SCHEDULE 14A INFORMATION

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UnitedHealth Group Incorporated

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9900 Bren Road East, Minnetonka, Minnesota 55343

April 25, 2012

Dear Shareholder:

We cordially invite you to attend our 2012 Annual Meeting of Shareholders. We will hold our meeting on Monday, June 4, 2012 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.

As a shareholder of UnitedHealth Group, you play an important role in our company 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:

 

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

 

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

Every shareholder vote is important, and we encourage you to vote as promptly as possible. 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 proxy statement.

Sincerely,

 

Stephen J. Hemsley

President and Chief Executive Officer

 

Richard T. Burke

Chairman of the Board

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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, June 4, 2012 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:

 

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

 

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To cast an advisory vote to approve the Company’s executive compensation.

 

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To ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2012.

 

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To consider the shareholder proposal set forth in this proxy statement, if properly presented at the Annual Meeting.

 

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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 April 5, 2012 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,

 

Dannette L. Smith

Secretary to the Board of Directors

April 25, 2012

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 the Annual Meeting. 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 JUNE 4, 2012:

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

Proxy Statement and Annual Report are available at

www.unitedhealthgroup.com/proxymaterials.

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TABLE OF CONTENTS

 

		Page
Summary Proxy Statement			1
Proposal 1 — Election Of Directors			4
Corporate Governance			9
Overview			9
Corporate Governance Practices			9
Principles of Governance			10
Code of Conduct: Our Principles of Ethics & Integrity			11
Compliance & Ethics HelpCenter			11
Director Independence			11
Independent Board Leadership			12
Risk Oversight			13
Board Meetings and Annual Meeting Attendance			14
Board Committees			15
Communication with the Board of Directors			16
Executive Compensation			17
Compensation Discussion and Analysis			19
Compensation and Human Resources Committee Report			33
2011 Summary Compensation Table			34
2011 Grants of Plan-Based Awards			37
Outstanding Equity Awards at 2011 Fiscal Year-End			41
2011 Option Exercises and Stock Vested			43
2011 Pension Benefits			46
2011 Non-Qualified Deferred Compensation			47
Executive Employment Agreements			48
Potential Payments Upon Termination or Change-in-Control			51
Proposal 2 — Advisory Vote to Approve the Company’s Executive Compensation			53
Director Compensation			55
Cash Compensation			55
Equity-Based Compensation			55
Stock Ownership Guidelines			56
Other Compensation			56
Equity Conversion Program			56
Cash Deferral Plan			56
2011 Director Compensation Table			57
Certain Relationships and Transactions			59
Compensation Committee Interlocks and Insider Participation			59
Audit Committee Report			60
Independent Registered Public Accounting Firm			61
Proposal 3 — Ratification of Independent Registered Public Accounting Firm			62
Proposal 4 — Shareholder Proposal			62
Questions and Answers About the Annual Meeting and Voting			64
Security Ownership of Certain Beneficial Owners and Management			70
Section 16(a) Beneficial Ownership Reporting Compliance			72
Householding Notice			72
Other Matters at Meeting			72

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PROPOSAL 1 — ELECTION OF DIRECTORS

Director Nomination Process

Criteria for Nomination to the Board

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

Based on the Company’s strategic plan, the Nominating Committee 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 as a whole. The skills matrix is periodically reviewed and updated by the Nominating Committee. The Nominating Committee evaluates potential Board candidates against the skills matrix.

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 collectively on the Board. The skills matrix reflects the following core director criteria that should be satisfied by each director or nominee:

 

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Independence under the Company’s Standards for Director Independence and New York Stock Exchange (“NYSE”) listing requirements, subject to waiver based on the Nominating Committee’s business judgment;

 

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Service on no more than three other public company boards;

 

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High integrity and ethical standards;

 

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Standing and reputation in the individual’s field;

 

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Risk oversight ability with respect to the particular skills of the individual director;

 

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

 

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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:

 

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Corporate governance expertise;

 

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Financial expertise;

 

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Health care industry expertise;

 

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Direct consumer marketing expertise;

 

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Brand marketing/public relations expertise;

 

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Diversity;

 

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Legal expertise;

 

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Capital markets expertise;

 

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Political/health care policy expertise;

 

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Clinical practice; and

 

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Technology/business process expertise.

 

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

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 its 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. Members of the Nominating Advisory Committee do not receive any compensation from the Company for serving on the Nominating Advisory Committee. The Nominating Advisory Committee held one meeting in 2011. A description of the Nominating Advisory Committee can be found on the Company’s website at www.unitedhealthgroup.com. We have included website addresses here and throughout this proxy statement for reference only. The information contained on our website is not incorporated by reference into this proxy statement.

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.

In considering potential candidates to the Board who are not incumbent directors, the Nominating Committee, with input from the full Board of Directors, assesses the potential candidate’s qualifications and how these qualifications fit with the desired composition of the Board of Directors as a whole. 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.

Shareholder Recommendations for Nominees

The Nominating Committee will consider candidates recommended by shareholders upon timely written notice to the Secretary to the Board of Directors. For the 2013 Annual Meeting, this notice must be received at our principal executive offices, directed to the Secretary to the Board of Directors, on or before December 26, 2012. 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 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

 

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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 by the Nominating Committee. The Nominating Committee will only evaluate shareholder-recommended candidates if those recommendations meet the requirements described in this proxy statement and our Bylaws.

2012 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 the ten directors set forth below for election by the shareholders at the 2012 Annual Meeting. All of the nominees were elected by our shareholders at the 2011 Annual Meeting and have informed the Board 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.			71				1993
Richard T. Burke			68				1977
Robert J. Darretta			65				2007
Stephen J. Hemsley			59				2000
Michele J. Hooper			60				2007
Rodger A. Lawson			65				2011
Douglas W. Leatherdale			75				1983
Glenn M. Renwick			56				2008
Kenneth I. Shine, M.D.			77				2009
Gail R. Wilensky, Ph.D.			68				1993

The director nominees, if elected, will serve until the 2013 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 with Humana in various roles for 22 years, including as the Chief Financial Officer and a director. 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 Securities and Exchange Commission (“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 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.

 

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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 markets, 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, financial and technology/business process 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 and 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. and PPG Industries, Inc. In the past five years, she also served as a director of Warner Music Group Corp.

