Grassley, Baucus Press for Details of UnitedHealth CEO’s Exit Compensation Package Amid Stock Options Backdating Scandal
WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, today asked the UnitedHealth Group a series of questions to gauge the appropriateness of a reported $1.1 billion exit compensation package for the company’s chief executive officer amid allegations of a stock options backdating scandal.
“You can’t pick up a newspaper these days without reading about corporate stock options back dating,” Grassley said. “The UnitedHealth situation is the most disturbing yet. The news reportsmake it sound like the CEO had the board of directors over a barrel and helped himself to whateverhe could get, even with the taint of stock options backdating allegations against him. I want to knowhow a top executive can lose his job for allegedly defrauding his company’s own investors, but still get rewarded with a billion dollars for doing it. Congress has a duty to the taxpayers to find out what happened at UnitedHealth, and figure out what to do to stop this flood of backdating scandals.”
Baucus said, “It’s unfortunate that some of our nation’s executives appear to be gaming thelaw to avoid paying their fair share of taxes on stock options and other benefits. Just as in the Enroncase, we need to understand how and why abuses may have occurred, in order to craft responsiblelegislation and slow this trend.”
In September, the committee convened a hearing to hear from the Justice Department, theSecurities and Exchange Commission, and the Internal Revenue Service about how they areresponding to stock options backdating and what Congress can do to aid their efforts. The hearingalso featured testimony from experts on whether the federal tax treatment of executive compensationis working as intended to discourage excessive executive compensation.
The text of the Grassley-Baucus letter to UnitedHealth Group officials follows here. Thesame letter went to three different officials.
October 18, 2006
Mr. James A. Johnson
Chairman, Compensation and Human Resources Committee
ATTN: Janis Leafgren
UnitedHealth Group
9900 Bren Road East
Mail Stop MN008-T010
Minnetonka, MN 55343
Dear Mr. Johnson:
We would like assistance from you in providing information to us and our staff regarding the factsand circumstances of the recent departure of Dr. William McGuire, UnitedHealth’s former CEO andChairman. We are concerned by recent press reports that Dr. McGuire may have received acompensation package upon his separation of approximately $1.1 billion in spite of allegations thathe had been actively involved and benefited from an options backdating scheme at UnitedHealth.
Various forms of compensation are provided favorable treatment under the tax code, including stockoptions, deferred compensation arrangements, and health care and other employee benefits. AsChairman and Ranking Member of the Finance Committee, it is our responsibility to oversee thesecompensation programs and our federal tax and benefits laws related thereto. To assist the FinanceCommittee in its review of Dr. McGuire’s compensation and actions of UnitedHealth employees,its board members, and outside parties, we request the following:
a. Provide copies of Dr. McGuire’s employment contract, deferred compensation and severanceplans and any other compensation arrangements, including expense reimbursements.
b. Provide all material, discussion, legal opinions, compensation studies and analysis or other relateditems used by the UnitedHealth board, compensation committee or other relevant governing bodywhen making its decisions regarding Dr. McGuire’s employment contract, deferred compensationand severance plans and any other compensation arrangements, including expense reimbursementsand any “gross-ups” paid to Dr. McGuire for federal or State and local taxes owed by Dr. McGuire.Provide all material with respect to these items, including but not limited to copies of minutes ofmeetings from UnitedHealth’s board, compensation committee or other relevant governing body aswell as resolutions or written actions regarding such transactions. Provide a copy of any settlementagreement or release of claims entered into with Dr. McGuire and explain how any amounts paidunder such agreement were determined.
c. Provide a list of any and all employee benefits which Dr. McGuire will continue to receive andcompany property or resources to which Dr. McGuire will continue to have access.
d. Identify consultants, accountants, lawyers and or other outside advisors used with respect to theitems requested in “a” and “b” above, and include names, addresses and total fees paid.
e. Provide copies of any conflicts of interest or similar policies. Explain whether such policies werefollowed and enforced with respect to Dr. McGuire. Please explain what, if any, changes to thesepolicies United Health is considering.
f. Explain what steps are being taken to remedy the various failures to maintain “[a]n appropriatetone at the top, adequate controls and discipline over the options granting process, and managementtransparency with the Board and its committees on executive compensation matters” as detailed inthe Report of Wilmer Cutler Pickering Hale and Dorr to the Special Committee of the Board ofDirectors of United Health Group, Inc.
