Definitive Notice & Proxy Statement
Table of Contents

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

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UnitedHealth Group Incorporated


(Name of Registrant as Specified In Its Charter)

 


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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LOGO

 

April 13, 2011

     9900 Bren Road East, Minnetonka, Minnesota 55343   

Dear Shareholder:

We cordially invite you to attend our 2011 Annual Meeting of Shareholders. We will hold our meeting on Monday, May 23, 2011 at 10:00 a.m. Pacific Time at Anthony Marlon Auditorium, 2700 North Tenaya Way, Las Vegas, Nevada 89128. This is the operating site of our UnitedHealthcare plan servicing Nevada.

UnitedHealth Group achieved strong business and financial results in 2010 during challenging economic conditions. Our success was driven by strong revenue growth and consistent execution on the fundamentals of medical cost management, product development and innovation, and responsive customer service. We bring this focus on performance to every aspect of our enterprise and how we conduct ourselves and our businesses. This includes our commitment to strong corporate governance. As a shareholder of UnitedHealth Group, you have an important role to play in the oversight of our governance practices by considering and taking action on the matters set forth in the attached proxy statement. We appreciate the time and attention you invest in making thoughtful decisions.

Attached you will find a notice of meeting and proxy statement that contain further information about the items upon which you will be asked to vote and the meeting itself, including:

 

   

How to obtain admission to the meeting if you plan to attend; and

 

   

Different methods you can use to vote your proxy, including by Internet and telephone.

Every shareholder vote is important. We encourage you to vote by Internet or telephone, or complete, sign and return your proxy prior to the meeting, even if you plan to attend. To ensure your vote is counted at the Annual Meeting, please vote as promptly as possible. After you vote, we are pleased to offer you the opportunity to confirm that your vote was counted, which you can learn more about in Question 15 of the “Questions and Answers about the Annual Meeting and Voting” section in the attached proxy statement.

If you cannot attend the meeting in person, you may listen to the meeting via webcast. Instructions on how to access the live webcast are included in the attached proxy statement.

Sincerely,

LOGO

Stephen J. Hemsley

President and Chief Executive Officer

LOGO

Richard T. Burke

Chairman of the Board


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LOGO

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO THE SHAREHOLDERS OF UNITEDHEALTH GROUP INCORPORATED:

UnitedHealth Group Incorporated (the “Company”) will hold its Annual Meeting of Shareholders on Monday, May 23, 2011 at 10:00 a.m. Pacific Time at Anthony Marlon Auditorium, 2700 North Tenaya Way, Las Vegas, Nevada 89128. The purposes of the meeting are:

 

  1. To elect the ten nominees that are set forth in the attached proxy statement to the Company’s Board of Directors.

 

  2. To cast an advisory (non-binding) vote to approve executive compensation (a “Say-on-Pay” vote).

 

  3. To cast an advisory (non-binding) vote on the frequency of holding a Say-on-Pay vote.

 

  4. To approve the UnitedHealth Group 2011 Incentive Stock Plan.

 

  5. To approve an amendment to the UnitedHealth Group 1993 Employee Stock Purchase Plan to increase the number of shares of common stock issuable thereunder.

 

  6. To ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2011.

 

  7. To transact other business that properly may come before the Annual Meeting or any adjournments or postponements of the meeting.

Only shareholders of record of the Company’s common stock at the close of business on March 24, 2011 are entitled to receive notice of and to vote at the meeting and any adjournments or postponements of the meeting.

BY ORDER OF THE BOARD OF DIRECTORS,

LOGO

Dannette L. Smith

Secretary to the Board of Directors

April 13, 2011

We cordially invite you to attend our Annual Meeting. We encourage you to vote by Internet or telephone, or complete, sign and return your proxy prior to the meeting even if you plan to attend. If you later choose to revoke your proxy, you may do so at any time before it is exercised at the Annual Meeting by following the procedures described under Question 13 of the “Questions and Answers about the Annual Meeting and Voting” section in the attached proxy statement.

 

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 23, 2011:

The Notice of Internet Availability of Proxy Materials, Notice of Annual Meeting,

Proxy Statement, Annual Report on Form 10-K and the Summary Annual Report

are available at

www.unitedhealthgroup.com/proxymaterials.


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TABLE OF CONTENTS

 

     Page  

Summary Proxy Statement

     1   

Questions And Answers About the Annual Meeting and Voting

     9   

Security Ownership of Certain Beneficial Owners and Management

     17   

Section 16(a) Beneficial Ownership Reporting Compliance

     19   

Proposal 1 — Election Of Directors

     19   

Corporate Governance

     26   

Overview

     26   

Corporate Governance Practices

     26   

Principles of Governance

     28   

Code of Business Conduct and Ethics

     28   

Ethics & Compliance HelpCenter

     28   

Director Independence

     29   

Independent Board Leadership

     30   

Risk Oversight

     31   

Board Meetings and Annual Meeting Attendance

     32   

Board Committees

     33   

Communication with the Board of Directors

     34   

Executive Compensation

     35   

Compensation Discussion and Analysis

     35   

Compensation and Human Resources Committee Report

     57   

2010 Summary Compensation Table

     58   

2010 Grants of Plan-Based Awards

     62   

Outstanding Equity Awards at 2010 Fiscal Year-End

     66   

2010 Option Exercises and Stock Vested

     68   

2010 Pension Benefits

     70   

2010 Non-Qualified Deferred Compensation

     71   

Executive Employment Agreements

     72   

Potential Payments Upon Termination or Change-in-Control

     75   

Proposal 2 — Advisory (Non-Binding) Vote to Approve Executive Compensation

     77   

Proposal 3 — Advisory (Non-Binding) Vote on the Frequency of Holding a Say-on-Pay Vote

     78   

Proposal 4 — Approval of Unitedhealth Group 2011 Stock Incentive Plan

     79   

Proposal 5 — Approval of Amendment of UnitedHealth Group 1993 Employee Stock Purchase Plan

     85   

Director Compensation

     89   

Cash Compensation

     89   

Equity-Based Compensation

     90   

Other Compensation

     91   

Stock Ownership Guidelines

     91   

2010 Director Compensation Table

     92   

Certain Relationships and Transactions

     94   

Compensation Committee Interlocks and Insider Participation

     96   

Audit Committee Report

     96   

Independent Registered Public Accounting Firm

     97   

Proposal 6 — Ratification of Independent Registered Public Accounting Firm

     98   

Other Matters at Meeting

     99   


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LOGO

UnitedHealth Group Center

9900 Bren Road East

Minnetonka, Minnesota 55343

 

 

PROXY STATEMENT

FOR

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 23, 2011

 

 

 

SUMMARY PROXY STATEMENT

 

This summary is new for us. It is designed to make it easier for you to understand the matters to be acted upon at the 2011 Annual Meeting of Shareholders. This summary discusses key aspects of our corporate governance, executive compensation and the proposals to be voted on at the annual meeting. We encourage you to review the entire proxy statement prior to determining how you wish to vote your shares.

We are holding our 2011 Annual Meeting of Shareholders on Monday, May 23, 2011 at 10:00 a.m. Pacific Time at Anthony Marlon Auditorium, 2700 North Tenaya Way, Las Vegas, Nevada 89128. This is the operating site of our UnitedHealthcare plan servicing Nevada.

Your Vote is Important

We encourage you to vote by Internet or telephone, or complete, sign and return your proxy prior to the meeting even if you plan to attend. After you vote, you may confirm that your shares were voted in accordance with your instructions. Immediately following this summary is a Question and Answer section that provides information about how to vote your shares and how to confirm your vote.

This Proxy Statement, our Summary Annual Report to Shareholders and our Annual Report on Form 10-K for the year ended December 31, 2010 are first being mailed to the Company’s shareholders and made available on the Internet at www.unitedhealthgroup.com/proxymaterials on or about April 13, 2011.


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Company Overview

UnitedHealth Group is a diversified health and well-being company whose focus is on improving the overall health and well-being of the people we serve and their communities and enhancing the performance of the health system. We achieved strong business results in 2010 in a difficult economic environment. Some of our key business results were as follows:

 

   

revenues increased to $94.2 billion in 2010 from $87.1 billion in 2009, an 8% increase over 2009;

 

   

operating income was $7.9 billion in 2010 compared to $6.4 billion in 2009, a 24% increase over 2009;

 

   

net earnings increased to $4.6 billion in 2010 from $3.8 billion in 2009, a 21% increase over 2009;

 

   

cash flow was $6.3 billion in 2010 compared to $5.6 billion in 2009, an 11.5% increase over 2009;

 

   

earnings per share increased 26.5%;

 

   

dividend payable to shareholders increased from $0.03 per share annually to $0.125 quarterly ($0.50 per share annually); and

 

   

total shareholder return was 19.8%.

Achievement of the Company’s financial performance was due in large part to our success on a broad range of initiatives that were designed to address the expected difficult economic environment in 2010. These initiatives were also intended to position the Company for future growth in connection with the expected economic recovery by introducing innovative products and services, ever improving service experience to consumers and care providers, reducing medical cost trends while improving outcomes, lowering operating costs through increased productivity and brand recognition and reputational advances.

Corporate Governance

UnitedHealth Group is committed to meeting high standards of ethical behavior, corporate governance and business conduct in everything we do, every day. This commitment has led us to implement the following practices:

 

   

Board Structure Each member of our Board of Directors is elected annually by our shareholders by a majority vote. We have independent Board leadership, and each of our directors (other than our CEO) is independent.

 

   

Board Composition — We encourage diversity and inclusion in all our business operations. Our Board’s consideration of nominees for director reflects its consideration of diversity and the broad range of experience, skills and attributes that should be represented on the Board. We also established a unique Nominating Advisory Committee comprised of members from the medical and shareholder communities to provide us with additional input from shareholders and others regarding desirable characteristics of director candidates and the composition of the Board.

 

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Executive Sessions — Our Board of Directors and each Board committee meet in executive sessions with only non-management directors present at least four times per year.

 

   

Succession Planning — Our Board of Directors developed and annually reviews our CEO succession plan, which addresses both an unexpected loss of our CEO and a longer-term succession plan.

 

   

Stock Ownership and Retention Guidelines — We maintain stock ownership guidelines and stock retention requirements for directors and executive officers. Although the stock ownership guidelines require our CEO to own shares equal to 5x his base salary, Mr. Hemsley owned shares equal to 88x his base salary as of March 24, 2011.

 

   

Clawback Policy — We may recover cash incentive compensation and equity awards from senior executives in the event of fraud or misconduct resulting in a restatement of the Company’s financial statements.

 

   

Independent Compensation Consultant — Our Compensation and Human Resources Committee uses an independent compensation consultant.

 

   

Political Contributions Policy — We disclose our political contributions, and the contributions of our federal and state political action committees, semi-annually and as required by law.

 

   

Environmental Policy — Our environmental policy outlines our focus on minimizing our impact on the environment and creating a Company culture that heightens our employees’ awareness of the importance of preserving the environment and conserving energy and natural resources.

 

   

Transactions in Company Securities — Our insider trading policy prohibits short sales of shares of our common stock by all directors and employees, including executive officers, and discourages all employees from engaging in any hedging transactions relating to our common stock.

Enterprise-Wide Risk Oversight

Our Board of Directors oversees management’s enterprise-wide risk evaluation and management activities. Management’s risk management activities include assessing and taking actions necessary to manage risk incurred in connection with the long-term strategic direction and operation of our business.

 

   

Role of Board Committees — Our Board committees assist in the Board’s risk oversight function. Specifically our:

 

  §  

Audit Committee oversees our internal controls and compliance activities. The Audit Committee also oversees management’s processes to identify and quantify material risks facing the Company. In connection with its risk oversight role, the Audit Committee regularly meets privately with representatives from the Company’s independent registered public accounting firm, the Company’s General Auditor, and the Company’s General Counsel;

 

  §  

Compensation Committee oversees risk associated with our compensation practices and plans;

 

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  §  

Nominating Committee oversees board processes and corporate governance-related risk; and

 

  §  

Public Policy Strategies and Responsibility Committee oversees risk associated with the Company’s activities in the public policy arena, including health care reform and modernization activities, political contributions, government relations, community and charitable activities and corporate social responsibility.

Executive Compensation

We have an executive compensation program that allows us to attract and retain highly qualified executives and maintain a strong relationship between executive pay and Company performance.

 

   

Our Overall Compensation Program Principles

 

  §  

Pay-for-Performance — A substantial portion of the total compensation of our executive officers is comprised of annual and long-term incentive payments that are earned upon achievement of financial and non-financial outcomes that either influence or contribute to shareholder value creation.

 

  §  

Enhance the prosperity of our business — Our compensation program is significantly weighted towards long-term performance. In addition, we base cash incentives on achieving goals and objectives that encourage executive officers to weigh the longer-term prosperity and success of the Company while avoiding excessive risk-taking in the short-term.

 

  §  

Reward long-term growth and sustained profitability — Compensation of our executive officers is heavily weighted toward equity and long-term cash awards. These awards require sustained financial performance by the Company to deliver significant value, encourage our executive officers to manage and lead the Company to deliver continued growth over an extended period of time, help us to retain executive officers who are vital to our long-term success, and align the interests of our executive officers and our shareholders.

 

  §  

Modest benefits and limited perquisites — We provide standard employee benefits and limited perquisites or other forms of compensation to our executive officers.

 

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Components of Compensation Paid to Named Executive Officers for Fiscal Year 2010

 

Compensation Element   Objective   Type of
Compensation

Base salary

  To provide a base level of cash
compensation for executive  officers
  Annual cash compensation,
not at risk

Annual cash incentive awards

  To encourage and reward executive
officers for achieving annual
corporate performance goals
  Annual performance
compensation, at risk

Long-term cash incentive awards

  To encourage and reward executive
officers for achieving three-year
corporate performance goals
  Long-term performance
compensation, at risk

Equity awards

  To motivate and retain executive
officers and align their interests
with shareholders through the use of:

 

•     Stock Appreciation Rights to
encourage performance that
contributes to sustained
stock price appreciation;

 

•     Performance shares to
motivate sustained
performance and growth;
and

 

•     Restricted Stock Units to
retain executive officers and
build stock ownership
positions.

  Long-term performance
compensation, at risk

Employee benefits

  The smallest part of total
remuneration promotes health, well-
being and financial security of
employees, including executive
officers
  Annual indirect
compensation, not at risk

 

   

Summary of Compensation Paid to Stephen Hemsley, our CEO, in 2010

 

  §  

Base Salary — $1.3 million, which has not been increased since 2006.

 

  §  

Annual Cash Incentive Award — $3.4 million.

 

  §  

Long-term Cash Incentive Award for the 2008 – 2010 Performance Period — $0.

 

  §  

Equity Awards — Performance shares with a targeted grant date value of approximately $3 million, stock appreciation rights with a grant date fair value of approximately $1.5 million, and restricted stock units with a grant date fair value of approximately $1.5 million.

 

  §  

Company Matching Contributions — approximately $107,300 under our 401(k) and Executive Savings Plan.

Although Mr. Hemsley’s total compensation is below the median as compared to other CEOs in the Company’s peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him.

 

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Summary of Compensation Paid to Each of Our Other Named Executive Officers in 2010

 

  §  

Base Salary — $700,000 for each of our other named executive officers, which reflected our desire to encourage executive teamwork and success across all of the Company’s business lines.

 

  §  

Annual Cash Incentive Awards — $1.4 million (one named executive officer also received a $205,000 bonus pursuant to an employment agreement).

 

  §  

Long-term Cash Incentive Award for the 2008 – 2010 Performance Period — $0.

 

  §  

Equity Awards — Performance shares with a targeted grant date value of approximately $2 million, stock appreciation rights with a grant date fair value of approximately $1 million and restricted stock units with a grant date fair value of approximately $1 million.

 

  §  

Company Matching Contributions — Between approximately $25,000 and $65,000 under our 401(k) and Executive Savings Plan.

 

  §  

Other Compensation — Limited perquisites and other payments to some named executive officers as set forth in the Summary Compensation Table.

Proposal 1 — Election of Directors

The Board has nominated ten candidates for election to our Board of Directors. Nine of these candidates were elected to the Board by a majority of the shares voted at the 2010 Annual Meeting and one candidate is up for election for the first time, after being appointed to the Board in February 2011. The Nominating Committee has evaluated each of the candidates using a skills matrix developed to ensure the appropriate balance of experience, skill and attributes of each director and the Board as a whole. The name, age, years of service, biographical description, and specific skills and attributes of our skills matrix held by each director candidate are provided beginning on page 23 of this proxy statement.

The Board recommends that shareholders vote FOR the election of each nominee.

Proposal 2 — Advisory (Non-Binding) Vote to Approve Executive Compensation

The Board is seeking an advisory shareholder vote on executive compensation. Before considering this proposal, we encourage you to read our Compensation Discussion and Analysis which explains the Compensation Committee’s compensation decisions and how our executive compensation program aligns the interests of our executive officers with those of our shareholders by emphasizing the achievement of financial and non-financial outcomes that either influence or contribute to shareholder value creation. This vote is not intended to address any specific item of compensation, but rather provide the Compensation Committee information about shareholder sentiment on our overall compensation philosophy and practices relating to our named executive officers. Although the vote is advisory and is not binding on the Board, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions. More detail on the advisory (non-binding) vote to approve executive compensation may be found on page 77.

The Board recommends that shareholders vote FOR the approval of the Company’s executive compensation.

 

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Proposal 3 — Advisory (Non-Binding) Vote on the Frequency of Holding a Say-on-Pay Vote

The Board is seeking shareholders’ views on how frequently the Company should submit to shareholders an advisory vote to approve executive compensation. Shareholders may vote to hold a Say-on-Pay advisory vote every one, two or three years or abstain. More detail on the advisory (non-binding) vote on the frequency of holding a Say-on-Pay vote may be found on page 78.

The Board recommends that shareholders vote to hold the Say-on-Pay vote EVERY YEAR.

Proposal 4 — Approval of UnitedHealth Group 2011 Stock Incentive Plan

The Board recommends the approval of the UnitedHealth Group Incorporated 2011 Stock Incentive Plan, which is a new plan that would succeed our 2002 Stock Incentive Plan. Approval of the 2011 Plan would decrease the total number of shares available for granting new equity awards by approximately 8.9 million, from 182,747,204 shares currently available to 173,805,623 shares. Approval of the 2011 Plan would also increase the sublimit of shares available to grant as restricted stock, restricted stock units and special full value shares. The 173,805,623 authorized, but unissued shares of common stock subject to the 2011 Plan includes 123,805,623 shares subject to previously granted and outstanding awards under the 2002 Plan. The purpose of the 2011 Plan is to aid in attracting and retaining employees, management and members of the Board of Directors who are capable of contributing greatly to the future success of the Company and to incent them to put forth maximum efforts for the success of the Company’s business. This new stock incentive plan is described in more detail beginning on page 79 of this proxy statement and the plan is set forth in its entirety in Exhibit A to this proxy statement.

The Board recommends that shareholders vote FOR approval of the UnitedHealth Group Incorporated 2011 Stock Incentive Plan.

Proposal 5 — Approval of Amendment of UnitedHealth Group 1993 Employee Stock Purchase Plan

The Board recommends the approval of an amendment of the UnitedHealth Group 1993 Employee Stock Purchase Plan. This amendment would increase the number of shares of common stock available for purchase by 20 million shares. Our Board of Directors adopted the amendment to the Employee Stock Purchase Plan, subject to shareholder approval, and the amended Employee Stock Purchase Plan will become effective when shareholder approval is obtained. We believe the Employee Stock Purchase Plan will continue to be a valuable tool in motivating our employees, increasing the employees’ efforts and contributions to our growth and success and encouraging employees to remain in the employ of the Company or its participating affiliates. More detail on the 1993 Employee Stock Purchase Plan and the proposed amendment may be found beginning on page 85 and the proposed amendment is set forth in Exhibit B to this proxy statement.

The Board recommends that shareholders vote FOR approval of the amendment of the UnitedHealth Group Incorporated 1993 Employee Stock Purchase Plan.

 

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Proposal 6 — Ratification of Independent Registered Public Accounting Firm

The Audit Committee has appointed Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2011. The Board is seeking shareholder ratification of this appointment. If shareholders do not ratify the appointment of Deloitte & Touche LLP, the Audit Committee will reconsider the appointment but is not obligated to appoint another independent registered public accounting firm. More detail on the ratification of our independent registered accounting firm may be found on page 98.

The Board recommends that shareholders vote FOR ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2011.

Information About the Notice of Internet Availability of Proxy Materials

Instead of mailing to each shareholder a printed copy of our proxy materials, including our Proxy Statement, Summary Annual Report to Shareholders and Annual Report on Form 10-K, we are again providing shareholders access to these materials in a fast and efficient manner via the Internet. This reduces the amount of paper necessary to produce these materials, as well as the costs associated with mailing these materials to all shareholders. Accordingly, on April 13, 2011, we began mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) to some of our shareholders and posted our proxy materials on the website referenced in the Notice (www.unitedhealthgroup.com/proxymaterials ). As more fully described in the Notice, shareholders may choose to access our proxy materials on the website referred to in the Notice or may request to receive a printed set of our proxy materials. In addition, the Notice and website provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.

 

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

 

1. What is the purpose of the Annual Meeting?

At the Annual Meeting, shareholders will act upon the matters outlined in the Notice of Annual Meeting of Shareholders. These include the election of directors, an advisory (non-binding) vote to approve executive compensation, an advisory (non-binding) vote on the frequency of holding a Say-on-Pay vote, a vote approving the Company’s 2011 Stock Incentive Plan, a vote approving an amendment to the Company’s 1993 Employee Stock Purchase Plan to increase the number of shares of common stock issuable thereunder, and ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm. Also, once the business of the Annual Meeting is concluded, management of the Company will give a business update. Management, Chairs of each standing Board committee and representatives of Deloitte & Touche LLP will be available to respond to questions from shareholders.