Mr. Lawson is the former President of Fidelity, the world’s largest mutual fund company. Mr. Lawson served in that capacity from August 2007 to March 2010. Prior to joining Fidelity, Mr. Lawson was Vice Chairman of Prudential Financial from 2002 to 2007 where he was responsible for the International Operating Division and for Global Marketing Communications. Mr. Lawson served as Executive Vice President of Prudential from 1996 to 2002. Prior to joining Prudential, Mr. Lawson was President and Chief Executive Officer of VanEck Global from June 1994 to June 1996. Mr. Lawson was Managing Director and Partner in charge of Private Global Banking and Mutual Funds at Bankers Trust from January 1992 to April 1994. Mr. Lawson was a Managing Director and Chief Executive Officer at Fidelity Investments — Retail from May 1985 to May 1991, and President and Chief Executive Officer at Dreyfus Service Corporation and an officer of the company from May 1982 to May 1985. Mr. Lawson has satisfied all the core director criteria set forth 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. We also believe that Mr. Lawson’s past experience as an executive at a major institutional investor is of significant value to the Board. Mr. Lawson currently serves as a director of E*TRADE Financial Corporation.

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.

 

 

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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 markets, 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. Prior to July 2002, 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, with his final position being Dean and Provost, Medical Sciences, and he continues to hold the position of 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 also is a nationally recognized cardiologist and 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 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 also is a nationally recognized health care economist and has health care policy expertise. Dr. Wilensky currently serves as a director of Quest Diagnostics Incorporated. In the past five years, she has also served as a director of Cephalon, Inc., Gentiva Health Services, Manor Care, Inc. and SRA International Inc.

 

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CORPORATE GOVERNANCE

Overview

UnitedHealth Group is committed to high standards of corporate governance and ethical business conduct. Important documents that are reflective of this commitment include our Articles of Incorporation, Bylaws, Principles of Governance, Board of Directors Committee Charters, Standards for Director Independence, Code of Conduct: Our Principles of Ethics & Integrity, 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

 

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

 

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

 

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We have no supermajority shareholder approval provisions.

 

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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

 

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A Nominating Advisory Committee comprised of representatives from the shareholder and medical communities provides input into the composition of our Board of Directors.

 

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

 

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

 

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Our 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.

 

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Our Board of Directors and each Board committee regularly conduct executive sessions of non-management directors. Our Chair of the Board presides over each executive session of non-management directors. Committee Chairs preside over executive sessions of their respective committees.

 

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

 

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Our Board of Directors and Board committees conduct performance reviews annually.

 

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All directors are required to complete a minimum level of director training.

 

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Guidelines and Board Policies

 

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Our Board of Directors developed our CEO succession plan with input from our CEO, and it reviews the plan annually. The CEO succession plan has two components: a succession plan that addresses emergency or unanticipated loss of our CEO and longer-term succession. 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.

 

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We maintain stock ownership and retention guidelines for directors and executive officers. See “Compensation Discussion and Analysis — Elements of Our Compensation Program — Other Compensation Practices — Executive Stock Ownership Guidelines,” “Director Compensation — Equity-Based Compensation” and “Director Compensation — Stock Ownership Guidelines” for further information.

 

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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 “Certain Relationships and Transactions.”

 

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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 “Compensation Discussion and Analysis — Elements of Our Compensation Program — Other Compensation Practices — Potential Impact on Compensation from Executive Misconduct/Compensation Clawbacks” below.

 

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We have an independent compensation consultant policy that requires the consultant engaged by 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.

 

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

 

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

 

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We have an environmental policy that 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

 

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

 

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The 2011 non-audit and non-audit-related fees paid to our independent registered public accounting firm were less than 10% of total fees paid to that firm by the Company in 2011.

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 set forth many of the practices, policies and

 

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procedures that 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 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 Conduct: Our Principles of Ethics & Integrity

The Code of Conduct: Our Principles of Ethics & Integrity 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 Conduct 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 Conduct and waivers of the Code of Conduct for an executive officer or director on the Company’s website.

Compliance & Ethics

We strongly encourage employees to raise ethics and compliance concerns, including concerns about accounting, internal controls or auditing matters. We offer several channels for employees and third parties to report ethics and compliance concerns or incidents, including by phone or online, and individuals may choose to remain anonymous in jurisdictions where anonymous reporting is permissible. 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 at www.unitedhealthgroup.com. The Standards for Director Independence requirements exceed the independence 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 did not impair the directors’ exercise of independent judgment:

 

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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 $122,000 in 2011. These premiums were determined on the same terms and conditions as premiums for our other customers.

 

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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 2011, we paid the UT System approximately $115 million for medical expenses on behalf of consumers who obtain health insurance from us and approximately $560,000 for funded clinical trials, marketing and meeting expenses and tuition payments for employees, which in the aggregate amounts to approximately 1.2% of the 2011 operating revenues of the UT System. Some of our self-funded customers also paid approximately $244 million to the UT System for health care services on behalf of their employees and health plan participants. Dr. Shine is neither directly nor indirectly involved in the relationship between the UT System and the Company and the customers of the Company. 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.

 

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Dr. Wilensky is a senior fellow of Project HOPE. In 2011, the Company made charitable contributions of approximately $700,000 to Project HOPE in support of its mission of providing lasting solutions to health problems. In addition, the Company paid Project HOPE approximately $1.3 million in fees, or less than 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 or their immediate family members 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, working with the Board, 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;

 

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•

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;

 

•

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. 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 enterprise risk management function, which reports to the Chief Accounting Officer, assists the Company in identifying and assessing the Company’s material risks. The Company’s General Auditor, who reports to the Audit Committee, assists the Company in evaluating risk management controls and methodologies. The Chief Accounting Officer and General Auditor provide periodic reports to the Audit Committee. In connection with its risk oversight role, the Audit Committee regularly meets privately with representatives from the Company’s independent registered public accounting firm and the Company’s Chief Financial Officer, General Auditor and Chief Legal Officer;

 

•

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

 

•

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

 

•

Public Policy 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.

 

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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.

