Administration May 7, 2006

UnitedHealth Tightens Reins on Stock Option Grants

July 5, 2006 (PLANSPONSOR.com) - After being lambasted by shareholders and slammed with lawsuits over its stock options grant practices, UnitedHealth Group has decided to pay its directors in cash for attending irregular and committee meetings, retiring its practice of offering them stock options, the St. Paul Business Journal reported.

Reported by

Adrien Martin

Board members had been allowed to convert their $1,500 fee for attending regular and special meetings into stock options until last Wednesday, when the board voted to only allow options for regular meetings. The same new policy also applies to the $1,000 fee members received for attending each committee meeting.

The Securities and Exchange Commission (SEC) said in May that it was looking into the health insurer’s stock options timing that included a $1.6 billion option for CEO William McGuire. The company said soon after that it might restate results that could reduce past earnings by as much as $236 million (See UnitedHealth Under Fire for Stock Options ). When options arebackdated, they are set at a low point in a company’s stock price instead of at the market value at the time of the award.

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Since then the company has been hit by several lawsuits, including claims by several large pension funds seeking to remedy the harm caused to UnitedHealth and its shareholders as a result of the alleged backdating.

One group, including St. Paul Teachers’ Retirement Fund Association, Public Employees’ Retirement System of Mississippi, Jacksonville Police & Fire Pension Fund, Louisiana Municipal Police Employees’ Retirement System and Louisiana Sheriffs’ Pension & Relief Fund, asked a court to prevent two of the company’s top executives from exercising their backdated stock options (See Public Pension Funds Sue UnitedHealth over Stock Option Grants ).

Two Ohio public pension funds – which together hold more than five million in UnitedHealth shares – soon followed, also filing a suit claiming that McGuire was allowed to “dictate his own compensation through the secret manipulation of the company’s stock option plans” for almost a decade (See UnitedHealth Sued Again Over Option Dating Allegations ).

As of July 3, the Associated Press reported that at least 51 public companies are under scrutiny by the SEC or the Justice Department for possible manipulation of options grants to boost their value to the recipients (See Options Backdating Net Snares More Suspect Firms).