 

2. What is a proxy?

It is your legal designation of another person to vote the stock you own in the manner you direct. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. We have designated Christopher J. Walsh and Dannette L. Smith to serve as proxies for the Annual Meeting. The Board of Directors will use the proxies at the 2011 Annual Meeting of Shareholders. The proxies may also be voted at any adjournments or postponements of the meeting.

 

3. What is a proxy statement?

It is a document we give you as a shareholder when we are soliciting your vote pursuant to Securities and Exchange Commission (“SEC”) regulations.

 

4. What is the difference between a shareholder of record and a shareholder who holds stock in street name?

Shareholders of Record.    If your shares are registered in your name with our transfer agent, Wells Fargo Shareowner Services, you are a shareholder of record with respect to those shares and the Notice or the proxy materials were sent directly to you by Broadridge Financial Solutions.

Street Name Holders.    If you hold your shares in an account at a bank or broker, then you are the beneficial owner of shares held in “street name.” The Notice or proxy materials were forwarded to you by your bank or broker, who is considered the shareholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your bank or broker on how to vote the shares held in your account.

 

5. How many shares must be present to hold the Annual Meeting?

In order for us to conduct the Annual Meeting, holders of a majority of the shares entitled to vote as of the close of business on the record date must be present in person or by proxy. This constitutes a quorum. Your shares are counted as present if you attend the Annual Meeting and vote in person, if you properly vote your proxy over the Internet or by telephone or if you properly return a proxy card or voting instruction form by mail. Abstentions and broker non-votes will be counted as present for purposes of establishing a quorum. If a quorum is not present, we will adjourn the Annual Meeting until a quorum is obtained.

 

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6. How can I access the proxy materials for the Annual Meeting?

Shareholders may access the proxy materials, which include the Notice of Annual Meeting, Proxy Statement (including a form of proxy card), Summary Annual Report to Shareholders and Annual Report on Form 10-K for the year ended December 31, 2010 on the Internet at www.unitedhealthgroup.com/proxymaterials. We will also provide a hard copy of any of these documents free of charge upon request to: UnitedHealth Group Incorporated, 9900 Bren Road East, Minnetonka, Minnesota 55343, Attention: Secretary to the Board of Directors.

Instead of receiving future copies of our proxy materials by mail, you can elect to receive an e-mail that will provide electronic links to these documents. Opting to receive your proxy materials online will save the cost of producing and mailing documents to your home or business, will give you an electronic link to the proxy voting site and will also help preserve environmental resources.

Shareholders of Record.    If you vote on the Internet at www.proxyvote.com, simply follow the prompts for enrolling in the electronic proxy delivery service. You may also enroll in the electronic proxy delivery service at any time by going directly to www.unitedhealthgroup.com and following the enrollment instructions.

Street Name Holders.    If you hold your shares in a bank or brokerage account, you may also have the opportunity to receive the proxy materials electronically. Please check the information provided in the proxy materials you receive from your bank or broker regarding the availability of this service.

 

7. How do I attend the Annual Meeting? What do I need to bring?

To attend the Annual Meeting, you will need to bring an admission ticket and valid photo identification.

Shareholders of Record.    If you are a shareholder of record and received a Notice, the Notice is your admission ticket. If you are a shareholder of record and received proxy materials by mail, your admission ticket is attached to your proxy card. You will need to bring the Notice or the admission ticket and valid photo identification with you to the Annual Meeting in order to be admitted to the meeting.

Street Name Holders.    If you hold your shares in street name, bring your most recent brokerage statement or a letter from your broker or other nominee and valid photo identification with you to the Annual Meeting. We will use that statement or letter to verify your ownership of common stock and admit you to the Annual Meeting; however, you will not be able to vote your shares at the Annual Meeting without a legal proxy, as described in question 8.

Please note that use of cameras, phones or other similar electronic devices and the bringing of large bags, packages or sound or video recording equipment will not be permitted in the meeting room.

 

8. How can I vote at the Annual Meeting if I own shares in street name?

If you are a street name holder, you may not vote your shares at the Annual Meeting unless you obtain a legal proxy from your bank or broker. A legal proxy is a bank’s or broker’s authorization for you to vote the shares it holds in its name on your behalf. To obtain a legal proxy, please contact your bank or broker for further information.

 

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9. What shares are included on the Notice, proxy card or voting instruction form?

If you are a shareholder of record, you will receive only one Notice or proxy card for all the shares of common stock you hold:

 

   

in certificate form;

 

   

in book-entry form; and

 

   

in any Company benefit plan.

If you hold your shares in street name, you will receive one Notice or voting instruction form for each account you have with a bank or broker. If you hold shares in multiple accounts, you may need to provide voting instructions for each account.

If you hold shares in our 401(k) savings plan and do not vote your shares or specify your voting instructions on your proxy card, the administrators of the 401(k) savings plan will vote your 401(k) plan shares in the same proportion as the shares for which they have received voting instructions. To allow sufficient time for voting by the 401(k) administrators, your voting instructions must be received by 11:59 p.m. Eastern Time on Wednesday, May 18, 2011.

 

10. How can I listen to the live webcast of the Annual Meeting?

You can listen to the live webcast of the Annual Meeting by logging on to our website at www.unitedhealthgroup.com and clicking on “Investors” and then on the link to the webcast. An archived copy of the webcast will also be available on our website for fourteen days following the Annual Meeting.

We have included the website address for reference only. The information contained on our website is not incorporated by reference into this proxy statement.

 

11. What different methods can I use to vote?

By Written Proxy.    All shareholders of record who received proxy materials by mail can vote by written proxy card. If you received a Notice or the proxy materials electronically, you may request a proxy card at any time by following the instructions on the Notice or on the voting website. If you are a street name holder, you will receive instructions on how you may vote from your bank or broker, unless you previously enrolled in electronic delivery.

By Telephone or Internet.    All shareholders of record can vote by touchtone telephone from the U.S. and Canada, using the toll-free telephone number on the proxy card, or through the Internet using the procedures and instructions described on the Notice or proxy card. Street name holders may vote by Internet or telephone if their bank or broker makes those methods available, in which case the bank or broker will enclose the instructions with the proxy materials. The Internet and telephone voting procedures are designed to authenticate shareholders’ identities, allow shareholders to vote their shares and to confirm that their instructions have been properly recorded.

In Person.    All shareholders of record may vote in person at the Annual Meeting. Street name holders may vote in person at the Annual Meeting if they have a legal proxy, as described in question 8.

The Notice is not a proxy card and it cannot be used to vote your shares.

 

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12. What is the record date and what does it mean?

The record date for the Annual Meeting is March 24, 2011. Only owners of record of shares of common stock of the Company at the close of business on the record date are entitled to notice of and to vote at the Annual Meeting, or at any adjournments or postponements of the Annual Meeting. On March 24, 2011, there were 1,081,307,080 shares of common stock issued, outstanding and entitled to vote. Each owner of record on the record date is entitled to one vote for each share of common stock held.

The record date was established by our Board of Directors as required by the Minnesota Business Corporation Act. Owners of record of common stock at the close of business on the record date are entitled to:

 

   

receive notice of the Annual Meeting; and

 

   

vote at the Annual Meeting and any adjournments or postponements of the Annual Meeting.

 

13. If I submit a proxy, may I later revoke it and/or change my vote?

Shareholders may revoke a proxy and/or change their vote prior to the completion of voting at the Annual Meeting by:

 

   

signing another proxy card or voting instruction form with a later date and delivering it to an officer of the Company before the Annual Meeting;

 

   

voting again over the Internet or by telephone prior to 11:59 p.m., Eastern Time, on May 22, 2011 (or, if you are a street name holder, such earlier time as your bank or broker may direct);

 

   

voting at the Annual Meeting if you are a shareholder of record or are a street name holder that has obtained a legal proxy from your bank or broker; or

 

   

notifying the Secretary to the Board of Directors in writing before the Annual Meeting.

 

14. Are votes confidential? Who counts the votes?

We will continue our long-standing policy of holding the votes of all shareholders in confidence from directors, officers and employees except:

 

   

as necessary to meet applicable legal requirements and to assert or defend claims for or against the Company;

 

   

in case of a contested proxy solicitation;

 

   

if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to management; or

 

   

to allow the independent inspectors of election to certify the results of the vote.

We have retained Broadridge to tabulate the votes. We have retained IVS Associates to act as independent inspector of the election.

 

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15. How may I confirm my vote was counted?

We are offering our shareholders the opportunity to confirm their vote was cast in accordance with their instructions. Vote confirmation is consistent with our commitment to sound corporate governance standards and an important means to increase transparency. Beginning May 9, 2011 and for up to two months after the Annual Meeting, you may confirm your vote beginning twenty-four hours after your vote is received, whether it was cast by proxy card, electronically or telephonically. To obtain vote confirmation, log onto www.proxyvote.com using your control number (located on your Notice or proxy card) and receive confirmation on how your vote was cast. If you hold your shares through a bank or brokerage account, the ability to confirm your vote may be affected by the rules of your bank or broker and the confirmation will not confirm whether your bank or broker allocated the correct number of shares to you.

 

16. What are my choices when voting for director nominees and what vote is needed to elect directors?

In the vote on the election of director nominees, shareholders may:

 

   

vote in favor of a nominee;

 

   

vote against a nominee; or

 

   

abstain from voting with respect to a nominee.

Directors will be elected by a majority of the votes cast by the holders of the shares of common stock present and entitled to vote in person or by proxy at the Annual Meeting. To address a holdover provision in Minnesota law that allows a director who has not been re-elected to remain in office until a successor is elected and qualified, our policy requires any director who does not receive a greater number of votes “for” than “against” his or her election in an uncontested election to tender his or her resignation from the Board of Directors following certification of the shareholder vote. Under this policy, the Board of Directors will determine whether to accept or reject the offer to resign within 90 days of certification of the shareholder vote. The text of this policy appears in our Principles of Governance, which are available on our website.

The Board of Directors recommends a vote FOR each of the nominees.

 

17. What are my choices when voting on each of the other proposals considered at the Annual Meeting?

For each of the other proposals, other than the proposal regarding the frequency of holding a Say-on-Pay vote, shareholders may:

 

   

vote for the proposal;

 

   

vote against the proposal; or

 

   

abstain from voting on the proposal.

For the proposal regarding the frequency of holding a Say-on-Pay vote, shareholders may:

 

   

vote for every year;

 

   

vote for every two years;

 

   

vote for every three years; or

 

   

abstain from voting on the proposal.

 

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18. What is the Board’s recommendation with regard to each proposal?

The Board of Directors makes the following recommendation with regard to each proposal:

 

   

The Board of Directors recommends a vote FOR each of the director nominees.

 

   

The Board of Directors recommends a vote FOR approval of the advisory (non-binding) vote on executive compensation.

 

   

The Board of Directors recommends a vote to hold the Say-on-Pay vote EVERY YEAR.

 

   

The Board of Directors recommends a vote FOR approval of the Company’s 2011 Stock Incentive Plan.

 

   

The Board of Directors recommends a vote FOR approval of the amendment to the Company’s 1993 Employee Stock Purchase Plan to increase the number of shares of common stock issuable thereunder.

 

   

The Board of Directors recommends a vote FOR ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm.

 

19. What vote is needed to approve each proposal?

The Company’s Bylaws require that each proposal, other than the election of directors as described in question 16, must be approved by the holders of a majority of the shares of common stock present and entitled to vote in person or by proxy at the Annual Meeting in order to pass. For the proposals that are advisory in nature, the Board of Directors will consider the results of such advisory votes when considering future decisions related to such proposals.

 

20. What if I do not specify a choice for a matter when returning a proxy?

Shareholders should specify their choice for each matter in the manner described in the Notice or on their proxy card. If no specific instructions are given, proxies which are signed and returned will be voted:

 

   

FOR the election of all director nominees;

 

   

FOR the approval of the advisory (non-binding) vote on executive compensation;

 

   

to hold the Say-on-Pay vote EVERY YEAR;

 

   

FOR the approval of the Company’s 2011 Stock Incentive Plan;

 

   

FOR the approval of the amendment to the Company’s 1993 Employee Stock Purchase Plan to increase the number of shares of common stock issuable thereunder; and

 

   

FOR the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm.

 

 

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21. Are my shares voted if I do not provide a proxy?

If you are a shareholder of record and do not provide a proxy, you must attend the Annual Meeting in order to vote. If you hold shares through an account with a bank or broker, your shares may be voted by the bank or broker on some matters if you do not provide voting instructions. Banks and brokers have the authority under New York Stock Exchange (“NYSE”) rules to vote shares for which their customers do not provide voting instructions on routine matters. The ratification of Deloitte & Touche LLP as our independent registered public accounting firm is considered a routine matter. The election of directors, the advisory (non-binding) vote to approve executive compensation, the advisory (non-binding) vote on the frequency of holding a Say-on-Pay vote, the approval of the Company’s 2011 Stock Incentive Plan, and the approval of an amendment to the Company’s 1993 Employee Stock Purchase plan to increase the number of shares of common stock issuable thereunder are not considered routine and banks and brokers cannot vote shares without instruction on those matters. Shares that banks and brokers are not authorized to vote are counted as “broker non-votes.”

 

22. How are abstentions and broker non-votes counted?

Abstentions have no effect on the election of directors under Minnesota law.

Under Minnesota law, abstentions have the effect of an “AGAINST” vote on the advisory (non-binding) vote to approve executive compensation, the approval of the Company’s 2011 Stock Incentive Plan, the approval of the amendment to the Company’s 1993 Employee Stock Purchase Plan to increase the number of shares of common stock issuable thereunder, and the ratification of the appointment of the Company’s independent registered public accounting firm. Because the advisory (non-binding) vote on the frequency of holding a Say-on-Pay vote presents a choice among a number of alternatives, abstentions will have no effect on the result of that vote.

Broker non-votes have no effect on the election of directors, the advisory (non-binding) vote to approve executive compensation, the advisory (non-binding) vote on the frequency of holding a Say-on-Pay vote, the approval of the Company’s 2011 Stock Incentive Plan, and the approval of the amendment to the Company’s 1993 Employee Stock Purchase Plan to increase the number of shares of common stock issuable thereunder under Minnesota law.

 

23. Does the Company have a policy about directors’ attendance at the Annual Meeting of Shareholders?

The Company expects directors to attend the Annual Meeting, absent a compelling reason. All of our directors attended the 2010 Annual Meeting, other than Mr. Lawson who was not a director at that time.

 

24. What are the deadlines for submitting shareholder proposals for the 2011 Annual Meeting?

In order to be eligible for inclusion in our proxy statement for our 2012 Annual Meeting, shareholder proposals must be received not later than December 15, 2011. Shareholder proposals received after December 15, 2011 would be untimely. In order to be eligible for consideration at our 2012 Annual Meeting but not included in our proxy statement, shareholder proposals must be received not later than February 23, 2012, nor earlier than January 24, 2012.

 

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All shareholder proposals must be in writing and received by the deadlines described above at our principal executive offices at UnitedHealth Group Center, 9900 Bren Road East, Minnetonka, Minnesota 55343, Attention: Secretary to the Board of Directors. Shareholder proposals must be in the form provided in our Bylaws and must include the information set forth in the Bylaws about the shareholder proposing the business and any associated person, including information about the direct and indirect ownership of or derivative positions in the Company’s common stock and arrangements and understandings related to the proposed business or the voting of the Company’s common stock. If we do not receive a shareholder proposal and the required information regarding the shareholder and any associated person by the deadlines described above, the proposal may be excluded from the proxy statement and from consideration at the 2012 Annual Meeting. The advance notice requirement described in the first paragraph of this question supersedes the notice period in SEC Rule 14a-4(c)(1) of the federal proxy rules regarding the discretionary proxy voting authority with respect to such shareholder business.

 

25. How are proxies solicited and what is the cost?

We bear all expenses incurred in connection with the solicitation of proxies. We have engaged D.F. King & Co., Inc. to assist with the solicitation of proxies for a base fee of $18,000 plus expenses. We will reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of common stock.

Our directors, officers and employees may also solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities.

 

26. Where can I find more information about my voting rights as a shareholder?

The SEC has an informational website that provides shareholders with general information about how to cast their vote and why voting should be an important consideration for shareholders. You may access that information at sec.gov/spotlight/proxymatters.shtml or at investor.gov.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information about each shareholder known to us to beneficially own more than five percent of the outstanding shares of our common stock, based solely on the information filed by each such shareholder in 2011 for the year ended December 31, 2010 on Schedule 13G under the Securities Exchange Act of 1934 (the “Exchange Act”).

 

Name and Address of Beneficial Owner

   Amount and Nature of
Beneficial Ownership
     Percent of
Class
 

Wellington Management Company, LLP (1)

     75,797,721         6.89

280 Congress Street

     

Boston, Massachusetts 02210

     

BlackRock, Inc. (2)

     63,365,979         5.76

40 East 52nd Street

     

New York, New York 10022

     

 

(1) This information, including percent of class, is based on the Schedule 13G/A filed with the SEC by Wellington Management Company, LLP on February 14, 2011, reporting beneficial ownership as of December 31, 2010. Wellington Management Company, LLP reported shared voting power for 38,633,473 shares of common stock and shared investment power for 75,797,721 shares of common stock as of December 31, 2010. Wellington Management Company, LLP reported having neither sole voting power nor sole investment power over any of the shares.

 

(2) This information, including percent of class, is based on the Schedule 13G/A filed with the SEC by BlackRock, Inc. on February 9, 2011, reporting beneficial ownership as of December 31, 2010. BlackRock, Inc. reported sole voting power and sole investment power over all of the shares.

 

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The following table provides information about the beneficial ownership of our common stock as of April 1, 2011 by each director and nominee for director, each executive officer named in the 2010 Summary Compensation Table in this proxy statement, and by all of our current directors, executive officers and director nominees as a group. As of April 1, 2011, there were 1,077,147,418 shares of our common stock issued, outstanding and entitled to vote.

 

Name of Beneficial Owner

or Identity of Group

  Ownership of
Common Stock
    Number of Shares
Deemed Beneficially
Owned as a Result of
Equity Awards Exercisable
or Vesting
Within 60 Days of
April 1, 2011
    Total (1)     Percent of
Common Stock
Outstanding
 

William C. Ballard, Jr.

    57,363  (2)      263,000        320,363        *   

Richard T. Burke

    2,683,141  (2)(3)      301,140        2,984,281        *   

Robert J. Darretta

    18,357  (2)(5)      57,403        75,760        *   

Michele J. Hooper

    16,220  (2)      35,000        51,220        *   

Rodger A. Lawson

    477  (2)      —          477        *   

Douglas W. Leatherdale

    906,878  (2)(4)(5)      289,110        1,195,988        *   

Glenn M. Renwick

    16,276  (2)      27,679        43,955        *   

Kenneth I. Shine, M.D.

    13,202  (2)      5,000        18,202        *   

Gail R. Wilensky, Ph.D.

    42,253  (2)      272,660        314,913        *   

Stephen J. Hemsley

    2,719,146  (6)(7)      4,763,351        7,482,497        *   

George L. Mikan III

    39,892  (5)(7)      1,107,390        1,147,282        *   

Gail K. Boudreaux

    127,320  (8)      140,118        267,438        *   

Larry C. Renfro

    21,912       65,406        87,318        *   

Anthony Welters

    10,897       777,994        788,891        *   

All current directors, executive officers and director nominees as a group (21 individuals)

    6,938,373  (9)      12,585,132        19,523,505        1.8

 

* Less than 1%.

 

(1) Unless otherwise noted, each person and group identified possesses sole voting and investment power with respect to the shares shown opposite such person’s or group’s name. Shares not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire them within 60 days of April 1, 2011 are treated as outstanding only when determining the amount and percent owned by such individual or group.

 

(2) Includes the following number of vested restricted stock units and vested deferred stock units which are considered owned under the Company’s stock ownership guidelines for directors: Mr. Ballard — 8,163 deferred stock units; Mr. Burke — 8,163 deferred stock units; Mr. Darretta — 2,343 restricted stock units and 12,674 deferred stock units; Ms. Hooper — 4,687 restricted stock units and 8,163 deferred stock units; Mr. Lawson — 477 deferred stock units; Mr. Leatherdale — 8,163 deferred stock units; Mr. Renwick — 1,562 restricted stock units and 12,674 deferred stock units; Dr. Shine — 3,125 restricted stock units and 10,077 deferred stock units; and Dr. Wilensky — 8,163 deferred stock units.

 

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(3) Includes 95,808 shares held directly by Mr. Burke’s spouse. Mr. Burke does not have voting or investment power over these shares, and disclaims beneficial ownership of these shares.

 

(4) Includes 6,600 shares held in irrevocable trusts for the benefit of Mr. Leatherdale’s grandchildren and for which Mr. Leatherdale disclaims beneficial ownership.

 

(5) Includes the following number of shares pledged as security, including shares held by brokers in a margin account whether or not there are loans outstanding: Mr. Darretta — 3,340 shares; Mr. Leatherdale — 860,365 shares; and Mr. Mikan — 8,083 shares.

 

(6) Includes 251,244 shares held by a foundation which Mr. Hemsley controls.

 

(7) Includes the following number of shares held in trust for the individuals pursuant to our 401(k) plan: Mr. Hemsley — 282 shares; and Mr. Mikan — 140 shares.

 

(8) Includes 58,450 shares of restricted stock.