Enterprise-wide Incentive Compensation Risk Assessment

Our Compensation Committee requested that management conduct a risk-assessment of the Company’s enterprise-wide compensation programs. The risk assessment reviewed both cash incentive compensation plans and individual cash incentive awards paid in 2011 for the presence of potential 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 2012 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 2011 Annual Meeting. During the year ended December 31, 2011, the Board of Directors held twelve meetings. All incumbent directors who were members of the Board of Directors in 2011 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 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 a 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				X
Douglas W. Leatherdale				Chair		X
Glenn M. Renwick		X
Kenneth I. Shine, M.D.								X
Gail R. Wilensky, Ph.D.								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 ten meetings in 2011.

Compensation and Human Resources Committee

The Compensation Committee consists of Messrs. Leatherdale (Chair), Darretta and Lawson, 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 five meetings in 2011.

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

 

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identifying and nominating individuals to be proposed as nominees 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 2011.

Public Policy Strategies and Responsibility Committee

The Public Policy Committee consists of Dr. Wilensky (Chair), Ms. Hooper and Dr. Shine. The Public Policy 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 Committee is also responsible for overseeing the risks associated with these activities. The Public Policy Committee held four meetings in 2011.

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 between shareholders and the Board. Under this policy, the Board of Directors has designated the Company’s Secretary to the Board of Directors as its agent to receive and review communications.

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

 

 

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Compensation Discussion and Analysis

Philosophy and Objectives of our Compensation Program

We seek to attract and retain highly qualified executives and establish a strong pay-for-performance alignment by linking senior management compensation to enterprise goals. The primary objectives of our executive compensation program are to:

 

•

Attract, motivate and retain highly qualified executive officers.

 

•

Align the economic interests of our executive officers with those of our shareholders.

 

•

Reward performance that emphasizes teamwork and close collaboration among executive officers.

 

•

Reward performance that supports the Company’s values.

 

•

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

 

•

Foster an entrepreneurial spirit that reflects innovative thinking and action and 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:

 

•

Pay-for-performance. A substantial portion of the total compensation of our executive officers is earned based on achievement of enterprise-wide goals that impact shareholder value.

 

•

Enhance the value of the business. Incentive compensation design and performance measures encourage executive officers to favor the longer-term value of the Company and avoid excessive risk-taking in the short-term.

 

•

Reward long-term growth and focus management on sustained success and shareholder value creation. Compensation of our executive officers is heavily weighted toward equity and long-term cash awards. These awards encourage sustained performance and positive shareholder returns.

 

•

Modest benefits and limited perquisites. We provide standard employee benefits and limited perquisites to our named executive officers. We believe the absence of executive-only benefits or perquisites is appropriate in our culture and does not impact our ability to attract and retain such executives.

Determination of Total Compensation

Role of the Compensation Committee

The Compensation Committee oversees the Company’s policies and philosophy related to total compensation for executive officers. The Compensation Committee approves the compensation for the named executive officers based on its own evaluation, input from our CEO (for all executive officers except for himself), internal pay equity considerations, the tenure and performance of each named executive officer, input from its independent consultant and market data.

In addition, in making 2011 compensation decisions, the Compensation Committee considered the results of the Company’s first annual advisory vote to approve the Company’s executive compensation, which was conducted at our 2011 Annual Meeting. At this meeting, more than 97% of the votes were cast in favor of the proposal. The Compensation Committee believes that this shareholder vote indicates strong support for our executive compensation program.

 

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The Compensation Committee’s Use of an Independent Compensation Consultant

The Compensation Committee retains a separate independent compensation consultant, Jon Weinstein at Pay Governance LLC, 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. Pay Governance does not provide any other services to the Company and does not perform any work for management.

Competitive Positioning

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 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 the market if paid at target. Target total compensation of our named executive officers as a group in 2011, consisting of base salary, target annual cash incentive award, target long-term cash incentive award and the grant date fair value of equity awards (including performance shares at target), resulted in a target compensation opportunity for our executive officers as a group between the median and the seventy-fifth percentile of the market data for our primary peer group.

In 2011, the Compensation Committee requested that its independent compensation consultant review the peer group data used by the committee. The Compensation Committee chartered this review to ensure that competitive compensation data were:

 

•

an accurate reflection of the external labor market for senior talent;

 

•

sourced from companies whose scope of operations were generally consistent with the Company’s size and complexity; and

 

•

based on a sufficient number of companies to stand up over time to predictable changes in the external market.

The Compensation Committee determined to use market data developed from a broad industry group of premier companies. This group is 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 companies in 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 companies;

 

•

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 the Compensation Committee is not made aware of the companies in this group until the independent compensation consultant presents its benchmarking results to the committee.

The Compensation Committee also considered market data from the five largest publicly traded managed care companies with which we compete for business. However, the Compensation Committee does not utilize this group of managed care companies as a primary reference point for

 

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benchmarking compensation practices because the Company is substantially larger, more complex and more diverse than the group’s component companies, and because we believe that the Company competes primarily for talent and capital with other successful large companies across a broader group of industries. The companies that were included in the 2011 peer groups are listed at the end of this Compensation Discussion and Analysis.

Role of Management and CEO in Determining Executive Compensation

The Compensation Committee has the responsibility to approve and monitor all compensation for our executive officers. Management recommends appropriate enterprise-wide financial and non-financial performance goals for use in incentive compensation. Our CEO assists the Compensation Committee by providing his evaluation of the performance of the executive officers that report directly to him and recommends compensation levels for these 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 robust 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. The tally sheets 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 price scenarios. This is done to effectively analyze the compensation each executive officer has accumulated to date and to fully understand the amount the executive officer could accumulate in the future.

Change in Named Executive Officer Responsibilities in 2011

In January 2011, UnitedHealth Group announced the next phase in the continuing alignment of its UnitedHealthcare and Optum business platforms and related changes in roles for a number of the Company’s senior executives, including:

 

•

Gail K. Boudreaux assumed overall responsibility for all UnitedHealthcare health benefits businesses;

 

•

David S. Wichmann became Chief Financial Officer while retaining his existing corporate responsibilities for leading enterprise-wide information technology and operations;

 

•

George L. Mikan III ceased being Chief Financial Officer and assumed responsibility for the Company’s Optum business platform, including OptumHealth and OptumInsight, and working with another executive officer to oversee OptumRx; and

 

•

Larry C. Renfro and Anthony Welters joined Mr. Hemsley in the office of the Chief Executive, focused on enterprise-wide initiatives, including emerging growth and expansion opportunities, public, regulatory and governmental affairs, reputation and market image efforts, and external relationships for the Company.

