The controversy over UnitedHealth Group’s share option grants could give share options a bad name – had they not already been tarred by the excesses of the boom years. Admittedly, UnitedHealth’s stock has been a hit. Citigroup calculates that if the chief executive’s options had a strike price set at the average price for the year – as distinct from particularly advantageous strike prices, as its critics maintain – the options would still be worth over $1bn. In other words, blame the market, not lax procedures, for this eye-popping wealth.
Still, procedures do matter. UnitedHealth disclosed policies in its SEC filing that should have been best practice everywhere for every company. It should be obvious, for example, that only the compensation committee should have the authority to grant stock options. The same applies to picking the exercise price. Flexibility on this is bound to raise questions, even if there has been proper disclosure. Fixing a regular annual date for the grant of stock options – as UnitedHealth now does – is clearly sensible. Companies could go even further by flagging to the market in advance when executives intend actually to exercise their options.
But this debate has stirred up something more than irritation at share options. There is growing concern that absolute levels of total chief executive compensation, benefits in pensions and healthcare and non-cash perks are breeding resentment among employees who perceive their own benefits are being pared back with little in the way of wage inflation.
Against this background, it was not surprising that United scrapped golden parachutes and further equity-based awards for a select few. Too many other companies are showing a tin ear to the current mood, at the risk of investor ire.