 

(9) Includes the indirect holdings included in footnotes (3), (4) and (6), the shares held in our executive officers’ 401(k) accounts which were previously held in such officers’ accounts under the Company’s former Employee Stock Ownership Plan, 100,715 shares of restricted stock held by certain of our executive officers, and 40 shares held in custodial accounts for the benefit of one of our executive officer’s children. Pursuant to the terms of the Company’s 401(k) plan, a participant has sole voting power over his or her shares; however, the plan trustee votes all unvoted shares in the same proportions as the actual proxy votes submitted by plan participants.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC and the NYSE. Executive officers, directors and greater-than-10% beneficial owners are required by SEC rules to furnish us with copies of all Section 16(a) reports they file.

Based solely on our review of these reports and written representations from our executive officers and directors, we believe that all of our executive officers and directors complied with all Section 16(a) filing requirements during 2010.

PROPOSAL 1 — ELECTION OF DIRECTORS

Director Nomination Process

Criteria for Nomination to the Board

The Nominating and Corporate Governance Committee Charter, which is available on our website, provides that the Nominating and Corporate Governance Committee (the “Nominating Committee”) is responsible for analyzing, on an annual basis, Board member skills and attributes, and recommending to the Board of Directors appropriate individuals for nomination as Board members.

The Nominating Committee has developed a skills matrix to assist it in considering the appropriate balance of experience, skills and attributes required of a director and to be represented on the Board

 

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as a whole. The skills matrix was developed after considering the Company’s near and long-term strategies and is intended to identify skills and attributes that will assist the Board in exercising its oversight function. The Nominating Committee uses the skills matrix to analyze the attributes of each Board member and to determine whether a potential Board member’s skills would complement or enhance the skills represented by the current Board members. The skills matrix has two sections – a list of core criteria that every member of the Board should meet and a list of skills and attributes desired to be represented on the Board as a whole, with a goal of having members of the Board possess one or more of the collective skills and attributes listed. The skills matrix is periodically reviewed and updated by the Nominating Committee as necessary. The skills matrix reflects the following core director criteria that should be satisfied by each director or nominee:

 

   

Independence under the Company’s Standards for Director Independence and NYSE listing requirements, subject to waiver based on the Nominating Committee’s business judgment;

 

   

Service on no more than three other public company boards at the time elected to the Board and thereafter;

 

   

High integrity and ethical standards;

 

   

Standing and reputation in the individual’s field;

 

   

Risk oversight ability with respect to the particular skills of the individual director that are reflected in the collective skills section of the skills matrix;

 

   

Understanding of and experience with complex public companies or like organizations; and

 

   

Ability to work collegially and collaboratively with other directors and management.

The skills matrix reflects the following skills and attributes desired to be represented collectively on the Board as a whole:

 

   

Corporate governance expertise;

 

   

Financial expertise;

 

   

Health care industry expertise;

 

   

Direct consumer marketing expertise;

 

   

Brand marketing/public relations expertise;

 

   

Diversity;

 

   

Legal expertise;

 

   

Capital markets expertise;

 

   

Political/health care policy expertise;

 

   

Clinical practice; and

 

   

Technology/business process expertise.

Our Nominating Committee also strives to maintain a balance of tenure on the Board. Long-serving directors bring valuable business and governance experience with our company and familiarity with the challenges it has faced over the years, while newer directors bring fresh perspective and new ideas.

 

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Our Nominating Committee evaluates potential Board candidates against the skills matrix when determining whether to recommend that the Board appoint the candidate to be a director. Part of this evaluation includes assessing the candidate’s experience, skills and attributes against the attributes and skills possessed by current directors of the Company.

Diversity

UnitedHealth Group embraces and encourages a culture of diversity and inclusion. We believe that valuing diversity makes good business sense and helps to ensure our future success. Diversity is included as one of the collective attributes in our directors’ skills matrix. Our Board has not adopted a formal definition of diversity.

Our Board assesses its overall effectiveness through an annual evaluation process. This evaluation includes, among other things, an assessment of the overall composition of the Board, including the diversity of its members.

Nominating Advisory Committee

The Board of Directors formed the Nominating Advisory Committee in 2006 to provide the Nominating Committee with additional input from shareholders and others regarding desirable characteristics of director candidates and the composition of the Board of Directors. The Nominating Committee considers, but is not bound by, input provided by the Nominating Advisory Committee. The Nominating Advisory Committee currently includes four individuals affiliated with long-term shareholders of the Company and one individual who is a member of the medical community. The Nominating Advisory Committee held one meeting in 2010. At this meeting, the Nominating Advisory Committee provided feedback on the skills and attributes included in the skills matrix, particularly with respect to the search for new director candidates. In addition, members of the Nominating Advisory Committee suggested potential candidates for consideration by the Nominating Committee and provided feedback on the characteristics of candidates under consideration by the Nominating Committee. A description of the Nominating Advisory Committee can be found on the Company’s website at www.unitedhealthgroup.com. Members of the Nominating Advisory Committee do not receive any compensation from the Company for serving on the Nominating Advisory Committee.

Process for Identifying and Evaluating Nominees

In the case of incumbent directors, in addition to the factors listed above under “Criteria for Nomination to the Board,” the Nominating Committee reviews the directors’ overall performance on the Board of Directors and other relevant factors. All director nominees were elected by our shareholders at the 2010 Annual Meeting, other than Mr. Lawson who was appointed to the Board in February 2011. In late 2006, our Board of Directors committed to having five Board seats filled by new independent directors in order to bring in new experiences, expertise and perspectives. The Board of Directors has fulfilled its commitment and added five independent directors as follows: Rodger A. Lawson (February 2011), Kenneth I. Shine, M.D. (February 2009), Glenn M. Renwick (June 2008), Michele J. Hooper (October 2007) and Robert J. Darretta (April 2007).

The Nominating Committee has retained an outside firm to assist its search for new directors. In considering potential candidates to the Board who are not incumbent directors, the Nominating Committee assesses the potential candidate’s qualifications and how the qualifications fit with the

 

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desired composition of the Board of Directors as a whole, including the criteria set forth above under “Criteria for Nomination to the Board” and criteria discussed with the Nominating Advisory Committee. In evaluating a potential candidate’s qualifications, among other things, the Nominating Committee reviews biographical information and references, and receives input from the full Board of Directors.

The Nominating Committee considers views expressed by members of the Nominating Advisory Committee and other shareholders regarding skill sets that would be valuable for a new director to possess. With respect to consideration of candidates that culminated in the appointment of Mr. Lawson, the Nominating Committee considered views expressed by Nominating Advisory Committee members and other shareholders that a consumer marketing or technology background would be useful and that, although not reflected on our skills matrix specifically, prior principal executive officer level experience would be beneficial. The Nominating Committee also considered feedback provided by the Nominating Advisory Committee that an individual with institutional investor experience would provide a valuable perspective to the Board.

In recommending Mr. Lawson as a director, the Nominating Committee considered a diverse slate of potential candidates. Mr. Lawson emerged as the final candidate because the Nominating Committee believed his overall skill set and experience were the best fit for our Board. The Nominating Committee believed that, based on Mr. Lawson’s experience, he possesses all of the core director criteria listed on the skills matrix as well as the following skills reflected in the director skills matrix:

 

   

capital markets expertise;

 

   

financial expertise;

 

   

consumer marketing expertise;

 

   

brand marketing/public relations expertise; and

 

   

technology/business process expertise.

The Nominating Committee believes that Mr. Lawson’s investor-oriented perspective makes him a valuable resource for our Board of Directors. Mr. Lawson’s characteristics and experience were discussed with the members of our shareholder Nominating Advisory Committee and other shareholders prior to his appointment and we received positive feedback.

The Nominating Committee will consider director candidates put forth by shareholders, provided that shareholders follow the procedures outlined under the heading “Shareholder Proposals for Nominees” below in submitting recommendations. The Nominating Committee will evaluate new candidates according to the procedures outlined above regardless of the source of the candidate recommendation.

Shareholder Proposals for Nominees

The Nominating Committee will consider candidates proposed by shareholders upon timely written notice to the Secretary to the Board of Directors. For the 2012 Annual Meeting, notice must be received at our principal executive offices, directed to the Secretary to the Board of Directors, on or before December 15, 2011. The notice must include the information set forth in the Bylaws about each proposed nominee, including: (i) the name, age, business address, residence address and principal occupation or employment, (ii) the number of shares of the Company’s common stock which are beneficially owned, and (iii) other information concerning the nominee as would be required in soliciting

 

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proxies for the election of that nominee. The notice must also include the information set forth in the Bylaws about the shareholder making the nomination and any associated person, including information about the direct and indirect ownership of or derivative positions in the Company’s common stock and arrangements and understandings related to the proposed nomination or the voting of the Company’s common stock. The notice must also include a signed consent of each nominee to serve as a director of the Company, if elected. If we do not receive a notice and the required information regarding the shareholder and any associated person by the deadline described above, the proposed nominee may be excluded from consideration at the 2012 Annual Meeting.

2011 Director Nominees

Under our Articles of Incorporation and Bylaws, each member of our Board of Directors is elected annually. The Board of Directors has nominated ten directors for election by the shareholders at the 2011 Annual Meeting as set forth below. All of the nominees have informed the Board of Directors that they are willing to serve as directors if elected. If any nominee should decline or become unable to serve as a director for any reason, the persons named as proxies will elect a replacement.

The Board of Directors recommends that you vote FOR the election of each of the nominees. Proxies will be voted FOR the election of each nominee unless you specify otherwise.

 

Name

   Age      Director Since  

William C. Ballard, Jr.

     70         1993   

Richard T. Burke

     67         1977   

Robert J. Darretta

     64         2007   

Stephen J. Hemsley

     58         2000   

Michele J. Hooper

     59         2007   

Rodger A. Lawson

     64         2011   

Douglas W. Leatherdale

     74         1983   

Glenn M. Renwick

     55         2008   

Kenneth I. Shine, M.D.

     76         2009   

Gail R. Wilensky, Ph.D.

     67         1993   

The director nominees, if elected, will serve until the 2012 Annual Meeting or until their successors are elected and qualified. The following is a brief biographical description of each director nominee, which includes a discussion of the skills and attributes held by each director that are reflected in the skills matrix, as described above, and that, in part, led the Board to conclude that each respective director should continue to serve as a member of the Board.

Mr. Ballard served as Of Counsel to Greenebaum Doll & McDonald PLLC, a law firm in Louisville, Kentucky, from June 1992 until July 2008. In 1992, Mr. Ballard retired from Humana, Inc., a company operating managed health care facilities, after serving as the Chief Financial Officer and a director for 22 years. Mr. Ballard has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Ballard also has health care industry, legal, and financial/capital markets expertise and qualifies as a financial expert under applicable SEC regulations. Mr. Ballard currently serves as a director of Health Care REIT, Inc.

Mr. Burke is Chair of the Board of UnitedHealth Group, has been a member of our Board of Directors since inception, and was Chief Executive Officer of UnitedHealthcare, Inc., our predecessor

 

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corporation, until February 1988. From 1995 until February 2001, Mr. Burke was the owner, Chief Executive Officer and Governor of the Phoenix Coyotes, a National Hockey League team. Mr. Burke has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Burke also has health care industry expertise and qualifies as a financial expert under applicable SEC regulations. Mr. Burke currently serves as a director of Meritage Homes Corporation. In the past five years, he has also served as a director of First Cash Financial Services, Inc.

Mr. Darretta is the retired Vice Chair, Board of Directors, Chief Financial Officer and member of the Executive Committee of Johnson & Johnson, a health care products company. Mr. Darretta served as Chief Financial Officer and a member of the Executive Committee of Johnson & Johnson from 1997 to March 2007. Mr. Darretta joined Johnson & Johnson in 1968. Mr. Darretta has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Darretta has corporate governance, health care industry, direct consumer marketing, technology/business process and financial/capital markets expertise and qualifies as a financial expert under applicable SEC regulations. Mr. Darretta currently serves as a trustee for certain Putnam mutual funds. In the past five years, he also served as a director of Johnson & Johnson.

Mr. Hemsley is President and Chief Executive Officer of UnitedHealth Group and has served in that capacity since November 2006. He has been a member of the Board of Directors since February 2000. Mr. Hemsley joined the Company in 1997 as Senior Executive Vice President. He became Chief Operating Officer in 1998, was named President in 1999, and served as President and Chief Operating Officer from 1999 to November 2006. Mr. Hemsley has satisfied all the core director criteria set forth in the skills matrix except that he is not an independent director because he is our Chief Executive Officer. As a result of his past experiences, Mr. Hemsley has health care industry and financial expertise.

Ms. Hooper is President and Chief Executive Officer of The Directors’ Council, a private company which she co-founded in 2003, that works with corporate boards to increase their independence, effectiveness and diversity. She was President and Chief Executive Officer of Voyager Expanded Learning, a developer and provider of learning programs and teacher training for public schools, from 1999 until 2000. Prior to that, she was President and Chief Executive Officer of Stadtlander Drug Company, Inc., a provider of disease-specific pharmaceutical care, from 1998 until Stadtlander was acquired in 1999. Ms. Hooper has satisfied all the core director criteria set forth in the skills matrix. She also is a nationally recognized corporate governance expert. As a result of her past experience, she also has health care industry expertise and qualifies as a financial expert under applicable SEC regulations. She currently serves as a director of AstraZeneca plc., PPG Industries, Inc. and Warner Music Group Corp.

Mr. Lawson served as the President and Chief Executive Officer of Fidelity Investments — Financial Services, a financial services company, from August 2007 until he retired in March 2010. Prior to joining Fidelity, Mr. Lawson served as Vice Chairman of Prudential Financial, a financial services company, from 2002 to 2007 and served as Vice President from 1996 to 2002. Prior to joining Prudential, Mr. Lawson held a series of senior management positions: President and CEO of Van Eck Global, a financial services company, from June 1994 to June 1996; Managing Director and Partner in charge of Private Global Banking and Mutual Funds at Bankers Trust, a bank, from January 1992 to April 1994; Managing Director and CEO of Fidelity Investments — Retail from May 1985 to May 1991; and President and CEO at the Dreyfus Service Corporation, an asset management and distribution company, from May 1982 to May 1985. Mr. Lawson has satisfied all the core director criteria set forth

 

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in the skills matrix. As a result of his past experiences, Mr. Lawson has corporate governance, direct consumer marketing, brand marketing/public relations, financial/capital markets and technology/business process expertise and qualifies as a financial expert under applicable SEC regulations. Although not specifically included in our skills matrix, we believe that Mr. Lawson’s past experience as an executive at a major institutional investor makes him a valuable resource for the Board.

Mr. Leatherdale served as the Chair and Chief Executive Officer of The St. Paul Companies, Inc. (currently known as Travelers Companies, Inc.), a property casualty insurance company, from 1990 until he retired in October 2001. Mr. Leatherdale has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experiences, Mr. Leatherdale has corporate governance and financial/capital markets expertise and qualifies as a financial expert under applicable SEC regulations. In the past five years Mr. Leatherdale has also served as a director of Xcel Energy Inc.

Mr. Renwick is President and Chief Executive Officer of The Progressive Corporation, an auto insurance holding company. Before being named Chief Executive Officer in 2001, Mr. Renwick served as Chief Executive Officer-Insurance Operations and Business Technology Process Leader from 1998 through 2000. Prior to that, he led Progressive’s Consumer Marketing group and served as President of various divisions within Progressive. Mr. Renwick joined Progressive in 1986 as Auto Product Manager for Florida. Mr. Renwick has satisfied all the core director criteria set forth in the skills matrix. As a result of his past experience, Mr. Renwick has corporate governance, health care industry, direct consumer marketing, brand marketing/public relations, financial/capital markets and technology/business process expertise and qualifies as a financial expert under applicable SEC regulations. Mr. Renwick currently serves as a director of The Progressive Corporation and Fiserv, Inc.

Dr. Shine has served as the Executive Vice Chancellor for Health Affairs of the University of Texas System (the “UT System”), which consists of nine academic campuses and six health institutions, since November 2003. Dr. Shine also served as the interim Chancellor of the University of Texas System from May 2008 until February 2009. Dr. Shine served as President of the Institute of Medicine at the National Academy of Sciences from 1992 until 2002. From 1993 until 2003, Dr. Shine served as a Clinical Professor of Medicine at the Georgetown University School of Medicine. From 1971 until 1992, Dr. Shine served in several positions at the University of California School of Medicine, ending as Dean and Provost, Medical Sciences, and he continues to be Professor of Medicine Emeritus. Dr. Shine has also served as Chair of the Council of Deans of the Association of American Medical Colleges from 1991 until 1992 and as President of the American Heart Association from 1985 until 1986. Dr. Shine has satisfied all the core director criteria set forth in the skills matrix. He is a nationally recognized cardiologist and, as a result of his past experience, has health care policy and clinical practice expertise.

Dr. Wilensky has been a senior fellow at Project HOPE, an international health foundation, since 1993. From 2008 to 2009, Dr. Wilensky was President of the Department of Defense Health Board and chaired its sub-committee on health care delivery. From December 2006 to December 2007, Dr. Wilensky co-chaired the Department of Defense Task Force on the Future of Military Health Care. During 2007 she also served as a commissioner on the President’s Commission on Care for America’s Returning Wounded Warriors. From May 2001 to May 2003, she was the Co-Chair of the President’s Task Force to Improve Health Care for our Nation’s Veterans. From 1997 to 2001, she was also Chair of the Medicare Payment Advisory Commission. From 1992 to 1993, Dr. Wilensky served as the Deputy Assistant to President George H. W. Bush for policy development, and from 1990 to 1992, she was the Administrator of the Health Care Financing Administration (now known as the Centers for

 

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Medicare and Medicaid Services) directing the Medicaid and Medicare programs for the United States. Dr. Wilensky has satisfied all the core director criteria set forth in the skills matrix. She is a nationally recognized health care economist and, as a result of her past experience, has health care policy expertise. Dr. Wilensky currently serves as a director of Cephalon, Inc., Quest Diagnostics Incorporated, and SRA International Inc. In the past five years, she has also served as a director of Gentiva Health Services and Manor Care, Inc.

CORPORATE GOVERNANCE

Overview

UnitedHealth Group is committed to high standards of corporate governance and ethical business conduct, reporting results with accuracy and transparency, and complying fully with the laws and regulations that govern our businesses.

Important documents governing our corporate governance practices include our Articles of Incorporation, Bylaws, Principles of Governance, Board of Directors Committee Charters, Standards for Director Independence, Code of Business Conduct and Ethics, Related-Person Transactions Approval Policy, Board of Directors Communication Policy, Political Contributions Policy and Corporate Environmental Policy. You can access these documents at www.unitedhealthgroup.com to learn more about our corporate governance practices.

Corporate Governance Practices

Some of our key corporate governance practices include:

Board Structure and Shareholder Rights

 

   

All members of our Board of Directors are elected annually by our shareholders.

 

   

Our Articles of Incorporation provide that each director must be elected by a majority vote in an uncontested election.

 

   

We have no supermajority shareholder approval provisions.

 

   

We have a non-executive independent Chair of the Board. If the Chair of the Board is not independent, then a Lead Independent Director will be appointed by a majority vote of the independent directors.

Board and Board Committees Composition and Performance

 

   

Our Board of Directors has formed and convened a Nominating Advisory Committee comprised of representatives from the shareholder and medical communities to provide input into the composition of our Board of Directors.

 

   

All members of our Audit Committee are required to be financial experts as defined by the SEC.

 

   

A non-management director may not serve on more than four public company boards of directors (including the Company).

 

   

Our chief executive officer (“CEO”) may not serve on more than two public company boards of directors (including the Company).

 

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Our directors are required to offer their resignations upon a change in their primary careers.

 

   

Our Board of Directors and each Board committee conducts executive sessions of non-management directors at least four times per year. Our Chair of the Board presides over each executive session of non-management directors. Our Board committees also conduct executive sessions that are presided over by the Committee Chairs of their respective committees.

 

   

Our Board of Directors and Board committees have the authority to retain independent advisors.

 

   

Our Board of Directors and its Committees conduct performance reviews annually.

 

   

All directors are required to attend director education sessions.

Guidelines and Board Policies

 

   

Our Board of Directors reviews our CEO succession plan annually. The Board of Directors developed our CEO succession plan with input from our CEO. The CEO succession plan has two components: a succession plan that addresses emergency or unanticipated loss of our CEO and a longer term succession plan. Material features of this plan include identification of Board members to lead the succession process, identification and development of internal candidates, and identification of external resources necessary to ensure a successful transition.

 

   

We maintain stock ownership guidelines for directors and executive officers. We also maintain stock retention requirements for directors and executive officers. See the discussions under the heading “Compensation Discussion and Analysis — Elements of Our Compensation Program — Other Compensation Practices — Executive Stock Ownership Guidelines” for a description of the stock ownership guidelines and stock retention requirements for the Company’s executive officers, and under the headings “Director Compensation — Stock Ownership Guidelines” and “Director Compensation — Equity-Based Compensation” for a description of the stock ownership guidelines and stock retention requirements for the Company’s non-employee directors.

 

   

We have a related-person transactions approval policy regarding the review, approval and ratification by our Audit Committee of all related-person transactions with consideration in excess of $1. See the discussion under the heading “Certain Relationships and Transactions” below.

 

   

We have a clawback policy that allows the Company to recover cash incentive compensation and equity awards from senior executives in the event of fraud or misconduct resulting in a restatement of the Company’s financial statements or in the event of a senior executive’s violation of a restrictive covenant. See the discussion under the heading, “Compensation Discussion and Analysis — Elements of Our Compensation Program — Other Compensation Practices — Potential Impact on Compensation from Executive Misconduct” below.

 

   

We have an independent compensation consultant policy that requires the consultant engaged by the Compensation and Human Resources Committee (the “Compensation Committee”) to be independent of the Company or the Company will disclose the fees paid to the consultant in the Company’s proxy statement.

 

   

Our Board of Directors believes that effective Board-shareholder communication strengthens the Board of Directors’ role as an active, informed and engaged fiduciary so we have a

 

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communication policy which outlines how shareholders and other interested parties may communicate with the Board of Directors. See the discussion under the heading, “Corporate Governance — Communication with the Board of Directors.”