These changes were designed to further position the Company as it continues to grow in the evolving health care landscape. On July 6, 2011, we announced that Mr. Renfro was named Chief Executive Officer of Optum, and that Mr. Mikan would be leaving the Company in February 2012. Additional details about the terms of Mr. Mikan’s departure can be found in “Departure of George L. Mikan III” below.

 

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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 variable
Annual cash incentive awards		To encourage and reward executive officers for achieving annual corporate performance goals		Annual performance compensation, variable
Long-term cash incentive awards		To encourage and reward executive officers for achieving three-year corporate performance goals		Long-term performance compensation, variable
Equity awards		To motivate and retain executive officers and align their interests with shareholders through the use of:   •     Performance shares to motivate sustained performance and growth and potentially assist executives in building ownership in the Company; and   •     RSUs to retain executive officers and build stock ownership positions.		Long-term performance compensation, variable
Employee benefits		The smallest part of total remuneration promotes health, well- being and financial security of employees, including executive officers		Annual indirect compensation, not variable

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. For 2011, the Compensation Committee made no change to our CEO’s base salary and increased the other named executive officers’ base salaries as set forth below due to the increased scope of their responsibilities, as discussed above:

 

Name		2011 Base Salary ($)				2010 Base Salary ($)				2011 to 2010 Increase (%)
S. Hemsley			1,300,000				1,300,000				NA
D. Wichmann			850,000				700,000				21	%
G. Boudreaux			850,000				700,000				21	%
L. Renfro			850,000				700,000				21	%
A. Welters			750,000				700,000				7	%
M. Mikan			850,000				700,000				21	%

 

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Annual Cash Incentive Awards

2011 Annual Incentive Plan Performance Goals

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. In February 2011, the Compensation Committee approved performance criteria and target performance goals for the 2011 annual cash incentive award. These performance goals are based on 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 actual 2011 performance results in each of those categories:

 

2011 Performance Measure		Weight		Threshold Performance		Target Performance		Maximum Performance		Actual 2011 Performance
Revenue		1/3		$95.19 billion		$100.2 billion		$105.21 billion		$101.505 billion
Operating Income		1/3		$5.997 billion		$7.055 billion		$8.113 billion		$8.449 billion
Cash Flow				$4.675 billion		$5.5 billion		$6.325 billion		$6.968 billion
Stewardship:   •     Customer and Physician Satisfaction   •     Employee Engagement   •     Employee Teamwork		1/3		2010 results		2 points above threshold, except customer and physician satisfaction is 5 points above 2010 results		2 points above 2011 target		Between 2011 target and maximum

Context for the 2011 Annual Cash Incentive Plan Performance Goals

In establishing the performance measures for the 2011 annual cash incentive awards, the Compensation Committee sought to align broadly the compensation of our executive officers to key elements of the Company’s 2011 business plan. Development of the Company’s 2011 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 2010 and the first quarter of 2011. At the target level, these financial performance measures were consistent with or higher than the 2010 financial outlook presented publicly in November 2010 at the Company’s annual Investor Conference.

The 2011 financial performance measures at target level represented year-over-year growth in revenues of $6.0 billion but also included an expected year-over-year decline in operating income of $809 million and an expected decline in operating cash flow of $773 million. This reflected the Company’s view that there would be a continued difficult business environment in 2011, including expectations that:

 

•

the general unemployment rate would remain in a range of 9% to 10%;

 

•

operating earnings would be reduced by the new minimum loss ratio regulations of the Patient Protection and Affordable Care Act (“Health Care Reform Legislation”) that became effective in 2011;

 

•

there would not be development in prior year medical costs;

 

•

there would be continued downward rate pressure in both Medicare Advantage and Medicaid payment rates received from the federal and state governments; and

 

 

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•

operating cash flows would be negatively impacted year-over-year as certain state premium payments were advanced from 2011 into 2010 on a one-time basis.

The 2011 non-financial target levels represented an increase over 2010 performance in all categories. These measures were viewed to be important to obtaining longer-term financial successes that might not be immediately reflected in annual financial results. The Compensation Committee was of the view that the breadth of financial and non-financial performance measures for the 2011 annual cash incentive award 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 2011, the Company believed that achievement of these 2011 goals required substantial performance on a broad range of initiatives contained in the 2011 business plan. These initiatives included the following:

 

•

grow enrollment across all product categories for a total increase in UnitedHealthcare medical enrollment of approximately one million individuals;

 

•

continue to execute our major multi-track Medicare Advantage remediation plan to compensate for ongoing reductions in funding rates from the federal government that are projected to be less than the rate of medical cost inflation;

 

•

continue our innovation in commercial products;

 

•

deliver ever more effective and comprehensive clinical management;

 

•

execute on integration and alignment of the Optum companies acquired in 2010;

 

•

execute on Optum growth initiatives; and

 

•

further improve our consolidated operating cost ratio.

The Company made substantial progress with regard to these initiatives and, in addition, enrollment in the Company’s commercial business significantly exceeded the Company’s expectations. As a result, 2011 revenues, operating income, cash flows and non-financial measures were all above target levels, with several measures above maximum levels. In addition, 2011 results represented increases over 2010 results in every measure. The Company’s total shareholder return was 42.0% in 2011, reflecting successful performance in an uncertain environment.

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 Company’s 2008 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 were 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 emphasize the Company’s preference for long-term and sustainable growth. The only discretion exercised by the Compensation Committee with respect to the annual incentive awards had the effect of decreasing 2011 revenue and operating income from the results reported in accordance with GAAP.

Determination of 2011 Annual Cash Incentive Award Opportunities

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 2011, 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.

 

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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 target percentages for annual cash incentive awards to our named executive officers and the actual 2011 annual cash incentive awards paid are set forth in the table below:

 

2011 Annual Cash Incentive Awards
Name		Target Percentage (% of Salary)				Target Award Value ($)				Actual Award Paid ($)				Paid Award (% of Target)
S. Hemsley			175	%			2,275,000				3,640,000				160	%
D. Wichmann			150	%			1,275,000				2,050,000				160	%
G. Boudreaux			150	%			1,275,000				2,050,000				160	%
L. Renfro			150	%			1,275,000				2,050,000				160	%
A. Welters			150	%			1,125,000				1,800,000				160	%
M. Mikan			150	%			1,275,000				1,275,000				100	%

The primary factor considered by the Compensation Committee in determining the 2011 annual cash incentive award amounts for each executive officer was achievement of 2011 annual incentive plan performance measures, as discussed below.

