UnitedHealth shareholders give tepid support to $60M in stock-based pay for new CEO

UnitedHealth Group investors provided what looked like grudging support this week for a pay package that could deliver more than $60 million over three years to returning CEO Stephen Hemsley.

Hemsley, who was named chief executive last month, will receive $1 million per year in salary plus a one-time grant of $60 million in stock options, provided he works as CEO for three years, securities filings say.

Shareholders registered just 60% support for the compensation arrangement during a non-binding advisory vote that concluded Monday during UnitedHealth’s annual meeting, according to figures released Wednesday by the Eden Prairie-based company.

That’s a slimmer approval margin than investors provided during all other advisory “say-on-pay” votes held by the company since 2020, according to a Minnesota Star Tribune review of regulatory filings.

Before this week’s tally, the weakest recent show of support came in 2021, when about 73% of shares were voted in support of the company’s executive pay packages. In 2020 and then again each year between 2022 and 2024, about 95% of shares backed executive compensation at the company.

Last month, advisory firm Glass Lewis recommended investors support the pay package. Institutional Shareholder Services, however, advised voting against Hemsley’s pay because the “sizeable front-loaded award ... lacks performance conditions,” the group said in a report last month. The firms’ reports are often closely watched by investors.

UnitedHealth Group defended the compensation arrangement, saying it is “overwhelmingly performance-based, with most of the value materializing only if the stock price increases.”

The $60 million in stock-based pay was chosen because it represents the median among comparable CEO compensation packages at similar companies — “in other words, three times $20 million, for the $60 million one-time award,“ board member Tim Flynn said Monday during the company’s annual meeting.

The agreement includes a “three-year cliff vesting schedule,” which means Hemsley must stay the entire three years to earn any of the stock options, Flynn said.

Hemsley is replacing Andrew Witty, the UnitedHealth Group chief executive who stepped down last month amid financial missteps and a plummeting stock price.

In 2024, Witty’s one-year compensation declined 34% to $16.4 million. He was named senior adviser to UnitedHealth in May, but a regulatory filing Wednesday indicated that Witty, 60, is retiring.

The company referenced his move, without further comment, in a filing that noted a recent decision by a board committee to cancel certain performance-based restricted stock units that Witty was granted earlier this year.

“Mr. Witty agreed to the cancellation in connection with his retirement,” the company said in the filing.

During the company’s annual meeting this week, Hemsley apologized to shareholders for the recent financial performance at UnitedHealth Group, which has been rocked by unexpected medical costs in its Medicare Advantage business and related problems in its Optum Health network of clinics.

UnitedHealth runs UnitedHealthcare, the nation’s largest health insurer, and Optum, which sells a variety of health care services.

Hemsley also pledged to conduct outside reviews of the company’s risk adjustment practices, which have been at the center of controversy for years, plus other issues that have brought scrutiny to the company.

The returning CEO was not specific about what exactly the company would review, beyond outlining the general topics of risk coding, managed care practices and pharmacy services.

“Applying the best technology resources available, we will continue to strengthen and advance our existing audit compliance with these practices on a continuous basis and repeat the independent review process to update our practices and reaffirm our compliance annually,” Hemsley said. “We will be publicly transparent with these review processes to all stakeholders, so you can have the same confidence we have with this work.”