 

   

We have a political contributions policy which is overseen by our Public Policy Strategies and Responsibility Committee (the “Public Policy Strategies Committee”) and pursuant to which the political contributions of the Company and its federal and state political action committees are disclosed semi-annually.

 

   

We have an environmental policy which outlines our focus on minimizing our impact on the environment and creating a Company culture that heightens our employees’ awareness of the importance of preserving the environment and conserving energy and natural resources.

Independent Auditors

 

   

Our shareholders annually ratify the selection of our independent registered public accounting firm.

 

   

The 2010 non-audit fees paid to our independent registered public accounting firm were less than 10% of total fees paid to that firm by the Company in 2010.

Principles of Governance

Our Articles of Incorporation and Bylaws, together with Minnesota law and NYSE and SEC rules, govern the Company. Our Principles of Governance reflect the views of our Board of Directors and set forth many of the practices, policies and procedures which provide the foundation of our commitment to strong corporate governance. The policies and practices covered in our Principles of Governance include shareholder rights and proxy voting; structure, composition and performance of the Board of Directors; use of an independent compensation consultant; stock ownership and stock retention requirements; Board of Directors operation; individual director responsibilities; and Board committees. Our Principles of Governance are reviewed at least annually by our Nominating Committee and are revised as necessary.

Code of Business Conduct and Ethics

The Code of Business Conduct and Ethics is published on the Company’s website and covers our principles and policies related to business conduct, conflicts of interest, public disclosure, legal compliance, reporting and accountability, corporate opportunities, confidentiality, fair dealing and protection, and proper use of Company assets. Any waiver of the Code of Business Conduct and Ethics for the Company’s executive officers, senior financial officers or directors may be made only by the Board of Directors or a committee of the Board. We will publish any amendments to the Code of Business Conduct and Ethics and waivers of the Code of Business Conduct and Ethics for an executive officer or director on the Company’s website.

Ethics & Compliance HelpCenter

We strongly encourage employees to raise ethics and compliance concerns. We offer several channels for employees and third parties to report ethics and compliance concerns or incidents, including concerns about accounting, internal controls or auditing matters. We provide an Ethics & Compliance HelpCenter that is available to employees 24 hours a day, 7 days a week, with live

 

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operators in multiple languages. In addition to phone support, we also provide a website for employees to submit an online report to the HelpCenter. Whether reporting by phone or online, individuals may choose to remain anonymous. Employees may also raise their ethics and compliance concerns with their manager or supervisor, their business unit attorney or compliance officer, our Ethics and Integrity Office, the Human Capital department or the Corporate Security department. We prohibit retaliatory action against any individual who in good faith raises concerns or questions regarding ethics and compliance matters or reports suspected violations. We train all employees and periodically advise them regarding the means by which they may report possible ethics or compliance issues and their affirmative responsibility to report any possible issues. In our latest employee survey, 97% of employees said they knew what to do if unethical behavior or misconduct occurred in their work area.

Director Independence

Our Board of Directors has adopted the Company’s Standards for Director Independence, which are available on the Company’s website. The Standards for Director Independence requirements exceed the standards set by the SEC and the NYSE.

Our Board of Directors has determined that each of William C. Ballard, Jr., Richard T. Burke, Robert J. Darretta, Michele J. Hooper, Rodger A. Lawson, Douglas W. Leatherdale, Glenn M. Renwick, Kenneth I. Shine, M.D. and Gail R. Wilensky, Ph.D. is “independent” under the NYSE rules and the Company’s Standards for Director Independence and that these directors have no material relationships with the Company that would prevent the directors from being considered independent. The Company’s President and CEO, Stephen J. Hemsley, is not an independent director.

In determining independence, the Board of Directors considered, among other factors, all of the business relationships between the Company and our directors and nominees, their immediate family members (as defined by the NYSE) or their affiliated companies. The Board of Directors considered whether any director or any nominee was a director, partner, significant shareholder or executive officer of an organization that has a relationship with the Company, and charitable contributions that the Company or its affiliates made to organizations with which such directors or nominees are or have been associated. In particular, the Board of Directors evaluated the following relationships and determined that such relationships were in the normal course of business and that the relationships did not impair the directors’ exercise of independent judgment:

 

   

Mr. Burke is an owner of Rainy Partners, LLC. Rainy Partners, LLC is a customer of the Company and paid the Company premiums for health insurance of approximately $123,000 in 2010. These premiums were determined on the same terms and conditions as premiums for our other customers.

 

   

Dr. Shine is the Executive Vice Chancellor for Health Affairs of the UT System, which includes six health institutions. The health institutions are part of the Company’s broad national network of hospitals and physicians and other care providers. In 2010, we paid the UT System approximately $136 million for medical expenses on behalf of consumers who obtain health insurance from us, approximately $570,000 for funded clinical trials, medical refunds and reimbursements, and tuition payments for employees and approximately $5,000 in community giving, which amounts to approximately 1.5% of the 2010 operating revenues of the UT System. Some of our self-funded customers also paid approximately $278 million to the UT System for health care services on behalf of their employees and health plan participants.

 

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Dr. Shine is neither directly nor indirectly involved in this relationship. Dr. Shine has no direct responsibilities for any contractual or other relationships with the Company or its competitors. The UT System has established a process pursuant to which Dr. Shine will not have access to any information that is maintained by the UT System that could be used to benefit or provide an advantage to the Company.

 

   

Dr. Wilensky is a senior fellow of Project HOPE. In 2010, the Company made charitable contributions of approximately $50,000 to Project HOPE in support of its mission of providing lasting solutions to health problems. In addition, the Company paid Project HOPE approximately $1.6 million in fees, or 1% of Project HOPE’s total revenues, related to a project to provide greater access to health care to underserved populations via a mobile telemedicine clinic. These fees were for services Project HOPE provides in the ordinary course of its business. The Company believes Project HOPE is uniquely qualified to support the mobile telemedicine clinic because of its success in providing similar health care services in underserved areas throughout the world. Dr. Wilensky is neither directly nor indirectly involved in this relationship.

 

   

Relationships between the Company and organizations on which our outside directors serve only as directors.

Independent Board Leadership

Our Board of Directors believes that having independent Board leadership is an important component of our governance structure. As such, our Bylaws require the Company to have either an independent Chair of the Board or a Lead Independent Director. The Company believes the current leadership structure delineates the separate roles of managers and directors. Whereas our CEO sets the strategic direction for the Company and provides day-to-day leadership, our independent Chair of the Board leads the Board in the performance of its duties and serves as the principal liaison between the independent directors and the CEO. In recognition of these distinct differences in duties, our Principles of Governance outline the specific duties of the Chair of the Board or a Lead Independent Director, including:

 

   

chairing all meetings of the Board at which the Chair is present (Chair of the Board duty only);

 

   

working with the CEO on the scheduling of Board meetings and the preparation of agendas and materials for Board meetings;

 

   

coordinating the preparation of agendas and materials for executive sessions of the Board’s non-management directors;

 

   

scheduling and leading the executive sessions of the Board’s non-management directors;

 

   

defining the scope, quality, quantity and timeliness of the flow of information between Company management and the Board that is necessary to effectively and responsibly perform their duties;

 

   

leading the Board process for hiring, terminating and evaluating the performance of the Company’s CEO and working with the Chair of the Compensation Committee on the process for compensating and evaluating the CEO;

 

   

recommending outside advisors and consultants, as necessary, who report directly to the Board on Board-related issues;

 

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serving as an ex-officio member of each committee and working with the Board Committee Chairs on the performance of their designated roles and responsibilities;

 

   

interviewing, along with the chair of the Nominating Committee, all Board candidates and making director candidate recommendations to the Nominating Committee;

 

   

assisting the Board and the Company in assuring compliance with and implementation of the Company’s Principles of Governance;

 

   

coordinating the performance evaluations of the Board and the Board committees in conjunction with the Committee Chairs and the Nominating Committee;

 

   

working with the Nominating Committee on the membership of Board committees; and

 

   

being available for communications with shareholders, as needed.

Risk Oversight

Enterprise-Wide Risk Oversight

Our Board of Directors oversees management’s enterprise-wide risk management activities. Management’s risk management activities include assessing and taking actions necessary to manage risk incurred in connection with the long-term strategic direction and operation of our business. Each director on our Board is required to have risk oversight ability for each skill and attribute the director possesses that is reflected in the collective skills section of our director skills matrix set forth in “Election of Directors — Director Nomination Process — Criteria of Nomination to the Board” above. Collectively, our Board of Directors uses its committees to assist in its risk oversight function as follows:

 

   

Audit Committee oversees our controls and compliance activities. The Audit Committee also oversees management’s processes to identify and quantify material risks facing the Company. The Company’s General Auditor, who reports to the Audit Committee, assists the Company in identifying and evaluating risk management controls and methodologies and provides reports to the Audit Committee quarterly. In connection with its risk oversight role, the Audit Committee regularly meets privately with representatives from the Company’s independent registered public accounting firm, the Company’s General Auditor, and the Company’s General Counsel;

 

   

Compensation Committee oversees risk associated with our compensation practices and plans;

 

   

Nominating Committee oversees Board processes and corporate governance-related risk; and

 

   

Public Policy Strategies Committee oversees risk associated with the Company’s activities in the public policy arena, including health care reform and modernization activities, political contributions, government relations, community and charitable activities and corporate social responsibility.

Our Board of Directors maintains overall responsibility for oversight of the work of its various committees by receiving regular reports from the Committee Chairs regarding the work performed by the various committees. In addition, discussions about the Company’s strategic plan, consolidated business results, capital structure, merger and acquisition related activities and other business discussed with the Board of Directors include a discussion of the risks associated with the particular item under consideration.

 

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Enterprise-wide incentive compensation risk assessment

In late 2009, our Compensation Committee requested that management conduct a risk-assessment of the Company’s enterprise-wide compensation programs. The Company formed a multi-functional team comprising senior members of the Company’s finance, human capital, legal and business risk departments to design the enterprise-wide compensation program risk assessment. In 2010, management reevaluated the Company’s enterprise-wide compensation programs based upon the risk assessment principles developed in 2009. The Company also engaged a third party to assess the design of the enterprise-wide incentive compensation program risk assessment.

The risk assessment was conducted by management, who reviewed both cash incentive compensation plans and individual cash incentive awards paid in 2010 for the presence of certain design elements that could incent employees to incur excessive risk, the ratio and level of incentive to fixed compensation, the amount of manager discretion, the percentage of compensation expense as compared to the business units’ revenues, and the presence of other design features that serve to mitigate excessive risk taking, such as the Company’s clawback policy, stock ownership guidelines, multiple performance metrics, caps on individual or aggregate payments and similar features. The Compensation Committee also receives an annual report on the Company’s compliance with its equity award program controls.

After considering the results of the risk assessment, management concluded that the level of risk associated with the Company’s enterprise-wide compensation programs is not reasonably likely to have a material adverse effect on the Company. The results of the risk assessment were reviewed with the Compensation Committee at its February 2011 meeting. Please see “Compensation Discussion and Analysis” for a discussion of design elements intended to mitigate excessive risk taking by our executive officers.

Board Meetings and Annual Meeting Attendance

Directors are expected to attend Board meetings, meetings of committees on which they serve and the Annual Meeting of Shareholders. All of our incumbent directors attended the 2010 Annual Meeting, other than Mr. Lawson who was not a director at that time. During the year ended December 31, 2010, the Board of Directors held nine meetings. All incumbent directors who were members of the Board of Directors in 2010 attended at least 75% of the meetings of the Board and any Board committees of which they were members.

 

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Board Committees

The Board of Directors has established four standing committees: the Audit Committee, the Compensation Committee, the Nominating Committee and the Public Policy Strategies Committee. These committees help the Board of Directors fulfill its responsibilities and assist the Board of Directors in making informed decisions. Each committee operates under its own written charter, and evaluates its charter and conducts a committee performance evaluation annually.

 

Director

   Audit    Compensation and
Human Resources
   Nominating and
Corporate Governance
   Public Policy Strategies
and Responsibility

William C. Ballard, Jr.

   Chair       X     

Richard T. Burke*

             

Robert J. Darretta

   X    X        

Stephen J. Hemsley

             

Michele J. Hooper

         Chair    X

Rodger A. Lawson

             

Douglas W. Leatherdale

      Chair    X     

Glenn M. Renwick

   X           

Kenneth I. Shine, M.D.

            X

Gail R. Wilensky, Ph.D.

        X         Chair

 

* Mr. Burke is the Chair of the Board and ex-officio member of each Board committee. As an ex-officio member, Mr. Burke has a standing invitation to attend each Board committee meeting, but does not count for quorum purposes or vote on committee matters.

Audit Committee

The Audit Committee consists of Messrs. Ballard (Chair), Darretta and Renwick, each of whom is an independent director under the NYSE listing standards and the SEC rules. The Board of Directors has determined that Messrs. Ballard, Darretta and Renwick are “audit committee financial experts” as defined by the SEC rules. The Audit Committee has responsibility for the selection and retention of the independent registered public accounting firm, and assists the Board of Directors by overseeing financial reporting and internal controls, public disclosure and compliance activities. The Audit Committee also oversees management’s processes to identify and quantify material risks facing the Company. The Audit Committee operates as a direct line of communication between the Board of Directors and our independent registered public accounting firm, as well as our internal audit, compliance and legal personnel. The Audit Committee held eleven meetings in 2010.

Compensation and Human Resources Committee

The Compensation Committee consists of Messrs. Leatherdale (Chair) and Darretta and Dr. Wilensky, each of whom is an independent director under the NYSE listing standards, a non-employee director under the SEC rules and an outside director under the Internal Revenue Code of 1986 (the “Internal Revenue Code”). The Compensation Committee is responsible for overseeing our policies and practices related to total compensation for executive officers, the administration of our incentive and equity-based plans and the risk associated with our compensation practices and plans. The Compensation Committee also establishes our employment arrangements with our CEO and other executive officers, conducts an annual performance review of the CEO, and reviews and monitors director compensation programs and the Company’s stock ownership guidelines. The Compensation Committee held seven meetings in 2010.

 

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Nominating and Corporate Governance Committee

The Nominating Committee consists of Ms. Hooper (Chair) and Messrs. Ballard and Leatherdale, each of whom is an independent director under the NYSE rules. The Nominating Committee’s duties include identifying and nominating individuals to be proposed for election as directors at each Annual Meeting or to fill board vacancies, conducting the Board evaluation process, evaluating the categorical standards which the Board of Directors uses to determine director independence, and monitoring and evaluating corporate governance. The Nominating Committee also oversees Board processes and corporate governance-related risk. The Nominating Committee held four meetings in 2010.

Public Policy Strategies and Responsibility Committee

The Public Policy Strategies Committee consists of Dr. Wilensky (Chair), Ms. Hooper and Dr. Shine. The Public Policy Strategies Committee is responsible for assisting the Board of Directors in fulfilling its responsibilities relating to the Company’s public policy, health care reform and modernization activities, political contributions, government relations, community and charitable activities and corporate social responsibility. The Public Policy Strategies Committee is also responsible for overseeing the risk associated with these activities. The Public Policy Strategies Committee held four meetings in 2010.

Communication with the Board of Directors

The Board of Directors values the input and insights of our shareholders and other interested parties and believes that effective communication strengthens the Board of Directors’ role as an active, informed and engaged fiduciary. The Board of Directors has adopted a Board of Directors Communication Policy to facilitate communication with the Chair of the Board, any director, committee of the Board, the non-management directors as a group or the full Board of Directors. Under the policy, the Board of Directors has designated the Company’s Secretary to the Board of Directors as its agent to receive and review communications addressed to the Chair of the Board, any director, committee of the Board, the non-management directors as a group or the full Board of Directors.

The Company will not forward to the directors communications received which are of a personal nature or not related to the duties and responsibilities of the Board of Directors, including, without limitation, junk mail, mass mailings, business solicitations, routine customer service complaints, new product or service suggestions, and opinion survey polls. The Secretary to the Board of Directors will forward such complaints and suggestions received to the appropriate members of the Company’s management.

Appropriate Board communications include matters relating to:

 

   

Board succession planning process;

 

   

CEO succession planning process;

 

   

Executive compensation;

 

   

Use of capital;

 

   

Corporate governance; and

 

   

General Board oversight, including accounting, internal controls, auditing and other related matters.

The policy, including information on how to contact the Board of Directors, may be found in the corporate governance section of the Company’s website, www.unitedhealthgroup.com.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

 

Executive Summary

UnitedHealth Group’s compensation program is designed to attract and retain highly qualified executives and to maintain a strong link between pay and performance that rewards achievement of enterprise-wide goals. Our executive compensation philosophy emphasizes and rewards teamwork and close collaboration among executive officers. We believe that such teamwork produces Company growth and performance, optimizes the use of enterprise-wide capabilities, drives efficiencies, and integrates products and services for the benefit of our customers and other stakeholders. Further, the Compensation Committee recognizes that to promote long-term sustained performance, it is necessary to reward not only the achievement of financial and operational goals, but also the accomplishment of significant objectives that position the Company for future growth, even if those objectives are not expected to immediately impact financial results.

In determining executive compensation for 2010, the Compensation Committee considered the Company’s strong growth, operating performance and financial results, achieved in a difficult economic environment. Some of our key business results were as follows:

 

   

revenues increased to $94.2 billion in 2010 from $87.1 billion in 2009, an 8% increase over 2009;

 

   

operating income was $7.9 billion in 2010 compared to $6.4 billion in 2009, a 24% increase over 2009;

 

   

net earnings increased to $4.6 billion in 2010 from $3.8 billion in 2009, a 21% increase over 2009;

 

   

cash flow was $6.3 billion in 2010 compared to $5.6 billion in 2009, an 11.5% increase over 2009;

 

   

earnings per share increased 26.5%;

 

   

dividend payable to our shareholders increased from $0.03 per share annually to $0.125 quarterly ($0.50 per share annually); and

 

   

total shareholder return was 19.8%.

Achievement of the Company’s financial performance was due in large part to our success on a broad range of initiatives that were designed to address the expected difficult economic environment in 2010 and in the longer term. These initiatives were intended to position the Company for future growth in connection with the expected economic recovery by introducing innovative products and services, ever improving service experience to consumers and care providers, reducing medical cost trends while improving outcomes, lowering operating costs through increased productivity and brand recognition and reputational advances.

The Company’s positive financial performance under difficult circumstances, the positioning of the Company for future growth, the successful implementation of the initiatives above, as well as other factors and peer comparisons described herein, led the Compensation Committee to determine that our named executive officers merited the awards described below.

 

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The Compensation Committee believed that total compensation for our Chief Executive Officer, our Chief Financial Officer and each of our three other most highly compensated executive officers for fiscal 2010 (the “named executive officers”) should be heavily weighted toward long-term performance-based compensation. The elements of compensation for our named executive officers were unchanged from 2009. In 2010, long-term compensation represented between 65% and 80% of the total mix of compensation granted to our named executive officers.

As discussed in detail below, in 2010, the Compensation Committee determined that our CEO, Mr. Hemsley, should receive the following compensation:

 

   

Base salary of $1.3 million, which has not been increased since 2006;

 

 

   

Annual cash incentive award of $3.4 million, which represents 174% of his target opportunity;

 

 

   

No long-term cash incentive award for the 2008 – 2010 performance period;

 

 

   

Performance-based restricted stock units (“performance shares”) with a targeted grant date value of approximately $3 million, stock appreciation rights (“SARs”) with a grant date fair value of approximately $1.5 million and restricted stock units (“RSUs”) with a grant date fair value of approximately $1.5 million; and

 

 

   

Company matching contributions of $107,300 made under the Company’s 401(k) and Executive Savings Plan.

 

The Compensation Committee believed this compensation was appropriate to recognize Mr. Hemsley’s overall leadership in positioning the Company for long-term success during a difficult overall economic environment and during a period of significant change and modernization in the health care marketplace, and in particular, his leadership in enhancing the Company’s reputation, ethical culture and tone at the top, and his support and promotion of social responsibility initiatives. Even though Mr. Hemsley’s total compensation is below the CEO median in the Company’s peer groups, the Compensation Committee and Mr. Hemsley agree that the total compensation awarded is sufficient to motivate and retain him.

For the other named executive officers, the Company believes internal pay parity increases collaboration, teamwork and accountability across the enterprise, recognizes the skills and versatility of each executive officer and reflects internal parity of contributions. As a result, each named executive officer received the same relative target total compensation.

 

 

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Philosophy and Objectives of our Compensation Program

We seek to attract and retain highly qualified executives and establish a strong relationship between executive compensation and Company performance based on the achievement of enterprise goals. We strive to compensate competitively and sensibly. We also believe that compensation is not the exclusive means to attract and retain highly qualified executive officers.

The primary objectives of our executive compensation program are to:

 

   

Attract and retain highly qualified executive officers and motivate them to deliver a consistently high level of performance in the industries and markets in which we compete.

 

   

Align the economic interests of our executive officers with those of our shareholders by placing a substantial portion of compensation at risk through performance goals that, if achieved, are expected to increase total shareholder return over the long term and contribute to the long-term prosperity of the Company.

 

   

Reward performance that emphasizes teamwork and close collaboration among executive officers, supports Company growth by leveraging enterprise-wide capabilities, drives efficiencies and integrates products and services for the benefit of customers and other stakeholders.

 

   

Reward performance that supports the Company’s values by promoting and instilling a culture of integrity, business ethics, customer and provider service, community service and diversity.

 

   

Reward performance that advances our mission of helping people live healthier lives.

 

   

Foster an entrepreneurial spirit that reflects innovative thinking and action, effective and accountable management and leverages the ingenuity of our employees.