Long-Term Incentive Compensation

Long-term incentive 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 Awards

2009 – 2011 Long-Term Cash Incentive and Performance Shares Goals and Context

The long-term cash incentive award and performance share programs create a financial incentive for achieving or exceeding three-year financial goals for the enterprise. The earned long-term cash incentive award and performance shares for the 2009 – 2011 performance period were based on achieving the following performance versus the pre-set targets:

 

2009-2011 Performance Measure		Weight		Threshold Performance		Target Performance		Maximum Performance		Actual 2009- 2011 Performance
Cumulative EPS		50%		$9.08		$10.02		$10.99		$12.07
Return on Equity		50%		14%		16%		18%		18.3%

The performance measures for the 2009 – 2011 performance period were established during the first quarter of 2009 based on the Company’s Long-Term Plan. The first year of the Long-Term Plan was based on the Company’s 2009 business plan. Subsequent years were based on assumptions and growth initiatives developed in conjunction with the Company’s business units and reviewed by the Board of Directors. Some key elements of the Long-Term Plan were:

 

•

expectation of increasing unemployment levels following the 2008 financial crisis, resulting in commercial enrollment declines in 2009;

 

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•

enrollment growth across all Medicare and Medicaid product categories in all years, and commercial enrollment growth in 2010 and 2011;

 

•

delivering ever more effective and comprehensive clinical management; and

 

•

ongoing improvements to our consolidated operating cost ratio.

To achieve maximum performance for both the Long-Term Cash Incentive Plan and the Performance Share Plan, cumulative three-year earnings per share (EPS) performance of $10.99 and an average return on equity (ROE) of 18.0% were required. This maximum performance level corresponded to a compound annual growth rate in EPS of 19.9% over the three-year period on a GAAP basis (12.0% when adjusting 2008 for the settlement of class-action lawsuits and other items). The Company had year-over-year GAAP EPS growth of 35.0% in 2009, 26.5% in 2010 and 15.4% in 2011, resulting in a compound annual growth rate of 25.4%. The resulting cumulative EPS of $12.07 was $1.08 above the maximum performance level.

The 18.0% average ROE maximum performance level represented an increase from the actual ROE at the time the goal was established. The ROE for 2009 was 17.3%, increasing to 18.7% in 2010 and 18.9% in 2011. The resulting three-year average ROE was 18.3%, 30 basis points above the maximum performance level.

Environmental factors influencing these results, both positively and negatively, included:

 

•

a continued movement to managed care in state-based Medicaid programs;

 

•

a lower rate of overall inflation and slower total health care cost growth;

 

•

an unemployment rate that remained near 10% for much of 2009 through 2011;

 

•

adoption of the Health Care Reform Legislation, including new coverage requirements and minimum loss ratio regulations;

 

•

increased costs associated with the H1N1 influenza outbreak during 2009 and 2010 that were not contemplated in our Long-Term Plan; and

 

•

downward rate pressure in both Medicare Advantage and Medicaid payment rates received from the federal and state governments.

Similar to the Annual Incentive Plan, the Company’s 2008 Executive Incentive Plan allows for adjustments to the Company’s reported results in determining long-term incentive plan awards, namely the impact of changes in accounting principles, extraordinary items and unusual or non-recurring gains or losses. The performance share award allows for more limited adjustments. No adjustments were made to the Company’s financial results in determining long-term incentive award and performance share payout levels for the 2009 — 2011 performance period.

2009 – 2011 Long-Term Cash Incentive Awards

At the beginning of each three year performance period, the Compensation Committee approves a “long-term cash incentive target percentage” for each executive officer as a percentage of the executive officer’s average base salary over the performance period. For the 2009 – 2011 performance period, the maximum cash incentive award that an executive officer could earn, was set by the Compensation Committee to be equal to two times the applicable long-term cash incentive target percentage.

 

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The Compensation Committee believes that it was important to provide the same relative target opportunity to all of the named executive officers to increase collaboration, teamwork and accountability across the enterprise and to recognize the skills and versatility of each executive officer. The long-term incentive target percentages for long-term cash incentive awards to our executive officers and the actual long-term cash incentive awards paid for the 2009 – 2011 long-term performance period are set forth in the table below:

 

Long-Term Cash Incentive Award
Name		Target Percentage  (% of 3-Yr. Avg. Base Salary)		Target Award Value ($)		Maximum Award Value ($)		Actual Award Paid ($)		Paid Award (% Target)
S. Hemsley		50%		650,000		1,300,000		1,300,000		200%
G. Boudreaux		50%		372,100		744,200		744,200		200%
L. Renfro		50%		342,300		684,600		684,600		200%
D. Wichmann		50%		372,100		744,200		744,200		200%
A. Welters		50%		357,300		714,600		714,600		200%
M. Mikan		50%		372,100		744,200		0		0%

Mr. Renfro became a participant in the long-term cash incentive program on January 30, 2009 and, as a result, the target value of his long-term cash incentive award was prorated. The primary factor considered by the Compensation Committee in the determination of the long-term cash incentive award amounts was achievement of 2009 — 2011 long-term incentive plan measures above the maximum goal.

2009 – 2011 Performance Share Awards

The Compensation Committee granted performance shares for the first time for the 2009 – 2011 performance period. The introduction of performance shares as a component of the overall equity awards granted was based upon the Compensation Committee’s consideration of competitive market data, the desirability of utilizing a balanced system to mitigate risk, encourage superior performance and build ownership and was also informed by conversations with shareholders about the desirability of this type of equity award as a component of a pay-for-performance program. The actual shares that were earned for the 2009 – 2011 performance period are set forth in the table below as well as reflected in the “2011 Options Exercises and Stock Vested” table below:

 

Long-Term Performance Shares
Name		Target Shares (#)		Maximum Shares (#)		Actual Shares Paid  (#)		Paid Award (% of Target)
S. Hemsley		115,385		230,770		230,770		200%
G. Boudreaux		76,923		153,846		153,846		200%
D. Wichmann		76,923		153,846		153,846		200%
A. Welters		76,923		153,846		153,846		200%
M. Mikan		76,923		153,846		153,846		200%

 

 

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Equity Awards

Equity Award Practices

Awards of equity-based compensation to our executive officers serve the purposes described above under “Long-Term Incentive Compensation.” The Compensation Committee determined that equity-based compensation for 2011 should include grants of 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. 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 strengthen the 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 requires that all grants of equity be made at set times, and 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 Company does not pay dividend equivalents on unvested performance shares granted to employees. After considering general market practices, 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 underlying RSUs do not vest.