g. Provide the amount of federal tax deductions claimed by UnitedHealth with respect tocompensation paid to Dr. McGuire since 1994. Provide the amount of such deductible compensationthat has been “performance-based” and what criteria or metrics were used to determine ifcompensation was deemed “performance-based.”
h. Provide a description of all non-qualified deferred compensation arrangements sponsored byUnitedHealth and who is covered by such arrangements. Provide a description of all qualifiedretirement plans and who is covered by such plans.
i. Explain how UnitedHealth and its board has complied with its State law fiduciary duties in itsactions regarding the hiring, retention, compensation of, and termination of Dr. McGuire.
Thank you for your time and assistance. Please provide the answers to these questions by November9, 2006.
Sincerely,
Charles E. Grassley
Chairman
Max Baucus
Ranking Member
CC: The Honorable Alberto R. Gonzales, U.S. Department of Justice
The Honorable Mark Everson, Internal Revenue Service
The Honorable Christopher Cox, U.S. Securities and Exchange Commission
October 18, 2006
Mr. Stephen J. Hemsley
President and Chief Operating Officer
ATTN: Janis Leafgren
UnitedHealth Group
9900 Bren Road East
Mail Stop MN008-T010
Minnetonka, MN 55343
Dear Mr. Hemsley:
We would like assistance from you in providing information to us and our staff regarding the factsand circumstances of the recent departure of Dr. William McGuire, UnitedHealth’s former CEO andChairman. We are concerned by recent press reports that Dr. McGuire may have received acompensation package upon his separation of approximately $1.1 billion in spite of allegations thathe had been actively involved and benefited from an options backdating scheme at UnitedHealth.
Various forms of compensation are provided favorable treatment under the tax code, including stockoptions, deferred compensation arrangements, and health care and other employee benefits. AsChairman and Ranking Member of the Finance Committee, it is our responsibility to oversee thesecompensation programs and our federal tax and benefits laws related thereto. To assist the FinanceCommittee in its review of Dr. McGuire’s compensation and actions of UnitedHealth employees,its board members, and outside parties, we request the following:
a. Provide copies of Dr. McGuire’s employment contract, deferred compensation and severanceplans and any other compensation arrangements, including expense reimbursements.
b. Provide all material, discussion, legal opinions, compensation studies and analysis or other relateditems used by the UnitedHealth board, compensation committee or other relevant governing bodywhen making its decisions regarding Dr. McGuire’s employment contract, deferred compensationand severance plans and any other compensation arrangements, including expense reimbursementsand any “gross-ups” paid to Dr. McGuire for federal or State and local taxes owed by Dr. McGuire.Provide all material with respect to these items, including but not limited to copies of minutes ofmeetings from UnitedHealth’s board, compensation committee or other relevant governing body aswell as resolutions or written actions regarding such transactions. Provide a copy of any settlementagreement or release of claims entered into with Dr. McGuire and explain how any amounts paidunder such agreement were determined.
c. Provide a list of any and all employee benefits which Dr. McGuire will continue to receive andcompany property or resources to which Dr. McGuire will continue to have access.
d. Identify consultants, accountants, lawyers and or other outside advisors used with respect to theitems requested in “a” and “b” above, and include names, addresses and total fees paid.
e. Provide copies of any conflicts of interest or similar policies. Explain whether such policies werefollowed and enforced with respect to Dr. McGuire. Please explain what, if any, changes to thesepolicies United Health is considering.
f. Explain what steps are being taken to remedy the various failures to maintain “[a]n appropriatetone at the top, adequate controls and discipline over the options granting process, and managementtransparency with the Board and its committees on executive compensation matters” as detailed inthe Report of Wilmer Cutler Pickering Hale and Dorr to the Special Committee of the Board ofDirectors of United Health Group, Inc.
g. Provide the amount of federal tax deductions claimed by UnitedHealth with respect tocompensation paid to Dr. McGuire since 1994. Provide the amount of such deductible compensationthat has been “performance-based” and what criteria or metrics were used to determine ifcompensation was deemed “performance-based.”
h. Provide a description of all non-qualified deferred compensation arrangements sponsored byUnitedHealth and who is covered by such arrangements. Provide a description of all qualifiedretirement plans and who is covered by such plans.
i. Explain how UnitedHealth and its board has complied with its State law fiduciary duties in itsactions regarding the hiring, retention, compensation of, and termination of Dr. McGuire.