Compensation Program Principles

Our Compensation Committee uses the following principles to implement our compensation philosophy and achieve our executive compensation program objectives:

 

  1. Pay for performance. A substantial portion of the total compensation of our executive officers is composed of annual and long-term incentive payments that are earned upon achievement of financial and non-financial outcomes that either influence or contribute to shareholder value creation.

 

  2. Enhance prosperity of the business. We have a balanced compensation program that is significantly weighted towards long-term performance. In addition, we base cash incentives on achievement of goals and objectives that reflect a mix of quantitative and qualitative performance measures which encourage executive officers to favor the longer-term prosperity of the Company, while avoiding excessive risk-taking in the short-term.

 

  3. Reward long-term growth and sustained profitability. Compensation of our executive officers is heavily weighted toward equity and long-term cash awards. These awards require sustained financial performance to deliver significant value by the Company and encourage our executive officers to deliver continued growth over an extended period of time. They also aid us in the retention of executive officers who are vital to our long-term success. The equity awards, coupled with executive stock ownership guidelines and stock retention requirements, further assure the alignment of interests between our executive officers and our shareholders.

 

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  4. Modest benefits and limited perquisites. We provide standard employee benefits and limited perquisites or other forms of compensation to our named executive officers. We believe that the financial opportunities provided to our executive officers through our compensation program minimize the need for extra benefits or perquisites and that the absence of such benefits or perquisites does not impact our ability to attract and retain such executives.

Determination of Total Compensation

The Compensation Committee’s Use of an Independent Compensation Consultant

The Compensation Committee retains a separate independent compensation consultant to advise the Compensation Committee on executive and director compensation matters, assess total compensation program levels and program elements for executive officers and evaluate competitive compensation trends. In 2009, the Board of Directors adopted a policy formalizing the Compensation Committee’s practice of using an independent compensation consultant.

The Compensation Committee retained Jon Weinstein to act as its independent compensation consultant in 2010. From January 2010 until October 2010, Mr. Weinstein worked at Towers Watson. In October 2010, Mr. Weinstein joined Pay Governance LLC, a new firm established by former Towers Watson executive compensation consultants. After considering the results of a performance review, the Compensation Committee discussed their satisfaction with the services provided by Mr. Weinstein and determined to continue to retain him at Pay Governance. Pay Governance does not provide any other services to the Company. The Compensation Committee has concluded that Mr. Weinstein at all times has been an independent compensation consultant under the Board of Directors’ policy because he takes directions from and reports directly to the Compensation Committee and does not perform any work for management.

In 2010, the Company paid Towers Watson approximately $251,000 for executive compensation services provided to the Compensation Committee. The Company also paid Towers Watson approximately $260,000 for benefit administration, actuarial services and off-the-shelf surveys provided to management.

In addition to executive compensation consulting services, Towers Watson also provides health benefit consulting services to certain customers of the Company. In 2010, we paid Towers Watson or its affiliates approximately $2.6 million in commissions related to the sale of Company health care products and services to customers of the Company, pre-implementation audits and other audit services at the request of and for the benefit of Company customers, and consulting services related to the development of certain health care products and services provided by the Company. Towers Watson is also a customer of the Company and we paid them pharmacy rebates of approximately $260,000 in 2010. These additional services provided to management and the Company in 2010 were in the normal course of business and therefore not approved by the Compensation Committee. Mr. Weinstein had no participation in any of the relationships between management and Towers Watson.

Competitive Positioning

The Compensation Committee approves the overall compensation for the named executive officers based on its own evaluation, including internal pay equity considerations, tenure and performance of each named executive officer, input from its independent consultant and benchmark

 

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data. The Compensation Committee believes that total compensation for named executive officers should be heavily weighted toward long-term performance-based compensation, but it does not target a specific mix of compensation between annual and long-term compensation or between equity and cash compensation. In 2010, long-term compensation (cash and equity) represented between 65% and 80% of the total mix of compensation granted to named executive officers.

In general, the Compensation Committee’s goal is to achieve total compensation for the named executive officers as a group that falls within a range of the fiftieth to the seventy-fifth percentiles of benchmark data if paid at target. Total compensation of our named executive officers as a group in 2010, consisting of base salary, annual cash incentive award, long-term cash incentive award, and the grant date fair value of equity awards, resulted in compensation paid between the median and the seventy-fifth percentile of benchmark data as compared to our peer groups.

In assessing the competiveness of our executive compensation program, our Compensation Committee uses three sets of peer group data as follows:

 

   

broader industry group;

 

   

strategic and operating group; and

 

   

managed care company group.

The Compensation Committee considers data from a broader general industry group in order to review more robust market data, including a wide array of relevant industries that reflects a broad market for talent, particularly for corporate level executive officers. The general industry group was developed by the independent compensation consultant based on the following selection criteria:

 

   

top 100 publicly traded companies in terms of revenue or market cap;

 

   

eliminate industries that have unique structures that are not relevant to UnitedHealth Group, such as oil and gas, heavy manufacturing, aerospace and defense, auto manufacturing or similar industries, because the Company is unlikely to recruit from these industries;

 

   

eliminate companies with a single line of business, so that only multi-segment companies are included; and

 

   

add major companies located near UnitedHealth Group’s significant executive locations, to consider local competitive dynamics.

The Company does not participate in the selection of the companies for inclusion in the general industry group and is not made aware of the companies in this group until the independent compensation consultant presents its benchmarking results to the Compensation Committee. The companies that were included in the 2010 general industry group pursuant to the criteria set forth above are listed in the Appendix A to this Compensation Discussion and Analysis.

Next, the Compensation Committee considers data from a strategic and operating peer group consisting of 28 companies listed in the Appendix to this Compensation Discussion and Analysis. The companies included in this peer group were chosen because they contain similar strategic and/or operating characteristics to the Company, although the Company is significantly larger than most of the companies in this peer group.

 

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The Compensation Committee also considers data from the five largest publicly traded managed care companies with which we compete, who are listed in the Appendix to this Compensation Discussion and Analysis. The Compensation Committee does not benchmark compensation practices solely against these managed care companies because the Company is substantially larger, more complex and more diverse than those companies, and the Company competes for talent and capital with other successful large companies without regard to industry.

Role of Management and CEO in Determining Executive Compensation

While the Compensation Committee has the responsibility to approve and monitor all compensation for our executive officers, management plays an important role in determining executive compensation. Management recommends appropriate enterprise-wide financial and non-financial performance goals. Management works with the Compensation Committee to establish the agenda and prepare meeting information for each Compensation Committee meeting. Our CEO assists the Compensation Committee by providing his evaluation of the performance of the executive officers who report directly to him and recommends compensation levels for such executive officers. Our CEO does not, however, make recommendations regarding his own compensation.

Use of Tally Sheets and Wealth Accumulation Analysis

When approving compensation decisions, the Compensation Committee reviews tally sheet information for each of our executive officers. These tally sheets are prepared by management and quantify the elements of each executive officer’s total compensation, including base salary, annual cash incentive awards, long-term cash incentive awards and stock ownership levels. The tally sheets also include a summary of all equity awards previously granted to each executive officer, the gain realized from past vesting or exercise of equity awards and the projected value of accumulated equity awards based upon various stock appreciation scenarios. This is done to effectively analyze the amount of compensation each executive officer has accumulated to date and to better understand the amount the executive officer could accumulate in the future.

 

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Elements of our Compensation Program

Overview

The compensation program for our named executive officers consists of the following elements:

 

Compensation Element   Objective  

Type of

Compensation

Base salary

  To provide a base level of cash compensation for executive officers   Annual cash compensation, not at risk

Annual cash incentive awards

  To encourage and reward executive officers for achieving annual corporate performance goals   Annual performance compensation, at risk

Long-term cash incentive awards

  To encourage and reward executive officers for achieving three-year corporate performance goals   Long-term performance compensation, at risk

Equity awards

 

To motivate and retain executive officers and align their interests with shareholders through the use of:

 

•     SARs to encourage performance that contributes to sustained stock price appreciation;

 

•     Performance shares to motivate sustained performance and growth; and

 

•     RSUs to retain executive officers and build stock ownership positions.

  Long-term performance compensation, at risk

Employee benefits

  The smallest part of total remuneration promotes health, well-being and financial security of employees, including executive officers   Annual indirect compensation, not at risk

 

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Annual Compensation

Base Salary

The Compensation Committee generally determines base salary levels for our named executive officers early in the fiscal year, with changes becoming effective during the first quarter of the fiscal year. In 2010, Mr. Renfro’s base salary was increased to $700,000. The Compensation Committee made no other changes to the base salaries of any of our named executive officers in 2010. The table below sets forth the 2010 base salaries:

 

Name   2010 Base
Salary
 

S. Hemsley

  $ 1,300,000   

M. Mikan

  $ 700,000   

G. Boudreaux

  $ 700,000   

A. Welters

  $ 700,000   

L. Renfro

  $ 700,000   

The base salaries of Messrs. Mikan, Renfro and Welters and Ms. Boudreaux reflect the Company’s belief that internal base pay parity is important to reinforce the importance of executive collaboration, teamwork, accountability and success across all of the Company’s business lines in meeting the goals set forth in the Company’s 2010 business plan.

Annual Cash Incentive Awards

Overview

Annual cash incentive awards may be paid if our Company meets or exceeds annual performance goals as determined by the Compensation Committee for that year. These awards are structured to be qualified performance-based compensation under Section 162(m) of the Internal Revenue Code (“Section 162(m)”). Under the Company’s 2008 Executive Incentive Plan, the material terms of which were approved by the Company’s shareholders in 2008, the maximum potential annual bonus pool is equal to 2% of net income. For each participating named executive officer, the Compensation Committee established a maximum potential annual cash incentive award that was expressed as a percentage of base salary and, under the terms of the 2008 Executive Incentive Plan, could not exceed 25% of the annual bonus pool. The actual annual cash incentive award for each named executive officer for 2010 was significantly less than such percentage of the bonus pool established by the Compensation Committee, and was determined based on the performance criteria and target performance goals described below. This approach was designed to establish each named executive officer’s annual cash incentive award in a manner that complied with the performance-based compensation requirements of Section 162(m), while preserving the Compensation Committee’s flexibility to determine the actual annual cash incentive award for each named executive officer up to the maximum amount under the Company’s 2008 Executive Incentive Plan.

2010 Annual Incentive Plan Performance Goals

In February 2010, the Compensation Committee approved performance criteria and target performance goals for the 2010 annual cash incentive award. These performance goals are based on

 

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enterprise-wide measures because the Compensation Committee believes that the named executive officers share the responsibility to support the goals and performance of the Company as key members of the Company’s leadership team. The following table sets forth these performance measures, as well as 2010 performance in each of those categories:

 

2010

Performance

Measure

  Weight  

Threshold

Performance

  Target
Performance
  Maximum
Performance
  Actual 2010
Performance

Revenue

  1/3   $84.550 billion   $89.000 billion   $93.450 billion   $93.091 billion

Operating Income

  1/3   $4.832 billion   $5.685 billion   $6.538 billion   $7.823 billion

Cash Flow

    $3.570 billion   $4.200 billion   $4.830 billion   $6.273 billion

Stewardship:

 

•    Customer and Physician Satisfaction

 

•    Employee Engagement

 

•    Employee Teamwork

  1/3   2009 results   2 points above threshold, except customer and physician satisfaction is 5 points above 2009 results   2 points above 2010 target   Between 2010 target and maximum

In 2010, the Company achieved performance close to or significantly in excess of the maximum level on all financial measures. With respect to stewardship, the Company achieved performance at threshold for customer and physician satisfaction, at target for employee engagement, and at maximum for employee teamwork. In determining the actual amount of annual cash incentive compensation to be awarded to each named executive officer, the Compensation Committee considers overall Company performance against all approved goals as set forth in the table above, as well as performance by the management team and individual performance. The Compensation Committee retains discretion to pay an annual incentive award that is higher or lower than the performance level achieved based on these considerations once threshold performance is achieved on any metric. The Compensation Committee also has discretion to consider other factors, such as regulatory compliance, reputation advancement, brand identity and public and social responsibility and the Company’s performance as compared to other large managed care companies, in determining annual cash incentive awards.

The Company’s 2002 Executive Incentive Plan allows for adjustments to the Company’s reported earnings for the impact of changes in accounting principles, extraordinary items and unusual or non-recurring gains or losses, including significant differences from the assumptions contained in the financial plan upon which the incentive targets have been established. Adjustments to reported earnings are intended to better reflect executives’ line of sight / ability to affect payouts, align award payments with growth of the Company’s business, avoid artificial inflation or deflation of awards due to unusual or non-recurring items in the applicable period, and eliminate counterproductive short-term incentives — for example, refraining from settling legacy legal proceedings, pursuing significant new business initiatives or deferring disposing of underutilized assets. Pursuant to the 2002 Executive Incentive Plan, 2010 revenue and operating income were decreased from the results reported in

 

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accordance with GAAP consistent with this philosophy. If these decreases had not been made, 2010 revenues would have exceeded the maximum performance level.

Context for 2010 Performance Goals

In establishing the performance measures for the 2010 annual cash incentive awards set forth in the table above, the Compensation Committee sought to align broadly the compensation of our executive officers to key elements of the Company’s 2010 business plan, which was developed in late 2009 and finalized in the first quarter of 2010. Development of the Company’s 2010 business plan was a robust process that involved input from all of the Company’s business units and was reviewed with the Company’s Board of Directors in the fourth quarter of 2009 and the first quarter of 2010. At the target level, these financial performance measures were consistent with the 2010 financial outlook publicly presented in December 2009 at the Company’s annual Investor Conference.

The 2010 financial performance at target level set forth in the table above represented year-over-year growth in revenues of $1.9 billion but also included an expected year-over-year decline in operating income of $674 million and an expected decline in operating cash flow of $1.4 billion. This reflected the Company’s view that there would be a continued difficult business environment in 2010, including expectations that:

 

   

the general unemployment rate would remain near the 10% level;

 

   

2010 revenue would increase, but such an increase would be slowed by commercial member losses sustained in 2009 in connection with the then-rising unemployment rate;

 

   

there would be unprecedented and significant reductions in Medicare Advantage payment rates received from the federal government in 2010;

 

   

the Company would incur additional costs associated with providing newly mandated benefits related to behavioral parity and autism coverage requirements; and

 

   

operating cash flows were also expected to be negatively impacted by a legislative change requiring accelerated payment of Part D pharmacy claims.

The non-financial performance measures were intended to incent named executive officers to take actions necessary (and incur associated costs) to achieve improvements in operational performance areas and to encourage employee behaviors that contribute to the overall success of the enterprise. These measures were viewed to be important to obtaining longer-term financial successes that might not be immediately reflected in annual financial results. The non-financial target levels represented an increase over 2009 performance in all categories.

The Compensation Committee was of the view that the breadth of financial and non-financial performance measures for the 2010 annual cash incentive award set forth in the table would motivate the executive officers to achieve results that should contribute to value creation for our shareholders on a long-term basis and avoid excessive risks. At the beginning of 2010, the Company believed it was unlikely that the enterprise-wide revenue, operating income and cash flow goals for 2010 could be achieved without substantial performance on a broad range of initiatives contained in the 2010 business plan. These initiatives were designed to position the Company to manage through an expected difficult general economic environment in 2010, drive or position the Company for growth in

 

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connection with the expected economic recovery by introducing innovative products and services, even improving service experience to consumers and care providers, reducing medical cost trends while improving outcomes, lowering operating costs through increased productivity and brand recognition and reputational advances. These initiatives included the following:

 

   

growth in Medicare Advantage, Part D and Medicaid enrollment;

 

   

execution of a major multi-track Medicare Advantage remediation plan to compensate for reduced funding rates from the federal government over the near and longer-term that are projected to be less than the rate of medical cost inflation during the same time period;

 

   

continued innovation in commercial products;

 

   

delivering ever more effective and comprehensive clinical management; and

 

   

further improvements to our consolidated operating cost ratio.

The Company made substantial progress with regard to these initiatives contained in the 2010 business plan and, in addition, enrollment in the Company’s commercial business significantly exceeded the Company’s expectations. As a result, 2010 revenues, operating income and cash flow were near or above maximum levels and represented increases over 2009 in every measure. The Company’s total shareholder return was 19.8% in 2010, reflecting successful performance in an uncertain environment.

Determination of 2010 Annual Cash Incentive Award Amounts

At the beginning of each year, the Compensation Committee approves an “annual incentive target percentage” for each executive officer as a percentage of the executive officer’s base salary. In 2010, the maximum cash incentive award that each executive officer could earn, as set by the Compensation Committee, was equal to two times the applicable annual incentive target percentage. The Compensation Committee approves the amount of the annual cash incentive award to be paid to each executive officer for a particular fiscal year in the first quarter of the following fiscal year.

The Compensation Committee believes that it was important to provide the same relative target opportunity to all of the named executive officers, other than Mr. Hemsley, to increase collaboration, teamwork and accountability across the enterprise, to recognize the skills and versatility of each executive officer and to reflect internal parity of contributions. The annual incentive target percentages for annual cash incentive awards to our named executive officers and the actual 2010 annual cash incentive awards paid are set forth in the table below.

 

2010 Annual Cash Incentive Awards
Name  

Target
Percentage

(% of Salary)

 

Target Award
Value

($)

 

Maximum
Award Value

($)

 

Actual
Award Paid

($)

 

Paid Award

(% of Target)

S. Hemsley

  150%   1,950,000   3,900,000   3,400,000   174%

G. Mikan

  100%   700,000   1,400,000   1,400,000   200%

G. Boudreaux

  100%   700,000   1,400,000   1,400,000   200%

A. Welters

  100%   700,000   1,400,000   1,400,000   200%

L. Renfro

  100%   700,000   1,400,000   1,400,000   200%

 

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The factors considered by the Compensation Committee in determining the 2010 annual cash incentive award amounts for each executive officer are discussed under “Rationale for Individual Incentive Compensation Decisions” below.

Long-Term Incentive Compensation

Long-term compensation, consisting of the long-term cash incentive program and equity awards, represents the largest portion of executive officer compensation. This combination of long-term incentives provides a compelling performance-based compensation opportunity, aids in aligning and retaining the senior management team and accelerates the optimization of business unit capabilities across the enterprise.

Long-Term Cash Incentive Awards

Overview

The long-term cash incentive awards program creates a financial incentive for achieving or exceeding three-year financial goals for the enterprise. These awards are structured to be qualified performance-based compensation under Section 162(m) of the Internal Revenue Code. Long-term cash incentive awards for the 2008-2010 performance period were established under the Company’s 2008 Executive Incentive Plan. Under the Company’s 2008 Executive Incentive Plan, the maximum potential bonus pool for the 2008-2010 performance period is equal to 2% of the Company’s average net income during the performance period. For each participating executive officer, the Compensation Committee established a maximum potential long-term cash incentive award that was expressed as a percentage of base salary and, under the terms of the 2008 Executive Incentive Plan, could not exceed 25% of the long-term bonus pool. The potential long-term cash incentive award for each named executive officer for the 2008-2010 performance period was significantly less than such percentage of the bonus pool established by the Compensation Committee, and was determined based on the performance criteria and target performance goals described below. This approach was designed to establish each executive officer’s potential long-term cash incentive award in a manner that complied with the performance-based compensation requirements of Section 162(m), while preserving the Compensation Committee’s flexibility to determine the actual long-term cash incentive award for each executive officer up to the maximum amount under the Company’s 2008 Executive Incentive Plan.

2008-2010 Long-Term Incentive Plan Performance Goals

No long-term cash incentive awards for the 2008-2010 performance period were paid because the Company did not achieve the performance threshold on either of the following metrics:

 

2008-2010

Performance

Measure

     Weight       

Threshold

Performance

     Actual 2008-2010
Performance
 

Cumulative EPS

       1/2         $ 11.53       $ 10.29   

Return on Equity

       1/2           20.8%         17.0%   

The $11.53 cumulative three-year earnings per share (EPS) performance threshold corresponded to a compound annual growth rate of 7.3% over the three-year period. On a GAAP basis, EPS declined by approximately 30% in 2008 as a result of a number of factors, including the difficult economic

 

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environment, settlement of class-action lawsuits, and the Company not fully realizing its plans with respect to enrollment growth and medical and operating costs. The Company had year-over-year GAAP EPS growth of 35% in 2009 and 26.5% in 2010. Notwithstanding the strong EPS performance in 2009 and 2010, the cumulative EPS results for the 2008-2010 performance period fell short of the three-year performance goal as a result of the significant decline in EPS in 2008. The 20.8% average return on equity (ROE) performance threshold represented a slight decline from the actual ROE at the time the goal was established. Due to the same factors contributing to the decline in 2008 EPS, the ROE for 2008 decreased to 14.9%. ROE improved to 17.3% in 2009 and 18.7% in 2010, but results for the 2008-2010 performance period fell short of the three-year performance goal.

Equity Awards

Equity Award Practices

Awards of equity-based compensation to our executive officers complement long-term cash incentives and serve the purposes described above under “Long-Term Cash Incentive Awards.” In addition, equity-based awards encourage a strong ownership stake in our Company and align the interests of named executive officers and our shareholders. All outstanding equity-based compensation awards to the executive officers have been awarded under one of three equity-based compensation plans. The most recent equity-based compensation plan, the 2002 Stock Incentive Plan, is the source of current awards.

The Compensation Committee determined that equity-based compensation for 2010 should include grants of SARs, RSUs and performance shares to achieve better balance and effectiveness in our equity-based compensation and to align better the interests of our executive officers and our shareholders. SAR grants were selected because they have value to the recipient only if the Company’s stock price increases, have a similar accounting treatment to stock options and result in a smaller number of shares being issued from our 2002 Stock Incentive Plan. This extends the life of the authorized pool of shares under the 2002 Stock Incentive Plan that is available for future equity awards. RSU grants were selected because they are full value shares with time vesting and, as such, provide added retention value. Performance share grants were selected to further strengthen the longer-term pay-for-performance alignment of the Company’s compensation program. The Compensation Committee’s decision to grant performance shares was informed, in part, by discussions held between the Company and certain of its shareholders regarding the merits of performance shares in a pay-for-performance executive compensation program.