The aggregate number of shares subject to equity awards made in 2011 was less than 1% of the Company’s shares outstanding at the end of 2011.

Equity Awards — 2011

In February 2011, the Compensation Committee granted the following target number of performance shares and RSUs to Messrs. Hemsley, Renfro, Wichmann, Welters and Mikan and Ms. Boudreaux:

 

Name		Target Number of         Performance Shares		Annual         RSU Award		Special         RSU Grant
S. Hemsley		83,195		83,195		—
G. Boudreaux		53,483		53,483		59,425
L. Renfro		53,483		53,483		59,425
D. Wichmann		53,483		53,483		59,425
A. Welters		53,483		53,483		—
G. Mikan		53,483		53,483		59,425

The special RSU grants to Ms. Boudreaux and Messrs. Renfro, Wichmann and Mikan were in recognition of additional responsibilities assumed in connection with the Company’s business realignment, as discussed above, and have a four-year “cliff” vesting provision to provide for additional retention. The number, mix and value of the remaining equity awards was determined by the Compensation Committee at its February 2011 meeting, at which time determinations were also made regarding the 2010 annual cash bonus and the 2008-2010 long-term cash incentive payments. The value and mix of equity awards for all named executive officers were determined by the Compensation

 

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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. See “Departure of George L. Mikan III” below for a further discussion of the impact of Mr. Mikan’s departure on the equity awards granted to him.

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.

Other Compensation

Benefits

In addition to generally available 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, 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 “2011 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 our continued focus on the community, the Company implemented an Executive Board Service Matching Program. 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 an equivalent 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, other than the benefits described above, we do not provide perquisites such as excise tax gross-ups, 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.”

None of the employment agreements provides for ongoing fixed minimum annual equity awards or fixed cash incentive awards except for certain limited duration commitments made to Gail Boudreaux and Larry Renfro in connection with the commencement of employment with the Company. 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

 

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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.

Prior to 2011, our equity award agreements typically provided 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, stock option awards granted in 2009 and 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.

Departure of George L. Mikan III

On July 1, 2011, we announced that George L. Mikan III would terminate his employment with the Company effective February 29, 2012 (the “Termination Date”). From July 1, 2011 through February 29, 2012, Mr. Mikan agreed to provide transitional assistance to Optum and to perform other executive level responsibilities assigned to him from time-to-time.

In connection with Mr. Mikan’s contemplated departure, the Company and Mr. Mikan entered into a Separation and Release Agreement effective July 5, 2011 (the “Separation Agreement”). The Separation Agreement provides that Mr. Mikan would be eligible to participate in the Company’s annual incentive compensation plan for 2011, but would not receive a payout under the long-term cash incentive award for the 2009 – 2011 performance period under the Company’s Executive Incentive Plan. Based on Mr. Mikan’s performance and the financial performance of the Company in 2011, the Company determined it would be appropriate to award Mr. Mikan an annual cash incentive award at the target level of performance.

The Separation Agreement also provides that upon his termination, Mr. Mikan will receive cash severance compensation pursuant to the terms of his employment agreement dated November 7, 2006, which will be payable over the two-year period following the Termination Date. Under the terms of the equity award agreements that govern Mr. Mikan’s previously granted equity awards, such awards would continue to vest and remain exercisable during the period of payment of the severance compensation as long as Mr. Mikan complies with the terms of the Separation Agreement, including

 

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non-compete and non-solicit agreements. The RSU that was awarded to Mr. Mikan in February 2011 with four-year cliff vesting will be forfeited in its entirety.

Other Compensation Practices

Executive Stock Ownership Guidelines

The Compensation Committee believes that executive stock ownership aligns management’s interests with those of shareholders and fosters a long-term outlook, while also assisting in the mitigation of compensation risk. Under our stock ownership guidelines, each executive officer must beneficially own at least the following amounts of the Company’s common stock within three years of the executive officer’s election or appointment as an executive officer:

 

•

for the CEO, five times base salary; and

 

•

for other executive officers, two times base salary.

Stock options and SARs do not count towards satisfying 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, as of March 1, 2012, holds shares with a value equal to 118 times his base salary.

Additionally, in 2009, the Board established a stock retention policy for executive officers that are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which includes our named executive 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 any 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 2011, no executive officer consulted with the Office of the General Counsel regarding hedging transactions.

Potential Impact on Compensation from Executive Misconduct/Compensation Clawbacks

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, including, without limit: (1) a termination of employment and (2) initiating legal action against the executive officer. In addition, with respect to our senior executives, including our named executive officers, 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 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.

 

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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 mix of 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 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 corporate deduction limit for compensation to the Company’s CEO and its three other highest-paid executive officers employed at the end of the year, unless 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, we have not adopted a policy requiring all compensation to be deductible. For example, time-based RSUs 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 Health Care Reform 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 tax deduction limit of $500,000 per person will apply to compensation that we pay to any of our employees and certain service providers, regardless of whether such compensation is deemed performance-based under Section 162(m) or not. 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. 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, 2011, the Company lost some tax benefits that would otherwise have been available in 2011 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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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, 2011. This report was provided by the following independent directors who comprise the Compensation and Human Resources Committee:

Douglas W. Leatherdale (Chair)

Robert J. Darretta

Rodger A. Lawson

UnitedHealth Group Executive Compensation Peer Groups

 