Thank you for your time and assistance. Please provide the answers to these questions by November9, 2006.
Sincerely,
Charles E. Grassley
Chairman
Max Baucus
Ranking Member
CC: The Honorable Alberto R. Gonzales, U.S. Department of Justice
The Honorable Mark Everson, Internal Revenue Service
The Honorable Christopher Cox, U.S. Securities and Exchange Commission
October 18, 2006
Mr. Richard T. Burke
Non-executive Chairman
ATTN: Janis Leafgren
UnitedHealth Group
9900 Bren Road East
Mail Stop MN008-T010
Minnetonka, MN 55343
Dear Mr. Burke:
We would like assistance from you in providing information to us and our staff regarding the factsand circumstances of the recent departure of Dr. William McGuire, UnitedHealth’s former CEO andChairman. We are concerned by recent press reports that Dr. McGuire may have received acompensation package upon his separation of approximately $1.1 billion in spite of allegations thathe had been actively involved and benefited from an options backdating scheme at UnitedHealth.
Various forms of compensation are provided favorable treatment under the tax code, including stockoptions, deferred compensation arrangements, and health care and other employee benefits. AsChairman and Ranking Member of the Finance Committee, it is our responsibility to oversee thesecompensation programs and our federal tax and benefits laws related thereto. To assist the FinanceCommittee in its review of Dr. McGuire’s compensation and actions of UnitedHealth employees,its board members, and outside parties, we request the following:
a. Provide copies of Dr. McGuire’s employment contract, deferred compensation and severanceplans and any other compensation arrangements, including expense reimbursements.
b. Provide all material, discussion, legal opinions, compensation studies and analysis or other relateditems used by the UnitedHealth board, compensation committee or other relevant governing bodywhen making its decisions regarding Dr. McGuire’s employment contract, deferred compensationand severance plans and any other compensation arrangements, including expense reimbursementsand any “gross-ups” paid to Dr. McGuire for federal or State and local taxes owed by Dr. McGuire.Provide all material with respect to these items, including but not limited to copies of minutes ofmeetings from UnitedHealth’s board, compensation committee or other relevant governing body aswell as resolutions or written actions regarding such transactions. Provide a copy of any settlementagreement or release of claims entered into with Dr. McGuire and explain how any amounts paidunder such agreement were determined.
c. Provide a list of any and all employee benefits which Dr. McGuire will continue to receive andcompany property or resources to which Dr. McGuire will continue to have access.
d. Identify consultants, accountants, lawyers and or other outside advisors used with respect to theitems requested in “a” and “b” above, and include names, addresses and total fees paid.
e. Provide copies of any conflicts of interest or similar policies. Explain whether such policies werefollowed and enforced with respect to Dr. McGuire. Please explain what, if any, changes to thesepolicies United Health is considering.
f. Explain what steps are being taken to remedy the various failures to maintain “[a]n appropriatetone at the top, adequate controls and discipline over the options granting process, and managementtransparency with the Board and its committees on executive compensation matters” as detailed inthe Report of Wilmer Cutler Pickering Hale and Dorr to the Special Committee of the Board ofDirectors of United Health Group, Inc.
g. Provide the amount of federal tax deductions claimed by UnitedHealth with respect tocompensation paid to Dr. McGuire since 1994. Provide the amount of such deductible compensationthat has been “performance-based” and what criteria or metrics were used to determine ifcompensation was deemed “performance-based.”
h. Provide a description of all non-qualified deferred compensation arrangements sponsored byUnitedHealth and who is covered by such arrangements. Provide a description of all qualifiedretirement plans and who is covered by such plans.
i. Explain how UnitedHealth and its board has complied with its State law fiduciary duties in itsactions regarding the hiring, retention, compensation of, and termination of Dr. McGuire.
Thank you for your time and assistance. Please provide the answers to these questions by November9, 2006.
Sincerely,
Charles E. Grassley
Chairman
Max Baucus
Ranking Member
CC: The Honorable Alberto R. Gonzales, U.S. Department of Justice
The Honorable Mark Everson, Internal Revenue Service
The Honorable Christopher Cox, U.S. Securities and Exchange Commission
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