The Compensation Committee’s equity award policy is designed to facilitate the establishment of appropriate processes, procedures and controls in connection with the administration of equity-based incentive plans. The Compensation Committee’s equity award policy requires that all grants of equity be made at set times and at the sole discretion of the Compensation Committee. The Compensation Committee does not delegate authority to management to grant equity awards. We do not have a specific program, plan or practice to time equity compensation awards to named executive officers in coordination with our release of material information.

The Compensation Committee approves all equity awards, including those made to our named executive officers. SAR awards are made with an exercise price equal to or greater than fair market value on the date of grant, and typically have a term of ten years with 25% of the award vesting in each of the first four years following the date of grant. RSU awards are valued at the fair market value on the date of grant, and typically vest 25% annually in each of the first four years following the date of grant.

 

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The number of performance shares that each named executive officer will receive will be determined at the end of a three-year cliff vesting performance period and will be dependent upon the achievement of certain operating metrics approved by the Compensation Committee.

The Company does not pay dividend equivalents on unvested performance shares granted to employees. The Compensation Committee amended the RSU award agreements to permit the payment of dividend equivalents on RSUs awarded in 2011 and after. The dividend equivalents are subject to the same terms as the RSUs and will be forfeited if the related RSUs do not vest.

Beginning in 2011, our equity award agreements that contain time-based vesting features no longer provide for “single-trigger” accelerated vesting upon a change in control. These agreements now include a “double-trigger” provision, which provides for accelerated vesting only if there is a change in control and within two years of the change in control the executive officer’s employment is terminated without “cause” or the executive officer terminates his or her employment for “good reason.” The Compensation Committee determined that “double-trigger” acceleration of vesting for time-based equity better preserved the retentive value of the equity award and was more consistent with the interests of our shareholders.

The aggregate number of shares subject to equity awards made in 2010 was less than 2% of the Company’s shares outstanding at the end of 2010.

Equity Awards — 2010

In February 2010, the Compensation Committee granted the following target number of performance shares, SARs and RSUs to Messrs. Hemsley, Mikan, Renfro and Welters and Ms. Boudreaux:

 

Name      Target Number of
Performance
Shares
       SARs        RSUs  

S. Hemsley

       90,910           114,036           45,455   

G. Mikan

       60,607           76,024           30,304   

B. Boudreaux

       60,607           76,024           30,304   

L. Renfro

       60,607           76,024           30,304   

A. Welters

       60,607           76,024           30,304   

The number, mix and value of equity awards was determined by the Compensation Committee at its February 2010 meeting during which determinations were also made regarding the 2009 annual cash bonus and the 2007-2009 long-term cash incentive payments. The value and mix of equity awards for all named executive officers were determined by the Compensation Committee after considering competitive market data; the desirability of utilizing a balanced system to mitigate risk, encourage superior performance, and build ownership; and the need to retain and motivate the executives to deliver sustained performance that enhances the longer-term prosperity of the business. The mix of equity awards was intended to enhance long-term performance and strengthen the Company’s long-term pay-for-performance alignment because 75% of the value of the equity awards is delivered through performance shares and SARs.

The grant date fair values and terms of these equity awards are discussed further in the “Grants of Plan Based Awards” table and related footnotes below.

 

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Rationale for Individual Incentive Compensation Decisions

Stephen J. Hemsley. Mr. Hemsley’s 2010 annual cash incentive award was determined by the Compensation Committee in February 2011 after considering the results of a performance evaluation conducted by the Compensation Committee and incorporating feedback from all Board members other than Mr. Hemsley. This award was based on:

 

   

Achievement of strong overall performance in 2010 as discussed above under “Context for 2010 Performance Goals” and “2008-2010 Long-Term Incentive Plan Performance Goals”;

 

   

Ensuring the appropriate organizational structure, management team and resources to carry out business strategies and achieve objectives;

 

   

Ability to focus the Company, build consensus and utilize its resources to effectively accomplish the Company’s objectives, including actions taken to improve the Company’s critical capabilities;

 

   

Leadership in enhancing the Company’s culture, including furthering a strong ethical culture and encouraging corporate social responsibility initiatives;

 

   

Positive participation and leadership of the Company in the health care reform and modernization debate;

 

   

Continued improvement in the Company’s reputation as perceived by third parties;

 

   

Formalizing senior leadership talent development and retention activities, including rotation of senior executives into new roles with new opportunities for business and personal growth and development;

 

   

Mr. Hemsley’s outstanding leadership style and performance;

 

   

An internal pay analysis of Mr. Hemsley’s total direct incentive compensation to total direct incentive compensation awarded to other executive officers at the Company, which the Compensation Committee believes is appropriate because the senior leadership team, including the CEO, is most responsible for the Company’s performance; and

 

   

An external pay analysis and comparison of Mr. Hemsley’s compensation to the Company’s peer groups, which shows compensation levels below the median of the Company’s peer groups.

Although Mr. Hemsley’s total compensation is below median as compared to other CEOs in the Company’s peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him.

 

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George L. Mikan III, Gail Boudreaux, Larry C. Renfro and Anthony Welters. The 2010 annual cash incentive awards for Messrs. Mikan, Renfro and Welters and Ms. Boudreaux were determined by the Compensation Committee after considering recommendations made by and performance evaluations conducted by Mr. Hemsley. These awards were based on the following collective considerations:

 

   

Achievement of strong overall performance in 2010 despite challenging circumstances as discussed in detail above under “Context for 2010 Performance Goals” and “2008-2010 Long-Term Incentive Plan Performance Goals”;

 

   

The responsibilities and skills of each named executive officer;

 

   

Cross enterprise teamwork and collaboration efforts of each named executive officer;

 

   

Efforts and emphasis on enterprise-wide ethical values and leadership by example in community service initiatives; and

 

   

An internal pay analysis and comparison of the cash incentive compensation of the named executive officers to each other and to certain of the other most senior managers at the Company. The Compensation Committee believes an internal pay analysis is appropriate because the executive officers, including the named executive officers, are most responsible for the Company’s financial results.

These awards were also based on the following individual considerations:

 

   

For Mr. Mikan, continued strong stewardship of the Company’s financial resources and capital structure, which provided flexibility for the Board’s implementation of a meaningful dividend for shareholders;

 

   

For Ms. Boudreaux, successful repositioning of UnitedHealthcare’s commercial benefits business with a focus on innovation and local market execution, leading to commercial enrollment growth that significantly exceeded expectations;

 

   

For Mr. Renfro, successful execution of a major multi-track Medicare remediation initiative; and

 

   

For Mr. Welters, successful positioning of the Company during the federal health care reform debate and launch of corporate reputation improvement initiatives.

The Compensation Committee did not make specific assessment of, quantify or otherwise assign relative weights to the factors considered in reaching its decision.

Under the terms of her employment agreement, Ms. Boudreaux also received a bonus of $205,000 on the second anniversary of her employment. This bonus is subject to pro-rata repayment based on the number of full months employed if, within twenty-four months of the second anniversary of her employment, Ms. Boudreaux’s employment with the Company was voluntarily terminated by Ms. Boudreaux, other than for “good reason,” or terminated by the Company for “cause.” See “Executive Employment Agreements” for a discussion of “good reason” and “cause.”

Other Compensation

Benefits

Our executive officers are generally eligible to participate in our broadly-available employee health, welfare and retirement benefit programs. These benefits include a 401(k) savings plan, an employee stock purchase plan, short- and long-term disability plans, term life insurance coverage, medical, vision and dental plans, a flexible spending account plan and an employee assistance plan.

 

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In addition to these benefits, our executive officers are eligible to receive supplemental long-term disability coverage equal to 60% of base salary (up to $420,000) and all of our named executive officers, other than Mr. Hemsley and Mr. Renfro, receive supplemental group term life insurance coverage of $2 million. Executive officers are also eligible to participate in our non-qualified Executive Savings Plan. See the “2010 Non-Qualified Deferred Compensation” table below for additional information regarding contributions, earnings and distributions for each named executive officer under the Executive Savings Plan. Our Executive Savings Plan does not provide for guaranteed or above-market interest.

As part of its continued focus on the community, the Company implemented an Executive Board Service Matching Program in 2008. This program is available to approximately 200 senior leaders of the Company, including the named executive officers. This program provides for Company matching contributions on a 1:1 or 2:1 basis to certain charitable and nonprofit organizations up to a maximum amount of $10,000 per organization and a maximum annual Company match amount of $40,000 per senior leader. In order to receive the matching contribution, the employee must serve on the board of the charitable or nonprofit institution and make a personal financial contribution.

Perquisites

We do not believe that providing generous executive perquisites is either necessary to attract and retain executive talent or consistent with our pay-for-performance philosophy. Therefore, we do not generally provide perquisites such as company automobiles, security services, private jet services, financial planning services, club memberships, apartments, or vacation homes to our executive officers. Our corporate aircraft use policy prohibits personal use of corporate aircraft by any executive officer. Because there is essentially no incremental cost to the Company, however, the policy does permit an executive officer’s family member to accompany the executive officer on a business flight on Company aircraft provided a seat is available.

Employment Agreements and Post-Employment Payments and Benefits

The Company has a policy of entering into employment agreements with each of our named executive officers. These employment agreements are described in greater detail in “Executive Employment Agreements.” In 2006, the Company entered into an employment agreement with Mr. Hemsley for his service as our CEO. This employment agreement had an initial term of four years, expiring on December 1, 2010, and contained an automatic one-year renewal feature. Prior to the expiration of the initial term of this employment agreement, the Compensation Committee requested and received advice from its compensation consultant regarding the terms of the agreement. In reaching a conclusion to extend the employment agreement for an additional four-year term, the Compensation Committee considered the following positive and negative factors:

 

   

General views held by some that employment agreements should only be used in limited circumstances, and used rarely, if ever for long-tenured employees.

 

   

Under the terms of his employment agreement, Mr. Hemsley is only assured of receiving his base salary each year.

 

   

The employment agreement does not set any minimum or target level for any bonus or other incentive compensation for Mr. Hemsley. All awards of bonus and incentive compensation are solely at the discretion of the Compensation Committee.

 

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Severance provided pursuant to the employment agreement is limited to the payment of base salary, and does not include any bonus or incentive compensation.

 

   

Mr. Hemsley does not receive any perquisites under the employment agreement other than benefits generally provided to all employees.

 

   

The employment agreement contains certain non-competition, non-disclosure and non-solicitation provisions.

 

   

The overall view of strong performance by Mr. Hemsley during his initial term as CEO and the desire of the Board to obtain Mr. Hemsley’s commitment to continue serving as the Company’s CEO for an extended period.

The Compensation Committee did not make specific assessments of, quantify or otherwise assign relative weights to the factors considered in reaching its decision. At its meeting in November 2010, the Compensation Committee unanimously recommended to the Board that the Company enter into an employment agreement amendment with Mr. Hemsley.

None of the employment agreements for the other named executive officers provides for ongoing fixed minimum annual equity awards or fixed cash incentive awards. The Company’s policies related to post-employment payments and benefits do not provide for enhanced cash severance payments upon termination in connection with a change in control or for excise tax gross up payments payable in connection with a change in control. The Company also does not have any ongoing supplemental executive retirement plan obligations for its named executive officers.

The employment agreements with our executive officers provide for certain severance payments in connection with their termination of employment under various circumstances, typically termination by the Company without “cause” or by the executive officer for a “good reason.” See “Executive Employment Agreements” and “Potential Payments Upon Termination or Change-in-Control” for additional information regarding potential severance payments that may be made to named executive officers. We have provided these post-employment payments and benefits and severance payment triggers because they have enabled us to obtain specific post-employment non-competition, non-solicitation and non-disclosure agreements with our executive officers that we believe are of value to the Company and our shareholders.

Our equity award agreements typically provide that the awards become fully vested and exercisable if the executive officer’s employment ends due to death or disability, or if a change in control of the Company occurs. Beginning in 2011, equity award agreements that contain time-based vesting features no longer provide for “single-trigger” accelerated vesting upon a change in control. These agreements now include a “double-trigger” provision, which provides for accelerated vesting only if there is a change in control and within two years of the change in control the executive officer’s employment is terminated without “cause” or the executive officer terminates his or her employment for “good reason.” For performance shares, the target number of performance shares will immediately vest upon a change in control of the Company. The Compensation Committee determined that “double-trigger” acceleration of vesting for time-based equity better preserved the retentive value of the equity award and was more consistent with the interests of our shareholders. Our equity award agreements also generally provide for continued vesting and exercisability during any period in which an executive officer receives severance and for continued exercisability of vested awards for a limited period of time after termination of employment for other reasons. In addition, equity awards granted in 2009 and

 

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going forward provide for continued vesting and exercisability for up to five years after retirement, subject to certain conditions. The Compensation Committee elected to provide such continued vesting and exercisability because such provisions are a common market practice and our other retirement benefits are limited to the Company’s 401(k) Plan and non-qualified deferred compensation plans.

Other Compensation Practices

Executive Stock Ownership Guidelines

The Compensation Committee believes that requiring significant stock ownership by our executive officers further aligns their interests with those of long-term shareholders. Under our stock ownership guidelines, each executive officer must beneficially own a number of shares of the Company’s common stock with a fair market value equal to or in excess of a specified multiple of the individual’s base salary within three years of an executive officer’s election or appointment as an executive officer as follows:

 

   

for the CEO, five times base salary; and

 

   

for other executive officers, two times base salary.

Stock options and SARs do not count toward satisfaction of the ownership requirements under the guidelines, regardless of their vesting status. Time-based RSUs and restricted stock awards are counted toward the satisfaction of the ownership requirements. The Compensation Committee periodically reviews compliance with this requirement. As of the record date of this proxy statement, all of our named executive officers meet the ownership requirements, including Mr. Hemsley, who holds shares equal to 88x his base salary.

In 2009, the Board established a stock retention policy for Section 16 officers. For equity awards received after October 23, 2009, Section 16 officers are required to retain one-third of the net shares acquired upon the vesting or exercise of the equity awards for at least one year.

Transactions in Company Securities

In general, SEC rules prohibit uncovered short sales of shares of our common stock by our executive officers, including the named executive officers. Accordingly, our insider trading policy prohibits short sales of shares of our common stock by all employees and directors, including the executive officers, and discourages all employees from engaging in any hedging transactions relating to our common stock. The policy also requires all restricted employees to consult with our Office of the General Counsel if they intend to engage in any hedging transactions. In 2010, no executive officer consulted with the Office of the General Counsel regarding hedging transactions.

Potential Impact on Compensation from Executive Misconduct

If the Board of Directors determines that an executive officer has engaged in fraud or misconduct, the Board of Directors may take a range of actions to remedy the misconduct, prevent its recurrence and impose such discipline as would be appropriate. Actions taken would vary depending on the facts and circumstances and may include, without limit: (1) a termination of employment and (2) initiating legal action against the executive officer. In addition, with respect to approximately 50 members of senior management, if the fraud or misconduct causes, in whole or in part, a material restatement of the Company’s financial statements, action may include (a) seeking reimbursement of the entire amount of cash incentive compensation awarded to the executive officer, if the executive officer would have received a lower (or no) cash incentive awards if calculated based on the restated financial

 

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results and (b) canceling all outstanding vested and unvested equity awards subject to the clawback policy and requiring the executive officer to return to the Company all gains from equity awards realized during the twelve-month period following the filing of the incorrect financial statements.

The Compensation Committee plans to review our clawback policy and revise it as necessary to comply with any forthcoming SEC rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Consideration of Risk in Named Executive Officer Compensation

Our compensation programs are balanced, focused on long-term pay for performance and allow for discretion. The Compensation Committee believes that the design of the compensation program for our executive officers does not encourage excessive or unnecessary risk-taking, as illustrated by the following list of features:

 

   

Our annual cash bonus program includes a variety of financial and non-financial metrics that require substantial performance on a broad range of initiatives;

 

   

The Compensation Committee has capped the maximum amount of annual cash bonus and long-term cash bonus that can be earned;

 

   

Our equity awards include a diversified mix of SARs, RSUs and performance shares to encourage sustained performance over time;

 

   

We have stock ownership guidelines for our executive officers;

 

   

We require executive officers to retain one-third of net equity awards granted after October 2009 for a period of at least twelve months; and

 

   

We have a clawback policy that deters misconduct or fraudulent behavior by recouping the entire bonus paid, not just the amount that would not have been earned.

In addition, our Compensation Committee retains a large amount of discretion to adjust compensation for quality of performance, adherence to Company values and other factors.

Accounting and Tax Considerations

Internal Revenue Code Section 162(m) imposes a $1 million limit on the amount that a company may annually deduct for compensation to its CEO and its three other highest-paid executive officers employed at the end of the year, unless, among other things, the compensation is “performance-based,” as defined in Section 162(m), and provided under a plan that has been approved by the shareholders. The Compensation Committee seeks to structure most elements of our executive compensation program to meet this exception. However, to maintain flexibility to promote varying corporate goals, we have not adopted a policy requiring all compensation to be deductible. For example, RSUs granted under the Company’s 2002 Stock Incentive Plan do not qualify as performance-based compensation. Stock options granted under the Company’s 1998 Broad-Based Stock Incentive Plan (the “1998 Plan”) and exercised by named executive officers also do not qualify as performance-based compensation; however no equity awards have been granted under the 1998 Plan since April 2002.

As part of the new federal health care legislation enacted in 2010, Section 162(m) was revised as it pertains to compensation paid by health insurers, including the Company. Starting in 2013, an annual

 

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tax deduction limit of $500,000 per person will apply to compensation that we pay to any of our employees and certain service providers. This tax deduction limitation also applies to compensation earned in 2010 through 2012, to the extent that the receipt of the compensation is deferred until after 2012. The tax deduction limitation will apply whether or not compensation is performance-based or is being provided pursuant to a shareholder-approved plan. This tax deduction limitation has already begun to impact the Company. As described in the Company’s Annual Report on Form 10-K for the year ending December 31, 2010, the Company lost some tax benefit that would otherwise have been available in 2010 for deferred compensation that will be paid after 2012 that the Company believes will be in excess of the $500,000 deduction limit.

 

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Appendix A

UnitedHealth Group Executive Compensation Peer Groups

 

Managed Care Competitors

 

Aetna Inc.

 

CIGNA Corp.

 

Coventry Health Care Inc.

 

Humana Inc.

 

WellPoint Inc.

 

Strategic & Operating Peer Group

 

Accenture PLC

 

Hewlett-Packard Co.

Aetna Inc.

 

Humana Inc.

American Express Co.

 

International Business Machines Corp.

Ameriprise Financial Inc.

 

McKesson Corp.

Automatic Data Processing Inc.

 

Medco Health Solutions Inc.

Bank of New York Mellon Corp.

 

Metlife Inc.

Cardinal Health Inc.

 

Oracle Corp.

CIGNA Corp.

 

Paychex Inc.

Coventry Health Care Inc.

 

Prudential Financial Inc.

CVS Caremark Corp.

 

State Street Corp.

Express Scripts Inc.

 

United Parcel Service Inc.

FedEx Corp.

 

Visa Inc.

Fidelity Investments

 

WellPoint Inc.

Hewitt Associates Inc.

 

Wells Fargo & Co.

Broader General Industry Peer Group

 

3M Company

 

Kraft Foods Inc.

AT&T Inc.

 

McDonald’s Corp.

Abbott Laboratories

 

McKesson Corp.

Allstate Corp (The)

 

Medco Health Solutions Inc.

Amazon.com Inc.

 

Medtronic Inc.

American Express Co.

 

Merck & Co. Inc.

Amgen Inc.

 

Metlife Inc.

Apple Inc.

 

Microsoft Corp.

Bank of America Corp.

 

Motorola Inc.

Baxter International Inc.

 

Nike Inc.

Best Buy Co. Inc.

 

New York Life

Bristol-Myers Squibb Co.

 

PepsiCo Inc.

CVS Caremark Corp.

 

Pfizer Inc.

Cardinal Health Inc.

 

Procter & Gamble Co. (The)

Cargill

 

Prudential Financial Inc.

Cisco Systems Inc.

 

Schering-Plough

Coca-Cola Company (The)

 

Sprint Nextel Corp.

Colgate-Palmolive Co.

 

State Farm Insurance

EMC Corp (Mass)

 

State Street Corp.

Eli Lily and Co.

 

TIAA-CREF

Emerson Electric Co.

 

Target Corp.

Express Scripts Inc.

 

Travelers Companies Inc. (The)

General Mills Inc.

 

U.S. Bancorp

Google Inc.

 

United Parcel Service Inc.

HCA Healthcare

 

Verizon Communications Inc.

Hewlett-Packard Co.

 

WellPoint Inc.

Humana Inc.

 

Wells Fargo & Co.

International Business Machines

 

Wyeth

Intel Corp.

 

Johnson & Johnson

 

Kimberly-Clark Corp.

 

 

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Compensation and Human Resources Committee Report

The Compensation and Human Resources Committee has reviewed and discussed the above Compensation Discussion and Analysis with management. Based on the review and discussions, the Compensation and Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. This report was provided by the following independent directors who comprise the Compensation and Human Resources Committee:

Douglas W. Leatherdale (Chair)

Robert J. Darretta

Gail R. Wilensky, Ph.D.

 

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2010 Summary Compensation Table*

The following table provides certain summary information for the years ended December 31, 2010, 2009 and 2008 relating to compensation paid to, or accrued by us on behalf of, our named executive officers.