Managed Care Competitors
Aetna Inc.
CIGNA Corp.
Coventry Health Care Inc.
Humana Inc.
WellPoint Inc.
Large Company Peer Group
3M Company		Home Depot, Inc. (The)
Abbott Laboratories		Intel Corporation
Amazon.com Inc.		International Business Machines Corp.
American Express Co.		Johnson & Johnson
American International Group, Inc.		JPMorgan Chase & Co.
Ameriprise Financial Inc.		Kraft Foods Inc.
AmerisourceBergen Corporation		Kroger Co. (The)
Amgen Inc.		Lowe’s Companies Inc.
Apple Inc.		McDonald’s Corp.
Archer Daniels Midland Company		McKesson Corporation
AT&T, Inc.		MedcoHealth Solutions Inc.
Bank of America Corp.		Medtronic, Inc.
Berkshire Hathaway Inc.		Merck & Co. Inc.
Best Buy Co. Inc.		MetLife, Inc.
Bristol-Myers Squibb Co.		Microsoft Corporation
Bunge Limited		Morgan Stanley
CVS Caremark Corp.		News Corp.
Cardinal Health Inc.		Oracle Corp.
Cargill, Incorporated		PepsiCo, Inc.
Cisco Systems Inc.		Pfizer Inc.
Citigroup, Inc.		Procter & Gamble Co.
Coca-Cola Company (The)		Prudential Financial Inc.
Comcast Corporation		QUALCOMM Incorporated
Costco Wholesale Corporation		Safeway Inc.
Dell Inc.		Sears Holdings Corporation
Dow Chemical Company (The)		SUPERVALU Inc.
eBay Inc.		Sysco Corp.
El DuPont de Nemours & Co.		Target Corp.
Eli Lily and Co.		Travelers Companies, Inc. (The)
EMC Corporation		U.S. Bancorp
Emerson Electric Co.		United Parcel Service, Inc.
Express Scripts Inc.		Verizon Communications Inc.
General Electric Co.		Visa, Inc.
General Mills, Inc.		Walgreen Co.
Goldman Sachs Group, Inc. (The)		Wal-Mart Stores Inc.
Google Inc.		WellPoint Inc.
Hewlett-Packard Company		Wells Fargo & Company

 

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2011 Summary Compensation Table*

The following table provides certain summary information for the years ended December 31, 2011, 2010 and 2009 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			2011 2010 2009				1,300,000 1,300,000 1,300,000				—   —   —				7,000,028 4,500,045 4,122,694				—   1,500,007 1,442,306				4,940,000 3,400,000 1,950,000				—   —   —	(7)			154,804 110,079 86,916				13,394,832 10,810,131 8,901,916
David S. Wichmann Executive Vice President and Chief Financial Officer			2011				832,692				—				7,000,070				—				2,794,200				—				84,212				10,711,174
Gail K. Boudreaux Executive Vice President and Chief Executive Officer, UnitedHealthcare			2011 2010				832,692 700,000				205,000 205,000	(8)			7,000,070 3,000,063				—   1,000,004				2,794,200 1,400,000				—   —				93,353 68,679				10,925,315 6,373,746
Larry C. Renfro Executive Vice President and Chief Executive Officer, Optum			2011 2010 2009				832,692 692,308 535,385				—   —   600,000				7,000,070 3,000,063 3,170,284				—   1,000,004 944,704				2,734,600 1,400,000 1,000,000				—   —   —				35,825 240,300 520,298				10,603,187 6,332,675 6,770,671
Anthony Welters Executive Vice President			2011 2010 2009				744,231 700,000 700,000				—   —   —				4,500,060 3,000,063 2,748,471				—   1,000,004 978,505				2,514,600 1,400,000 1,240,000				—   —   —				112,118 119,687 372,885				7,871,009 6,219,754 6,039,861
George L. Mikan III Former Executive Vice President and Chief Financial Officer			2011 2010 2009				832,692 700,000 700,000				—   —   —				7,000,070 3,000,063 2,748,471				—   1,000,004 746,605				1,275,000 1,400,000 1,240,000				—   —   —				83,012 87,264 321,314				9,190,774 6,187,331 5,756,390

 

*

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, 2011, 2010 and 2009. 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			2011			$	78,000
David S. Wichmann			2011			$	49,615
Gail K. Boudreaux			2011			$	49,615
Larry C. Renfro			2011			$	49,615
Anthony Welters			2011			$	44,538
George L. Mikan III			2011			$	49,615

 

(2)

The amounts reported in this column reflect the aggregate grant date fair value of the RSUs and performance shares (at target) granted in 2011, 2010 and 2009 and 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 2011 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			2011			$	3,500,014			$	3,500,014			$	7,000,028
David S. Wichmann			2011			$	4,750,040			$	2,250,030			$	4,500,060
Gail K. Boudreaux			2011			$	4,750,040			$	2,250,030			$	4,500,060
Larry C. Renfro			2011			$	4,750,040			$	2,250,030			$	4,500,060
Anthony Welters			2011			$	2,250,030			$	2,250,030			$	4,500,060
George L. Mikan III			2011			$	4,750,040			$	2,250,030			$	4,500,060

See the “2011 Grants of Plan-Based Awards” table for more information on stock awards granted in 2011.

 

(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 and 2009 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, 2011. These assumptions also have been used in computing the aggregate grant date fair value since fiscal 2003.

 

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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 2011 and paid in 2012, 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			2011			$	3,640,000			$	218,400
David S. Wichmann			2011			$	2,050,000			$	123,000
Gail K. Boudreaux			2011			$	2,050,000			$	205,000
Larry C. Renfro			2011			$	2,050,000				—
Anthony Welters			2011			$	1,800,000			$	108,000
George L. Mikan III			2011			$	1,275,000			$	76,500

The long-term cash incentives earned for the 2009 – 2011 incentive period under our 2008 Executive Incentive Plan and paid in 2012 were the following:

 

Name		Period				Total Amount of Long-term Cash Incentive Award
Stephen J. Hemsley			2009-2011			$	1,300,000
David S. Wichmann			2009-2011			$	744,200
Gail K. Boudreaux			2009-2011			$	744,200
Larry C. Renfro			2009-2011			$	684,600
Anthony Welters			2009-2011			$	714,600
George L. Mikan III			2009-2011				—

 

(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)
Stephen J. Hemsley			2011			$	11,025			$	141,000				—				—
David S. Wichmann			2011			$	11,025			$	66,808				—				—
Gail K. Boudreaux			2011			$	11,025			$	66,808			$	10,000				—
Larry C. Renfro			2011			$	9,429			$	24,808				—				—
Anthony Welters			2011			$	7,529			$	64,269			$	30,000			$	10,320
George L. Mikan III			2011			$	11,025			$	66,808				—				—

As permitted by SEC rules, we have omitted perquisites and other personal benefits that we provided to certain named executive officers in 2011 if the aggregate amount of such compensation to each of such named executive officers was less than $10,000. As noted above, we generally do not provide perquisites. 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

 

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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 amounts included for Ms. Boudreaux and Mr. Welters represent donations to charitable organizations made by the Company in 2011 to match the donations they made to charitable organizations on whose boards they serve.

