largest public pension fund and a holder of roughly 6.4 million UnitedHealth shares, has proposed that investors who have held at least 3% of the stock for more than two years be allowed to nominate two directors. The proposal, if approved, wouldn't be binding on the UnitedHealth board.

CalPERS cited the independent, company-commissioned investigation last year that exposed compensation-related problems at UnitedHealth.

UnitedHealth's former chairman and chief executive, William McGuire, agreed to leave the company last year after an independent probe found that many of the largest stock-options grants made to officers and employees over several years likely were backdated to improve their value.

UnitedHealth earlier this year reduced past financial results by more than $1 billion to account for backdated options and has adopted various corporate-governance initiatives. Those policies include separating the roles of chairman and chief executive, filling five board seats with new independent directors over the next three years, and strengthening director-independence requirements. The company also implemented new stock-ownership guidelines for directors and executive officers.

Activist shareholders, however, want more of a hand in governance. CalPERS says a UnitedHealth advisory committee that gives large shareholders a role in setting director qualifications doesn't go far enough in assuring that investors can place their nominee choices on the ballot.

"Today at UnitedHealth, only the board is empowered to put a director nominee up for election on the proxy statement," CalPERS' board president, Rob Feckner, said in a statement this month. "We believe boards that control their own membership can lead to a culture characterized by unaccountable and entrenched directors," which may result in abusive executive-compensation practices, fraud or other misconduct.

A similar proposal gathered substantial support at Hewlett-Packard Co.'s (HPQ) annual meeting this year, although it didn't win a majority of the votes cast.

CalPERS has started a Web site to push its proposal, and noted there that the idea has the backing of two major proxy advisory services - Institutional Shareholder Services and Egan-Jones Proxy Services. ISS last week issued a report supporting all four proposals advanced by UnitedHealth shareholders, including the CalPERS plan.

The California State Teachers' Retirement System, the second-largest public pension fund in the U.S. and owner of 5.5 million UnitedHealth shares, has sent a letter urging other investors to support the CalPERS measure.

"This proposal will add value for UnitedHealth's shareowners while enhancing the company's reputation as a model of fair and transparent governance," CalSTRS Chief Investment Officer Christopher J. Ailman said in a statement last week.

A UnitedHealth spokesman didn't immediately return a call for comment.

UnitedHealth's board said in a proxy statement that the CalPERS proposal "would result in disruptive, divisive and expensive director elections without benefit to the shareholders as a whole," and is unnecessary because company policies and procedures already provide investors the opportunity to participate in the process of nominating and electing directors.

Meanwhile, U.K. activist investor Hermes Investment Management Ltd. wants UnitedHealth to permit shareholders to cast an advisory vote each year on the proposed compensation package for the health insurer's most senior executives.

Hermes Chief Executive Mark Anson, in a letter to UnitedHealth shareholders this month, urged support for Hermes' proposal asking the managed-care provider to allow such a vote each year. Anson called the proposal an important governance reform.

"Any such vote would be non-binding and advisory, but we believe that it would foster an important dialogue between shareholders and the board of directors about executive pay policy, and help ensure that pay is closely tied to performance," Anson wrote.

Hermes has experience with advisory votes on compensation in the U.S. and Australia, and with binding votes on pay in Scandinavian countries and the Netherlands.

"Compensation programs are one of the most powerful tools available to a company to align management interests with the long-term interests of shareowners. UnitedHealth Group has, in the past, experienced issues with its incentive-based compensation and accountability to shareowners in that regard," Anson said.

"This is evidenced by the fact that options granted to (UnitedHealth's) former chairman and CEO were worth $1.6 billion by the end of 2005, a value that was inflated due to the backdating of stock options," he said. An advisory vote would address those concerns and ensure that pay is appropriately linked to performance, improving value for shareholders, he added.

UnitedHealth's board opposes the Hermes proposal.

"The company believes that its compensation policies and programs effectively serve the interests of shareholders and the company and are appropriately balanced and competitive to accomplish the crucial task for recruiting, motivating and retaining talented senior executives," UnitedHealth said in its proxy.

UnitedHealth's board opposes all four shareholder proposals on the agenda for the annual meeting.

The American Federation of Labor and Congress of Industrial Organizations proposes that a significant portion of future equity compensation grants to senior executives be shares of stock that require the achievement of performance goals as a prerequisite to vesting.

The Egan-Jones proxy service supports the CalPERS and Hermes proposals, as well as another shareholder proposal, from the Massachusetts Laborers' Pension Fund, to limit benefits provided by the supplemental executive retirement plan. The agency opposes the AFL-CIO proposal linking executive performance to vesting of shares, saying it could place the company at a competitive disadvantage in compensating management.

-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;

  URL for this article:

Copyright 2007 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit



This Forum program is open, free of charge, to all shareholders of the invited corporate participants, and to any fiduciaries or professionals concerned with the investment decisions of those shareholders, according to the posted Conditions of Participation.  The Forum's purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their investment interests described in the Forum Summary As stated in the Conditions, all Forum participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program has been organized with the support of Hermes Equity Ownership Services, Ltd.  It is the first in an expected series that will be managed by a not-for-profit “Institute” to be established for the purpose of continuing the Forum programs conducted by Gary Lutin.

Inquiries and requests to be included in the Forum's distribution list may be addressed to  The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material.

All material on this web site is published by Gary Lutin, who is responsible for conducting the Forum.