 

Name and Principal
Position
  Year    

Salary

($) (1)

   

Bonus

($)

   

Stock
Awards

($) (2)

   

SAR
Awards

($) (3)

    Non-Equity
Incentive Plan
Compensation
($) (4)
   

Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings

($) (5)

    All Other
Compensation
($) (6)
   

Total

($)

 
                     

Stephen J. Hemsley

President and Chief Executive Officer

    2010        1,300,000        —          4,500,045        1,500,007       3,400,000        —   (7)      110,079        10,810,131   
    2009        1,300,000        —          4,122,694        1,442,306       1,950,000        —          86,916        8,901,916   
    2008        1,300,000        —          —          —          1,822,019        —          119,023        3,241,042   
   

George L. Mikan III

Executive Vice President and Chief Financial Officer (8)

    2010        700,000        —          3,000,063        1,000,004       1,400,000        —          87,264        6,187,331   
    2009        700,000        —          2,748,471        746,605       1,240,000        —          321,314        5,756,390   
    2008        692,115        —          1,237,181        1,912,198       1,750,000        —          1,137,362        6,728,856   
                                                                       
                     

Gail K. Boudreaux

Executive Vice President and President, UnitedHealthcare (8)

    2010        700,000        205,000 (9)      3,000,063        1,000,004       1,400,000        —          68,679        6,373,746   
                   
                                                                       
   

Larry C. Renfro

Executive Vice President and Chief Executive Officer of Public and Senior Markets Group (8)

    2010        692,308        —          3,000,063        1,000,004       1,400,000        —          240,300        6,332,675   
    2009        535,385        600,000        3,170,284        944,704       1,000,000        —          520,298        6,770,671   
                                                                       
                     

Anthony Welters

Executive Vice President and President of Public and Senior Markets Group (8)

    2010        700,000        —          3,000,063        1,000,004       1,400,000        —          119,687        6,219,754   
    2009        700,000        —          2,748,471        978,505       1,240,000        —          372,885        6,039,861   
    2008        692,115        —          2,319,731        796,751       875,000        —          1,297,661        5,981,258   
                   
                                                                       

 

* Please see “Compensation Discussion and Analysis” above for a description of our executive compensation program necessary to an understanding of the information disclosed in this table. Please see “Executive Employment Agreements” below for a description of the material terms of each named executive officer’s employment agreement.

 

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(1) Amounts reported reflect the base salary earned by named executive officers in the years ended December 31, 2010, 2009 and 2008. Amounts reported include the following salary amounts deferred by the named executive officers under our Executive Savings Plan:

 

Name

   Year      Amount
Deferred
 

Stephen J. Hemsley

     2010       $ 78,000   

George L. Mikan III

     2010       $ 42,000   

Gail K. Boudreaux

     2010       $ 42,000   

Larry C. Renfro

     2010       $ 41,169   

Anthony Welters

     2010       $ 42,000   

 

(2) The amounts reported in this column reflect the aggregate grant date fair value of the RSUs granted in 2010, 2009 and 2008 and performance shares (at target) granted in 2010 and 2009 computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. The grant date fair value of RSUs granted in 2010 and the grant date value of performance shares if target performance and maximum performance is achieved are as follows:

 

Name

   Year      Restricted
Stock Units
     Performance-Based
Restricted Stock Units
 
         Target      Maximum  

Stephen J. Hemsley

     2010       $ 1,500,015       $ 3,000,030       $ 6,000,060   

George L. Mikan III

     2010       $ 1,000,032       $ 2,000,031       $ 4,000,062   

Gail K. Boudreaux

     2010       $ 1,000,032       $ 2,000,031       $ 4,000,062   

Larry C. Renfro

     2010       $ 1,000,032       $ 2,000,031       $ 4,000,062   

Anthony Welters

     2010       $ 1,000,032       $ 2,000,031       $ 4,000,062   

See the “2010 Grants of Plan-Based Awards” table for more information on stock awards granted in 2010.

 

(3) The actual value to be realized by a named executive officer related to SARs depends upon the appreciation in value of the Company’s stock and the length of time the SARs are held. No value will be realized with respect to any SAR if the Company’s stock price does not increase following the award’s grant date.

The amounts reported in this column reflect the aggregate grant date fair value of SARs granted in 2010, 2009 and 2008 computed in accordance with FASB ASC Topic 718. For a description of the assumptions used in computing the aggregate grant date fair value, see “Note 11 to Consolidated Financial Statements” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. These assumptions also have been used in computing the aggregate grant date fair value since fiscal 2003.

See the “2010 Grants of Plan-Based Awards” table for information on SARs granted in 2010.

 

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(4) Amounts reported include both annual and long-term cash incentive awards to our named executive officers under our 2008 Executive Incentive Plan. The annual incentive awards earned in 2010 and paid in 2011, including amounts deferred by the named executive officers, were the following:

 

Name

   Year      Total Amount of
Annual Cash
Incentive Award
     Amount of Annual
Cash Incentive
Award Deferred
 

Stephen J. Hemsley

     2010       $ 3,400,000       $ 204,000   

George L. Mikan III

     2010       $ 1,400,000       $ 84,000   

Gail K. Boudreaux

     2010       $ 1,400,000       $ 140,000   

Larry C. Renfro

     2010       $ 1,400,000         —     

Anthony Welters

     2010       $ 1,400,000       $ 84,000   

The Company did not make a long-term cash incentive payment for the 2008-2010 incentive period under our 2008 Executive Incentive Plan.

 

(5) Named executive officers participate in our Executive Savings Plan, which is a non-qualified deferred compensation plan. The Executive Savings Plan does not credit above-market earnings or preferential earnings to the amounts deferred, and accordingly, no non-qualified deferred compensation earnings have been reported. Under the Executive Savings Plan, there are no measuring investments tied to Company stock performance. The measuring investments are a collection of unaffiliated mutual funds identified by the Company.

 

(6) All other compensation includes the following:

 

Name

  Year     Company
Matching
Contributions
Under 401(k)
Savings Plan
    Company
Matching
Contributions
Under
Executive
Savings Plan
    Company
Matching
Contributions
Under
Executive
Board
Service
Matching
Program (a)
    Insurance
Premiums
(b)
    Relocation
Benefits
(c)
    Tax
Assistance
(c)
    Other  

Stephen J. Hemsley

    2010      $ 9,800      $ 97,500        —          —          —          —          —     

George L. Mikan III

    2010      $ 9,800      $ 48,000        —          —          —          —        $ 24,525  (d) 

Gail K. Boudreaux

    2010      $ 9,800      $ 52,500        —          —          —          —          —     

Larry C. Renfro

    2010      $ 6,277      $ 20,585        —          —        $ 89,123     $ 51,425     $ 70,112  (e) 

Anthony Welters

    2010      $ 6,788      $ 48,000      $ 30,000      $ 10,320       —          —        $ 21,800  (d) 

As permitted by SEC rules, we have omitted perquisites and other personal benefits that we provided to certain named executive officers in 2010 if the aggregate amount of such compensation to each of such named executive officers was less than $10,000. In addition, consistent with SEC rules, we have not separately quantified and identified those items of other compensation that have a value of less than $10,000.

 

  (a) As part of its commitment to serve local communities, the Company encourages its executive officers to serve on the boards of charitable organizations and to financially contribute to those organizations. The Company has adopted a policy pursuant to which it will match certain charitable contributions made by an executive officer if the executive officer also serves on the board of the charitable organization. The amount included for Mr. Welters represents donations to charitable organizations made by the Company in 2010 to match the donations Mr. Welters made to charitable organizations on whose board he serves.

 

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  (b) The Company provides Messrs. Mikan and Welters and Ms. Boudreaux a $2 million face value term life insurance policy. The 2010 annual premiums paid by the Company on behalf of Mr. Mikan and Ms. Boudreaux were less than $10,000.

 

  (c) The Company offers relocation assistance for all transferred or relocated professionals and executives. The amount shown for Relocation Benefits represents payments related to relocation costs of Mr. Renfro in 2010, including reimbursement of closing costs in connection with the sale of his prior residence and purchase of his current residence and relocation related travel expenses. The amount shown for Tax Assistance is the aggregate amount of payments made on Mr. Renfro’s behalf by the Company during 2010 for the payment of taxes related to relocation costs. The Company pays the taxes related to relocation costs for all transferred and relocated professionals and executives to the extent those relocation costs are deemed to be income to the professional or executive.

 

  (d) As part of our 2006 review of the Company’s historical stock option practices, the Company determined that certain historical stock options granted to individuals who were non-executive officer employees at the time of grant (including Messrs. Mikan and Welters) were granted with an exercise price that was lower than the closing price of our common stock on the applicable accounting measurement date, subjecting these individuals to additional tax under Section 409A. For any outstanding stock options subject to additional tax under Section 409A that were granted to non-executive officer employees, the Company increased the exercise price and committed to make cash payments to these holders following the vesting of the options based on the difference between the original stock option exercise price and the revised increased stock option exercise price. The payments were made on a quarterly basis following vesting of the applicable awards. If the modified stock options are subsequently exercised, the Company will recover the amount of these cash payments at the time of exercise.

 

  (e) Includes temporary living expenses ($40,255) and commuting expenses ($29,857). Also reflects a family member accompanying him on a business trip using Company aircraft in accordance with our policy for which no aggregate incremental cost was incurred. We report the aggregate incremental cost to the Company of any such personal use of Company aircraft based on the cost of fuel, trip-related maintenance, crew travel expenses, on-board catering, landing fees, trip-related hangar/parking costs and smaller variable costs. Since Company aircraft are used primarily for business travel, we do not include the fixed costs that do not change based on usage, such as pilots’ salaries, the purchase costs of Company aircraft, and the cost of maintenance not related to trips.

 

(7) The amount of Mr. Hemsley’s supplemental retirement benefit was frozen in 2006 based on his current age and average base salary and converted into a lump sum of $10,703,229. As such, there was no increase in the benefit payable to Mr. Hemsley under his supplemental retirement benefit in fiscal 2010.

 

(8) On January 18, 2011, Mr. Mikan was appointed Executive Vice President and Chief Executive Officer of Optum, the Company’s health services businesses, Ms. Boudreaux was appointed Executive Vice President and Chief Executive Officer of UnitedHealthcare, which was expanded to include all of our health benefits businesses, Mr. Renfro was appointed Executive Vice President and Mr. Welters was appointed Executive Vice President.

 

(9) Reflects a bonus paid to Ms. Boudreaux on the twenty-fourth month anniversary of the effective date of her employment agreement.

 

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2010 Grants of Plan-Based Awards*

The following table presents information regarding each grant of an award under our compensation plans made during 2010 to our named executive officers for fiscal 2010.

 

Name   Grant
Date
   

Estimated Future Payouts Under
Non-Equity Incentive Plan

Awards

    Estimated Future Payouts
Under Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
    All Other
Option/
SAR Awards:
Number of
Securities
Underlying
Options/
SARs (#)
    Exercise
or Grant
Price of
Option/
SAR
Awards
($/Sh)
   

Grant

Date Fair

Value of
Stock or

Option/

SAR

Awards
($) (1)

 
    Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
   

Target

(#)

    Maximum
(#)
         

Stephen J. Hemsley President and Chief Executive Officer

                                                                                       

Annual Cash Incentive Award (2)

    —          1,755,000        1,950,000        3,900,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          3,544        680,479        1,360,958        —          —          —          —          —          —          —     

SAR Award (4)

    2/9/10        —          —          —          —          —          —          —          114,036        33.00        1,500,007   

RSU Award (5)

    2/9/10        —          —          —          —          —          —          45,455        —          —          1,500,015   

Performance Share Award (6)

    2/9/10        —          —          —          473        90,910        181,820        —          —          —          3,000,030   

George L. Mikan III Executive Vice President and Chief Financial Officer

                         

Annual Cash Incentive Award (2)

    —          630,000        700,000        1,400,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          1,908        366,412        732,824        —          —          —          —          —          —          —     

SAR Award (4)

    2/9/10        —          —          —          —          —          —          —          76,024        33.00        1,000,004   

RSU Award (5)

    2/9/10        —          —          —          —          —          —          30,304        —          —          1,000,032   

Performance Share Award (6)

    2/9/10        —          —          —          316        60,607        121,214        —          —          —          2,000,031   

Gail K. Boudreaux Executive Vice President and President, UnitedHealthcare

                         

Annual Cash Incentive Award (2)

    —          630,000        700,000        1,400,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          1,908        366,412        732,824        —          —          —          —          —          —          —     

SAR Award (4)

    2/9/10        —          —          —          —          —          —          —          76,024        33.00        1,000,004   

RSU Award (5)

    2/9/10        —          —          —          —          —          —          30,304        —          —          1,000,032   

Performance Share Award (6)

    2/9/10        —          —          —          316        60,607        121,214        —          —          —          2,000,031   

 

 

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Name   Grant
Date
   

Estimated Future Payouts Under
Non-Equity Incentive Plan

Awards

    Estimated Future Payouts
Under Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
    All Other
Option/
SAR Awards:
Number of
Securities
Underlying
Options/
SARs (#)
    Exercise
or Grant
Price of
Option/
SAR
Awards
($/Sh)
   

Grant

Date Fair

Value of
Stock or

Option/

SAR

Awards
($) (1)

 
    Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
   

Target

(#)

    Maximum
(#)
         

Larry C. Renfro
Executive Vice President and Chief Executive
Officer of Public and
Senior Markets Group

                                   

Annual Cash Incentive
Award (2)

    —          630,000        700,000        1,400,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          1,896        364,104        728,208        —          —          —          —          —          —          —     

SAR Award (4)

    2/9/10        —          —          —          —          —          —          —          76,024        33.00        1,000,004   

RSU Award (5)

    2/9/10        —          —          —          —          —          —          30,304        —          —          1,000,032   

Performance Share Award (6)

    2/9/10        —          —          —          316        60,607        121,214        —          —          —          2,000,031   

Anthony Welters
Executive Vice President
and President of Public
and Senior Markets Group

                                   

Annual Cash Incentive
Award (2)

    —          630,000        700,000        1,400,000        —          —          —          —          —          —          —     

Long-Term Cash Incentive Award (3)

    —          1,908        366,412        732,824        —          —          —          —          —          —          —     

SAR Award (4)

    2/9/10        —          —          —          —          —          —          —          76,024        33.00        1,000,004   

RSU Award (5)

    2/9/10        —          —          —          —          —          —          30,304        —          —          1,000,032   

Performance Share Award (6)

    2/9/10        —          —          —          316        60,607        121,214        —          —          —          2,000,031   

 

* Please see “Compensation Discussion and Analysis” above for a description of our executive compensation program necessary for an understanding of the information disclosed in this table.

 

(1) The actual value to be realized by a named executive officer depends upon the appreciation in value of the Company’s stock and the length of time the award is held. No value will be realized with respect to any SAR award if the Company’s stock price does not increase following the grant date. The amount reported in this column is based on the grant date fair value of the awards computed in accordance with FASB ASC Topic 718. For a description of the assumptions used in computing the grant date fair value for the SAR award pursuant to FASB ASC Topic 718, see “Note 11 to Consolidated Financial Statements” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The grant date fair value of each restricted stock unit award and targeted grant date value of the performance share award was computed in accordance with FASB ASC Topic 718 based on the closing stock price on the grant date.

 

(2)

Amounts represent estimated payouts of annual cash incentive awards granted under our Executive Incentive Plan in 2010. The Executive Incentive Plan permits a maximum annual bonus pool for executive officers equal to 2% of the Company’s net income (as defined in the plan) and no executive officer may receive more than 25% of such annual bonus pool. The Compensation Committee has limited annual cash incentive payouts to not more than two times the target amount, which is reflected in the maximum payout column. In order for any amount to be paid, the Company must achieve

 

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approved performance metrics of (i) revenue, (ii) operating income, (iii) cash flow, (iv) consumer, customer and physician satisfaction, (v) employee engagement and (vi) employee teamwork. The estimated threshold award represents the amount that may be paid if threshold performance is achieved on each of the performance metrics. Once threshold performance is achieved, the Compensation Committee has the discretion to pay an award ranging from 0% up to a maximum of 200% of target. The actual annual cash incentive amounts earned in connection with the 2010 awards were paid in 2011, and are reported in the “2010 Summary Compensation Table.” See “Compensation Discussion and Analysis — Elements of our Compensation Program — Annual Compensation — Annual Cash Incentive Awards” for a description of the Company’s annual cash incentive award program.

 

(3) Amounts represent estimated future payouts of long-term cash incentive awards granted under our Executive Incentive Plan in 2010 for the 2010-2012 incentive period, to be paid in 2013. The Executive Incentive Plan permits a maximum long-term bonus pool for executive officers equal to 2% of the Company’s average net income (as defined in the plan) during the performance period and no executive officer may receive more than 25% of such long-term bonus pool. The Compensation Committee has limited the long-term cash incentive payout maximum amount to not more than two times each named executive officer’s target amount, which is reflected in the maximum payout column. In 2010, upon recommendation by management, the Compensation Committee approved a cumulative EPS metric and an average return on equity metric for the 2010-2012 incentive period, either one of which must be achieved before the threshold amount shown above becomes earned and payable. Each measure is weighted equally. In 2013, the Compensation Committee will determine whether the goals have been achieved. The estimated threshold award represents the amount that may be paid if threshold performance on one of the performance metrics is exceeded. Once threshold performance is achieved, the Compensation Committee has the discretion to pay an award ranging from 0% up to a maximum of 200% of target. The estimated threshold, target and maximum awards listed in the table were computed based on participants’ current salaries and assuming that participants’ salaries are increased 5% effective February 1, 2012. See “Compensation Discussion and Analysis — Elements of our Compensation Program — Long-Term Incentive Compensation — Long-Term Cash Incentive Awards” for a description of the Company’s long-term cash incentive award program.

 

(4) Amounts represent the number of SARs granted under our 2002 Stock Incentive Plan. These SARs expire ten years following the date of grant, vest and become proportionately exercisable on each of the first four anniversaries of February 9, 2010, and are subject to earlier termination upon certain events related to termination of employment. SARs not yet exercisable generally become exercisable upon a change in control of the Company or upon death or disability, as these terms are defined in each executive’s equity-award agreement. SARs may also continue to vest over any severance period following termination of employment or up to five years following retirement, if the executive officer is retirement eligible. See “Compensation Discussion and Analysis — Elements of our Compensation Program — Long-Term Incentive Compensation — Equity Awards” for a description of the Company’s equity awards program. See also the “Outstanding Equity Awards at 2010 Fiscal Year-End” table for the vesting schedule of all outstanding equity awards for each named executive officer.

 

(5)

Amounts represent the number of RSUs granted under our 2002 Stock Incentive Plan. These RSUs proportionately vest on each of the first four anniversaries of February 9, 2010, other than

 

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for Messrs. Hemsley and Welters as described in footnote 5 to the “Outstanding Equity Awards at 2010 Fiscal Year End” table. These RSUs are subject to earlier termination upon certain events related to termination of employment. RSUs not yet vested generally vest upon a change in control of the Company or upon death or disability, as these terms are defined in each executive’s equity-award agreement. RSUs may also continue to vest following retirement if the executive officer is retirement eligible or over any severance period following termination of employment. See “Compensation Discussion and Analysis — Elements of our Compensation Program — Long-Term Incentive Compensation — Equity Awards” for a description of the Company’s equity awards program. See also the “Outstanding Equity Awards at 2010 Fiscal Year-End” table for the vesting schedule of all outstanding equity awards for each named executive officer.

 

(6) Amounts represent the estimated future number of the performance shares that may be earned under our 2002 Stock Incentive Plan at each of the threshold, target and maximum levels. The performance share award will be paid out in shares of Company common stock. The number of performance shares that the executive officer will receive will be determined at the conclusion of the 2010 — 2012 performance period and will be dependent upon the Company’s achievement of a cumulative EPS metric and an average return on equity metric approved by the Compensation Committee. The Compensation Committee has the discretion to reduce the number of performance shares an executive officer is entitled to receive. The estimated threshold award represents the number of performance shares that may be awarded if threshold performance is achieved on one of the performance metrics. The target number of performance shares will immediately vest upon a change in control of the Company, as this term is defined in each executive’s equity-award agreement. Upon retirement, if the executive officer is retirement eligible, the executive officer will vest in the full number of performance shares that are earned at the end of the performance period as if the executive officer had been continuously employed throughout the entire performance period, provided the executive officer had served for at least one year of the performance period. Upon death, disability or termination of employment for “Good Reason” or other than for “Cause” (as these terms are defined in the performance share award agreement), the executive officer will receive at the end of the applicable performance period, a pro-rata number of performance shares that are earned based on the number of full months employed plus, if applicable, the number of months for any severance period. See “Compensation Discussion and Analysis — Elements of our Compensation Program — Long-Term Incentive Compensation — Equity Awards” for a description of the Company’s equity awards program. See also the “Outstanding Equity Awards at 2010 Fiscal Year-End” table for the vesting schedule of all outstanding equity awards for each named executive officer.

 

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Outstanding Equity Awards at 2010 Fiscal Year-End

The following table presents information regarding outstanding equity awards held at the end of 2010 by our named executive officers for fiscal 2010.

