As I scrolled through my Twitter feed the other day, I noticed a lot of chatter about UnitedHealthcare Group. Given that compensation dark arts tend to occur with battleground stocks, I decided to take a closer look at the filings.
It’s hard to paint a darker picture for UnitedHealthcare in the past couple of months.
April 17: Missed earnings and suspends guidance
May 12: CEO steps down
May 14: WSJ reports a criminal investigation into the company
May 21: Article from The Guardian describing secret nursing home payments
July 9: Article from the WSJ criticizing Medicare billing practices
Etc.
From the date of the original earnings miss, United stock fell from $585 to $300. You don’t typically see this kind of drawdown in a former compounder.
Many have put United stock in the “too hard” pile at this point. The business (and the overall US healthcare system) is incredibly complicated to understand, and I have absolutely zero value-add as a Canadian. Fortunately, there are some compensation decisions that I feel compelled to flag.
When United’s former CEO stepped down on May 12, the board immediately appointed Steve Hemsley, Chair of the Board, to take over as CEO. His compensation included the following: $1MM base salary, no annual bonus, and a one-time $60MM equity award comprised purely of stock options.
Here are some details pertaining to the stock options:
602,777 options
$308.01 exercise price
10-year term
Cliff-vest after 3 years
No other equity awards for Hemsley for the next 3 years
If a termination without cause or for good reason occurs during the first year of his employment, he will receive a full year of service credit
Severance benefits include two times his annual base salary, and continued vesting of options during a 24-month severance period
For comparison, United’s former CEO compensation was typically: $1.5MM of salary, no bonus, $5MM in options, $5MM in RSUs and $15MM in PSUs.
I find the new CEO’s compensation particularly interesting for the following reasons:
Hemsley is arguably one of the most knowledgeable insiders. He was the company’s CEO from 2006-2017 and chair of the board from 2017 until present day.
Nobody is more equipped to know what is going inside and outside the company than him.
He is risking a significant amount of reputation by coming back as the CEO.
Hemsley would have had a hand in forming his compensation structure. He did not request any RSUs or PSUs, only stock options.
He also negotiated a front-loading of his stock options, which is typically a very bullish sign.
If United stock returns to $585, the options could be worth +$167MM
My understanding is that the stock options essentially vest even if Hemsley is terminated or resigns before he completes three years of service.
He would get a full year of service credit, in addition to continued vesting during the 24-month severance period.
Hemsley bought ~$25MM of United stock on the open market at $288 on May 16, 2025
His form 4 shows that he owns ~1.1MM United shares worth ~$330MM
United’s President/CFO also bought ~$5MM of United stock on the same day
There’s a lot of hair on this one, but insider moves suggest that things aren’t all that bad. Maybe even bullish…