Cognitive disconnect for insurance execs?

[Guest guest]

" The insurers expect that you should be remunerated appropriately

when

you deliver better outcomes based on EBM etc.

Yet, the whole insurance system is delivering a lower outcome for

the

USA compared with other countries.

There appears to be a disconnect here ... don't the insurance execs

suffer with some cognitive dissonance? "

Consider the following:

http://www.startribune.com/business/11093081.html

Story below:

McGuire's payday is a shame, if not a crimeHigh executive

pay at UnitedHealth Group has had ripple effects throughout the health

care industry, critics say.

By Neal St.

, Star Tribune

Last update: April 21, 2006 - 11:08 PM

You could view the conciliatory gesture last week by UnitedHealth Group

CEO Bill McGuire to voluntarily forgo any more millions in option grants

as a first try at a low-cost settlement with the Securities and Exchange

Commission (SEC).

It may take a lot more than that.

The government's top securities regulator is investigating the extent to

which McGuire, one of America's best-paid bosses, was able to pick the

dates of some of his option grants to coincide with low-water prices for

UNH's shares.

The company told the Star Tribune this week that the board of directors

had to approve the selected dates and that the practice was halted in

2005.

Still, some securities lawyers say, such practices may violate securities

laws, because they allow insiders to benefit from knowledge not available

to other shareholders.

" Dollar Bill " has made lots of news with cash-and-stock paydays

that have topped $100 million in recent years -- and he's still sitting

atop stock options valued at $1.6 billion. McGuire's admiring outside

board members -- 10 of whom have become millionaires through the sale of

their own appreciated stock in recent years -- have defended his

league-leading compensation on grounds that the giant health insurer's

stock price has been a superb performer.

However, the national scrutiny this week came amid news that the SEC is

investigating whether McGuire and the board broke any laws. The Minnesota

attorney general also has jumped into a shareholder suit seeking to get

to the bottom of the matter.

Others are less concerned with option-dating and more concerned with the

cumulative effects that big paydays for executives at UnitedHealth are

having on the health care industry.

" My thoughts relate more to UnitedHealth Group's pay in general,

rather than on the backdating issues, which are hard to parse due to

ambiguous legal standards, " said Broc Romanek, a former SEC lawyer,

corporate counsel and the editor of

TheCorporateCounsel.net and

CompensationStandards.com

..

" UnitedHealth Group's CEO serves as a good example of excessive CEO

pay being the fault of an aggressive CEO and a compliant board, which

impacted the pay structure of an entire industry, " Romenek

said.

In the managed-care sector, Romanek said, CEOs at Cigna HealthCare, Aetna

and WellPoint " have been historically overpaid because they used

McGuire as their peer group for benchmarking purposes. Clearly,

UnitedHealth is another one of those poster children for bad corporate

governance, even without the backdating scandal. All of these serve as a

reminder as to how much the CEO pay-setting process is

broken. "

McGuire, a physician, has led once-reeling United through 15 years of

unprecedented growth and profits, particularly over the past eight years.

UNH grew through consolidation of national competitors and as a seller of

innovative programs and back-office processing to other health insurers

trying to contain costs.

Now one of America's best-known billionaires, thanks to appearances this

week on national TV and in the Wall Street Journal, McGuire said he

believed that everything he and several other top executives and board

members did was acceptable and within United's corporate rules.

Several board members publicly praised McGuire's leadership and vision

and said he was more than entitled to a piece of the additional tens of

billions of market value added under his tenure.

Still, investors appear concerned. Despite posting more record quarterly

results this week, UNH shares are down so far in 2006, and off more than

20 percent from their high of 2005.

Institutional Shareholder Services, the influential shareholder advisory

group, said in a prepared statement Thursday that there " is not

sufficient evidence to prove backdating of options by the

company. "

Still, ISS said, it's concerned that the board's compensation committee

has failed in its duty to " provide oversight to the executive pay

practices and administered a flawed employment contract. The over $1

billion that Dr. McGuire currently holds in paper gains shows that the

committee has not applied the 'holy cow' test, as fiduciary duty

requires. "

In other words, this may be legal, but " holy cow. "

McGuire and his executive crew have set new standards for wealth that

have drawn envy as well as ire from country clubs and executive suites

nationally. Then there is the wrath of those who see such largesse as

simply too much -- particularly from a health care outfit, because there

are so many millions of Americans who lack basic health

insurance.

" Even if there's nothing illegal at United, this is the extreme of

obscenity in corporate governance, " said Brother Louis Deis,

the chancellor of St. 's University, a onetime successful

entrepreneur and a veteran board member who writes and lectures about

business ethics. " We must reward excellence in performance. But

handing people eternal paradise ... $1.6 billion worth of options is a

bit much. "

Neal St. • •

nstanthony@...