 

            Option/SAR Awards     Stock Awards  
Name   Date of
Option/
SAR
Grant
   

Number of
Securities
Underlying
Unexercised
Options/
SARs (#)

Exercisable

    Number of
Securities
Underlying
Unexercised
Options/
SARs (#)
Unexercisable
    Option/
SAR
Exercise/
Grant
Price ($)
    Option/
SAR
Expiration
Date (1)
    Stock
Award
Grant
Date
    Number of
Shares or
Units of
Stock
That Have
Not
Vested (#)
    Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($) (2)
   

Equity

Incentive
Plan
Awards:
Number of
Unearned
Shares or
Units
That Have
Not
Vested (#)

    Equity
Incentive
Plan
Awards:
Market Value
of Unearned
Shares or
Units That
Have Not
Vested ($) (2)
 

Stephen J. Hemsley

President and Chief Executive Officer

   

 

 

 

 

 

 

 

 

 

 

 

 

2/9/2010

2/23/2009

1/31/2006

5/2/2005

5/2/2005

2/3/2005

2/3/2005

2/11/2004

2/11/2004

2/11/2004

2/12/2003

2/12/2003

1/7/2002

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

—  

42,421

200,000

62,500

187,500

450,000

150,000

300,000

300,000

600,000

300,000

900,000

1,200,000

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

114,036 

127,262 

—  

—  

—  

—  

—  

—  

—  

—  

—  

—  

—  

(3) 

(4) 

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

33.0000

29.7400

59.4200

57.4183

48.3550

45.2800

55.3583

29.7000

36.2382

58.3600

58.3600

58.3600

25.0925

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

2/9/2020

2/23/2019

1/31/2016

5/2/2015

5/2/2015

2/3/2015

2/3/2015

2/11/2014

2/11/2014

2/11/2014

2/12/2013

2/12/2013

1/7/2012

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

2/9/2010

2/9/2010

2/23/2009

2/23/2009

  

  

  

  

   

 

 

 

44,333 

—  

43,269 

—  

(5) 

  

(6) 

  

   

 

 

 

1,600,865

—  

1,562,444

—  

  

  

  

  

   

 

 

 

—  

90,910 

—  

230,770 

  

(7) 

  

(7) 

   

 

 

 

—  

3,282,760

—  

8,333,105

  

  

  

  

George L. Mikan III

Executive Vice President and Chief Financial Officer

   

 

 

 

 

 

 

 

 

 

 

 

 

2/9/2010

2/23/2009

6/5/2008

5/28/2007

5/28/2007

5/2/2006

10/31/2005

5/2/2005

11/4/2004

5/10/2004

10/28/2003

10/28/2003

2/12/2003

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

—  

28,281

101,822

—  

131,250

125,000

45,000

100,000

190,000

150,000

17,500

52,500

75,000

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

76,024 

84,841 

101,820 

75,000 

43,750 

—  

—  

—  

—  

—  

—  

—  

—  

(3) 

(4) 

(3) 

(8) 

(3) 

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

33.0000

29.7400

33.9400

54.4100

54.4100

48.5800

60.0700

48.5700

42.8650

30.7050

26.1750

28.1000

20.7250

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

 

 

 

 

2/9/2020

2/23/2019

6/5/2018

5/28/2017

5/28/2017

5/2/2016

10/31/2015

5/2/2015

11/4/2014

5/10/2014

10/28/2013

10/28/2013

2/12/2013

  

  

  

  

  

  

  

  

  

  

  

  

  

   

 

 

 

 

2/9/2010

2/9/2010

2/23/2009

2/23/2009

6/5/2008

  

  

  

  

  

   

 

 

 

 

30,304 

—  

28,846 

—  

18,226 

(5) 

  

(6) 

  

(3) 

   

 

 

 

 

1,094,277

—  

1,041,629

—  

658,141

  

  

  

  

  

   

 

 

 

 

—  

60,607 

—  

153,846 

—  

  

(7) 

  

(7) 

  

   

 

 

 

 

—  

2,188,519

—  

5,555,379

—  

  

  

  

  

  

Gail K. Boudreaux Executive Vice President and President, UnitedHealthcare

   

 

 

2/9/2010

2/23/2009

6/5/2008

  

  

  

   

 

 

—  

28,281

64,550

  

  

  

   

 

 

76,024 

84,841 

64,550 

(3) 

(4) 

(3) 

   

 

 

33.0000

29.7400

33.9400

  

  

  

   

 

 

2/9/2020

2/23/2019

6/5/2018

  

  

  

   

 

 

 

 

2/9/2010

2/9/2010

2/23/2009

2/23/2009

6/5/2008

  

  

  

  

  

   

 

 

 

 

30,304 

—  

28,846 

—  

58,450 

(5) 

  

(6) 

  

(3) 

   

 

 

 

 

1,094,277

—  

1,041,629

—  

2,110,630

  

  

  

  

  

   

 

 

 

 

—  

60,607 

—  

153,846 

—  

  

(7) 

  

(7) 

  

   

 

 

 

 

—  

2,188,519

—  

5,555,379

—  

  

  

  

  

  

Larry C. Renfro

Executive Vice President and Chief Executive Officer of Public and Senior Markets Group

   

 

2/9/2010

2/3/2009

  

  

   

 

—  

23,200

  

  

   

 

76,024 

69,600 

(3) 

(4) 

   

 

33.0000

29.7400

  

  

   

 

2/9/2020

2/3/2019

  

  

   

 

 

2/9/2010

2/9/2010

2/3/2009

  

  

  

   

 

 

30,304 

—  

79,950 

(5) 

  

(6) 

   

 

 

1,094,277

—  

2,886,995

  

  

  

   

 

 

—  

60,607 

—  

  

(7) 

  

   

 

 

—  

2,188,519

—  

  

  

  

Anthony Welters

Executive Vice President and President of Public and Senior Markets Group

   

 

 

 

 

 

 

 

 

2/9/2010

2/23/2009

6/5/2008

5/28/2007

5/28/2007

5/2/2006

10/31/2005

5/2/2005

11/4/2004

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

—  

28,281

42,426

—  

112,500

100,000

40,000

100,000

270,000

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

76,024 

84,841 

42,425 

25,000 

37,500 

—  

—  

—  

—  

(3) 

(4) 

(3) 

(8) 

(3) 

  

  

  

  

   

 

 

 

 

 

 

 

 

33.0000

29.7400

33.9400

54.4100

54.4100

48.5800

60.0700

48.5700

42.8650

  

  

  

  

  

  

  

  

  

   

 

 

 

 

 

 

 

 

2/9/2020

2/23/2019

6/5/2018

5/28/2017

5/28/2017

5/2/2016

10/31/2015

5/2/2015

11/4/2014

  

  

  

  

  

  

  

  

  

   

 

 

 

 

2/9/2010

2/9/2010

2/23/2009

2/23/2009

6/5/2008

  

  

  

  

  

   

 

 

 

 

29,556 

—  

28,134 

—  

34,174 

(5) 

  

(6) 

  

(3) 

   

 

 

 

 

1,067,267

—  

1,015,919

—  

1,234,023

  

  

  

  

  

   

 

 

 

 

—  

60,607 

—  

153,846 

—  

  

(7) 

  

(7) 

  

   

 

 

 

 

—  

2,188,519

—  

5,555,379

—  

  

  

  

  

  

 

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(1) The expiration date shown is the latest date that options/SARs may be exercised. Options/SARs may terminate earlier in certain circumstances, such as in connection with the named executive officer’s termination of employment.

 

(2) Based on the per share closing market price of our common stock on December 31, 2010 of $36.11.

 

(3) Vest 25% annually over a four-year period beginning on the first anniversary of the grant date.

 

(4) Vest 25% annually over a four-year period beginning on February 3, 2010.

 

(5) Vest 25% annually over a four-year period beginning on the first anniversary of the grant date, other than for retirement eligible executive officers. A portion of a retirement eligible executive officer’s award that otherwise would have vested on the next anniversary of the grant date is cancelled to pay applicable FICA taxes owed by the executive. The cancellation occurs in the year of grant if the executive officer is retirement eligible during that year or in the first year the executive officer becomes retirement eligible. The remainder of the award vests proportionally over the remaining vesting period. Messrs. Hemsley and Welters are retirement eligible. For more information on RSUs cancelled in 2010, please see “2010 Option Exercises and Stock Vested” table.

 

(6) Vest 25% annually over a four-year period beginning on February 3, 2010, other than for retirement eligible executive officers. A portion of a retirement eligible executive officer’s award that otherwise would have vested on the next anniversary of the grant date is cancelled to pay applicable FICA taxes owed by the executive. The cancellation occurs in the year of grant if the executive officer is retirement eligible during that year or in the first year the executive officer becomes retirement eligible. The remainder of the award vests proportionally over the remaining vesting period. Mr. Welters became retirement eligible in 2010. For more information on RSUs cancelled in 2010, please see “2010 Option Exercises and Stock Vested” table.

 

(7) Vest 100% at the end of the three-year performance period. The number of performance shares that the executive officer will receive is dependent upon the achievement of a cumulative EPS metric and an average return on equity metric approved by the Compensation Committee. The number of performance shares reported above for 2010 is the target number established by the Compensation Committee because we believe that payout at target is the probable outcome of the performance conditions. The number of performance shares reported above for 2009 is the maximum number established by the Compensation Committee because we believe that payout at maximum is the probable outcome of the performance conditions based on the Company’s performance through December 31, 2010.

 

(8) Vest 100% on the sixth anniversary of the grant date.

 

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2010 Option Exercises and Stock Vested

The following table presents information regarding the exercise of stock options during 2010 by our named executive officers and vesting of restricted stock awards held by our named executive officers for fiscal 2010.

 

      Option Awards      Stock Awards  
Name    Number of
Shares
Acquired on
Exercise 
(#)
    

Value

Realized on
Exercise 
($) (1)

    

Number of
Shares
Acquired on
Vesting

(#)

   Value
Realized
on
Vesting
($)
 

Stephen J. Hemsley

     2,400,000         43,545,935 (2)       14,121      474,080 (3)   

President and Chief Executive Officer

                               

George L. Mikan III

     25,000         379,875 (4)       18,729      596,893 (5)   

Executive Vice President and Chief Financial Officer

                               

Gail K. Boudreaux

         38,841      1,207,092 (6)   

Executive Vice President and President, UnitedHealthcare

                               

Larry C. Renfro

         26,650      887,978 (7)   

Executive Vice President and Chief Executive Officer of Public and Senior Markets Group

                               

Anthony Welters

     97,500         819,829 (8)       28,163      892,115 (9)   

Executive Vice President and President of Public and Senior Markets Group

                               

 

(1) Computed by determining the market value per share of the shares acquired based on the difference between: (a) the per share market value of our common stock at exercise, defined as the closing price on the date of exercise, or the weighted average selling price if same-day sales occurred, and (b) the exercise price of the options.

 

(2) Mr. Hemsley retained the 364,923 net shares he acquired upon the exercise of stock options on February 11, 2010, after payment of the exercise price and related taxes with acquired shares. Mr. Hemsley’s value was computed as described in note (1) above and was based on the following:

 

Date of Award   Exercise Date   Number of Options
Exercised
  Stock Splits Since
Date of Award
  Market Price at
Exercise
  Exercise Price

  3/8/2000

    2/11/2010   1,200,000   8:1   33.12   15.6250

1/17/2001

  12/13/2010      450,400   4:1   37.03   18.0475

1/17/2001

  12/14/2010      746,165   4:1   36.73   18.0475

1/17/2001

  12/15/2010          3,435   4:1   36.19   18.0475

 

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(3) Reflects the vesting on February 3, 2010 of 12,999 RSUs granted on February 23, 2009 with a value of $433,127 and the cancellation on December 14, 2010 of 1,122 RSUs granted on February 9, 2010 with a value of $40,953 for the payment of FICA tax liability. The value realized was computed based on a closing stock price of $33.32 on February 3, 2010 and a closing stock price of $36.50 on December 14, 2010.

 

(4) Mr. Mikan’s value was computed as described in note (1) above and was based on the following:

 

Date of Award   Exercise Date        Number of Options
Exercised
       Stock Splits Since
Date of Award
       Market Price at
Exercise
       Exercise Price

2/12/2003

  12/17/2010       25,000       4:1       35.26       20.06

 

(5) Reflects the vesting of a portion of the RSUs granted to Mr. Mikan. The value realized on vesting was computed based on the following:

 

Date of Award   Vesting Date        Number of Shares
Acquired on Vesting
       Market Price at
Vesting
       Value Realized
on Vesting

2/23/2009

  2/3/2010       9,616       33.32       320,405

  6/5/2008

  6/5/2010       9,113       30.34       276,488

 

(6) Reflects the vesting of a portion of the RSUs granted to Ms. Boudreaux. The value realized on vesting was computed based on the following:

 

Date of Award   Vesting Date        Number of Shares
Acquired on Vesting
       Market Price at
Vesting
       Value Realized
on Vesting

2/23/2009

  2/3/2010         9,616       33.32       320,405

  6/5/2008

  6/5/2010       29,225       30.34       886,687

 

(7) Reflects the vesting on February 3, 2010 of 26,650 RSUs granted on February 3, 2009. The value realized was computed based on a closing stock price of $33.32 on February 3, 2010.

 

(8) Mr. Welter’s value was computed as described in note (1) above and was based on the following:

 

Date of Award   Exercise Date        Number of Options
Exercised
       Stock Splits Since
Date of Award
       Market Price at
Exercise
       Exercise Price

10/28/2003

  12/9/2010       97,500       2:1       36.51       28.10

 

(9) Reflects the vesting of a portion of the RSUs granted to Mr. Welters. The value realized on vesting was computed based the following:

 

Date of Award   Vesting Date        Number of Shares
Acquired on Vesting
       Market Price at
Vesting
       Value Realized
on Vesting

2/23/2009

  2/3/2010         9,616       33.32       320,405

  6/5/2008

  6/5/2010       17,087       30.34       518,420

Also reflects the cancellation on December 14, 2010 of 712 RSUs granted on February 23, 2009 with a value of $25,988 and 748 RSUs granted on February 9, 2010 with a value of $27,302 for the payment of FICA tax liability. The value realized was computed based on a closing stock price of $36.50 on December 14, 2010.

 

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2010 Pension Benefits

The following table presents information regarding the present value of accumulated benefits payable under our non-qualified defined-benefit pension plans covering our named executive officers for fiscal 2010.

 

Name   Plan Name   Number of
Years Credited
Service (#)
 

Present

Value of
Accumulated
Benefit ($)

    Payments
During Last
Fiscal Year
($)

Stephen J. Hemsley

President and Chief
Executive Officer

  Individual Agreement for Supplemental Executive Retirement Pay        —  (1)     10,703,229  (1)    —  

George L. Mikan III

Executive Vice President and Chief Financial Officer

  N/A   —       —        —  

Gail K. Boudreaux

Executive Vice President
and President, UnitedHealthcare

  N/A   —       —        —  

Larry C. Renfro

Executive Vice President
and Chief Executive
Officer of Public and
Senior Markets Group

  N/A   —       —        —  

Anthony Welters

Executive Vice President
and President of Public
and Senior Markets
Group

  N/A   —       —        —  

 

(1) Upon termination of Mr. Hemsley’s employment for any reason, a lump-sum benefit of $10,703,229 will be paid six months and one day after his termination. In the event of Mr. Hemsley’s death prior to payment of his entire supplemental retirement benefit, his surviving spouse will receive any unpaid benefit. The dollar amount of this lump sum benefit will not vary, regardless of Mr. Hemsley’s age, years of service or average compensation at the time of his actual termination.

 

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2010 Non-Qualified Deferred Compensation

The following table presents information as of the end of 2010 regarding the non-qualified deferred compensation arrangements for our named executive officers for fiscal 2010.

 

Name
(a)
  Executive
Contributions
in Last FY
($) (1) (2)
(b)
    Registrant
Contributions
in Last FY
($) (1) (3)
(c)
    Aggregate
Earnings
in Last
FY
($) (4)
(d)
   

Aggregate
Withdrawals/
Distributions

($) (5)
(e)

    Aggregate
Balance at
Last FYE
($) (1)
(f)
 

Stephen J. Hemsley

    195,000        97,500        321,779        —          7,215,808   

President and Chief Executive Officer

                                       

George L. Mikan III

    96,000        48,000        133,434        —          893,633   

Executive Vice President and Chief Financial Officer

                                       

Gail K. Boudreaux

    147,000        52,500        53,568        —          472,714   

Executive Vice President and President, UnitedHealthcare

                                       

Larry C. Renfro

    41,169        20,585        3,924        —          65,678   

Executive Vice President and Chief Executive Officer of Public and Senior Markets Group

                                       

Anthony Welters

    96,000        48,000        87,109        —          894,119   

Executive Vice President and President of Public and Senior Markets Group

                                       

 

(1) All amounts in columns (b) and (c) have been reported as compensation. In addition to the amounts shown in columns (b) and (c), column (f) includes the following amounts reported in the summary compensation table for prior years:

 

Name

   Amount
Previously
Reported
 

Stephen J. Hemsley

   $ 5,361,376   

George L. Mikan III

   $ 495,316   

Gail K. Boudreaux

   $ —     

Larry C. Renfro

   $ —     

Anthony Welters

   $ 381,750   

 

(2) Named executive officers are eligible to participate in our Executive Savings Plan, which is a non-qualified deferred compensation plan. Under the plan, employees may generally defer up to 80% of their eligible annual base salary (100% prior to January 1, 2007) and up to 100% of their annual and long-term cash incentive awards. Amounts deferred, including Company credits, are credited to a bookkeeping account maintained for each participant, and are distributable pursuant to an election made by the participant as to time and form of payment that is made prior to the time of deferral. The Company maintains a Rabbi Trust for the plan. The Company’s practice is to set aside amounts in the Rabbi Trust to be used to pay for all benefits under the plan, but the Company is under no obligation to do so except in the event of a change in control.

 

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(3) For the first 6% of the employee’s base salary and annual incentive award deferrals under our Executive Savings Plan, the Company provides a matching credit of up to 50% of amounts deferred at the time of each deferral. This matching credit does not apply to deferrals of long-term cash incentive awards, or other special incentive awards.

 

(4) Amounts deferred are credited with earnings from measuring investments selected by the employee from a collection of unaffiliated mutual funds identified by the Company. The Executive Savings Plan does not credit above-market earnings or preferential earnings to amounts deferred. The returns on the mutual funds available to employees during 2010 ranged from 0.20% to 31.55%, with a median return of 13.51% for the year ended December 31, 2010. The Company changed the administrator of the Executive Savings Plan in September 2010 and the mutual fund options available to employees were changed at that time. Employees may change their selection of measuring investments on a daily basis.

 

(5) Under our Executive Savings Plan, unless an employee in the plan elects to receive distributions during the term of his or her employment with the Company, benefits will be paid no earlier than at the beginning of the year following the employee’s termination. However, upon a showing of severe financial hardship, an employee may be allowed to access funds in his or her deferred compensation account earlier. Benefits can be received either as a lump sum payment, in five or ten annual installments, in pre-selected amounts and on pre-selected dates, or a combination thereof. An employee may change his or her election with respect to the timing and form of distribution for such deferrals under certain conditions. However, for deferrals relating to services performed on or after January 1, 2004, employees may not accelerate the timing of the distributions.

Executive Employment Agreements

We have entered into an employment agreement with each of the named executive officers.

Stephen J. Hemsley

On November 7, 2006, the Board of Directors entered into an employment agreement with Mr. Hemsley to serve as President and CEO. On December 14, 2010, the employment agreement was amended to extend the employment period to December 1, 2014. The employment agreement will extend automatically for additional one-year periods after December 1, 2014 unless sooner terminated in accordance with the terms of the employment agreement. During the period of his employment, the Board of Directors will nominate Mr. Hemsley for election to the Board of Directors by the shareholders of the Company.

Under the employment agreement, Mr. Hemsley receives a base salary of $1,300,000, with any increases at the sole discretion of the Compensation Committee and ultimately the independent members of the Board of Directors. The employment agreement does not set any minimum or target level for any bonus or other incentive compensation. All bonus and incentive compensation awards are solely at the discretion of the Compensation Committee. Mr. Hemsley is eligible to participate in the Company’s generally available employee benefit programs.

Upon termination of Mr. Hemsley’s employment for any reason, he is entitled to a previously accrued and vested lump sum supplemental retirement benefit of $10,703,229 to be paid six months and one day after his termination.

 

 

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If Mr. Hemsley’s employment is terminated by the Company without Cause, other than upon expiration of the term of the employment agreement, or by Mr. Hemsley for Good Reason, the Company will pay Mr. Hemsley a lump sum in an amount equal to his annual base salary for the longer of the remainder of the term under the employment agreement or twelve months.

If Mr. Hemsley’s employment is terminated because of his death or permanent disability, the Company will pay him or his beneficiaries a lump sum in an amount equal to two years’ total compensation of base salary plus the average bonus for the last two calendar years, excluding any special or one-time bonus or incentive compensation payments.

If Mr. Hemsley is terminated by the Company for Cause, by Mr. Hemsley without Good Reason or because of his retirement or upon expiration of the term of the employment agreement, he will not be entitled to any further compensation from the Company other than earned but unpaid salary and benefits.

As defined in the employment agreement, “Cause” generally means willful and continued failure to perform his duties after written notice and a failure to remedy the deficiency, a violation of the Company’s Code of Conduct that is materially detrimental to the Company and is not remedied after written notice, engaging in fraud, material dishonesty or gross misconduct in connection with the Company’s business, conviction of a felony or willful and material breach of the employment agreement that is not remedied after written notice. As defined in the employment agreement, “Good Reason” generally means an assignment of duties inconsistent with his position or duties or other diminution of duties, a relocation of primary work location by more than 25 miles, failure by the Board of Directors to elect Mr. Hemsley as CEO, failure by the Board of Directors to nominate Mr. Hemsley to serve on the Board of Directors, the Company’s failure to pay or provide Mr. Hemsley’s base salary, incentive compensation or other benefits, or any other material breach of Mr. Hemsley’s employment agreement that is not remedied.

Pursuant to the employment agreement, Mr. Hemsley is subject to provisions prohibiting his solicitation of the Company’s employees and customers or competing with the Company during the term of the employment agreement and the longer of two years following termination or the period that severance payments are made to him under the employment agreement. In addition, he is prohibited at all times from disclosing confidential information related to the Company.

Gail K. Boudreaux, George L. Mikan III, Larry