 

b)

The Company provides each of Messrs. Wichmann, Renfro, Welters and Mikan and Ms. Boudreaux a $2 million face value term life insurance policy. The 2011 annual premiums paid by the Company on behalf of Messrs. Wichmann, Renfro, and Mikan and Ms. Boudreaux were less than $10,000.

 

(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 2011.

 

(8)	Reflects a bonus paid to Ms. Boudreaux on the thirty-sixth month anniversary of the effective date of her employment agreement.

2011 Grants of Plan-Based Awards*

The following table presents information regarding each grant of an award under our compensation plans made during 2011 to our named executive officers for fiscal 2011.

 

Name						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				All Other Option/ SAR Awards: Number of Securities Underlying				Exercise or Grant Price of Option/ SAR				Grant Date Fair Value of Stock or Option/ SAR
		Grant Date				Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)				or Units (#)				Options/ SARs (#)				Awards ($/Sh)				Awards ($) (1)
Stephen J. Hemsley President and Chief Executive Officer
Annual Cash Incentive Award (2)			—				2,047,500				2,275,000				4,550,000				—				—				—				—				—				—				—
Long-Term Cash Incentive Award (3)			—				4,276				650,000				1,300,000				—				—				—				—				—				—				—
RSU Award (4)			2/9/2011				—				—				—				—				—				—				83,195				—				—				3,500,014
Performance Share Award (5)			2/9/2011				—				—				—				547				83,195				166,390				—				—				—				3,500,014
David S. Wichmann Executive Vice President and Chief Financial Officer
Annual Cash Incentive Award (2)			—				1,147,500				1,275,000				2,550,000				—				—				—				—				—				—				—
Long-Term Cash Incentive Award (3)			—				2,777				422,115				844,230				—				—				—				—				—				—				—
RSU Award (6)			2/9/2011				—				—				—				—				—				—				112,908				—				—				4,750,040
Performance Share Award (5)			2/9/2011				—				—				—				352				53,483				106,966				—				—				—				2,250,030
Gail K. Boudreaux Executive Vice President and Chief Executive Officer, UnitedHealthcare
Annual Cash Incentive Award (2)			—				1,147,500				1,275,000				2,550,000				—				—				—				—				—				—				—
Long-Term Cash Incentive Award (3)			—				2,777				422,115				844,230				—				—				—				—				—				—				—
RSU Award (6)			2/9/2011				—				—				—				—				—				—				112,908				—				—				4,750,040
Performance Share Award (5)			2/9/2011				—				—				—				352				53,483				106,966				—				—				—				2,250,030

 

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Name						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				All Other Option/ SAR Awards: Number of Securities Underlying				Exercise or Grant Price of Option/ SAR				Grant Date Fair Value of Stock or Option/ SAR
		Grant Date				Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)				or Units (#)				Options/ SARs (#)				Awards ($/Sh)				Awards ($) (1)
Larry C. Renfro Executive Vice President and Chief Executive Officer, Optum
Annual Cash Incentive Award (2)			—				1,147,500				1,275,000				2,550,000				—				—				—				—				—				—				—
Long-Term Cash Incentive Award (3)			—				2,777				422,115				844,230				—				—				—				—				—				—				—
RSU Award (6)			2/9/2011				—				—				—				—				—				—				112,908				—				—				4,750,040
Performance Share Award (5)			2/9/2011				—				—				—				352				53,483				106,966				—				—				—				2,250,030
Anthony Welters Executive Vice President
Annual Cash Incentive Award (2)			—				1,012,500				1,125,000				2,250,000				—				—				—				—				—				—				—
Long-Term Cash Incentive Award (3)			—				2,461				374,038				748,076				—				—				—				—				—				—				—
RSU Award (4)			2/9/2011				—				—				—				—				—				—				53,483				—				—				2,250,030
Performance Share Award (5)			2/9/2011				—				—				—				352				53,483				106,966				—				—				—				2,250,030
George L. Mikan III Former Executive Vice President and Chief Financial Officer
Annual Cash Incentive Award (2)			—				1,147,500				1,275,000				2,550,000				—				—				—				—				—				—				—
Long-Term Cash Incentive Award (3)			—				2,777				422,115				844,230				—				—				—				—				—				—				—
RSU Award (6)			2/9/2011				—				—				—				—				—				—				112,908				—				—				4,750,040
Performance Share Award (5)			2/9/2011				—				—				—				352				53,483				106,966				—				—				—				2,250,030

 

*	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. 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 2011. 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 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

 

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incentive amounts earned in connection with the 2011 awards were paid in 2012, and are reported in the “2011 Summary Compensation Table.”

 

(3)

Amounts represent estimated future payouts of long-term cash incentive awards granted under our Executive Incentive Plan in 2011 for the 2011-2013 incentive period, to be paid in 2014. 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 2011, upon recommendation by management, the Compensation Committee approved a cumulative EPS metric and an average return on equity metric for the 2011-2013 incentive period, either one of which must be achieved before the threshold amount shown above becomes earned and payable. Each measure is weighted equally. The Compensation Committee will determine whether the goals have been achieved at the end of the performance period. 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’ estimated average salary over the 2011 to 2013 performance period. This three year average salary was determined using their actual 2011 salary earned with their current salary used to estimate their 2012 and 2013 salaries.

 

(4)

Amounts represent the number of RSUs granted under our 2002 Stock Incentive Plan. These RSUs proportionately vest on February 9, 2012, December 28, 2012 and February 9, 2014, other than for Messrs. Hemsley and Welters as described in footnote 4 to the “Outstanding Equity Awards at 2011 Fiscal Year End” table. These RSUs are subject to earlier termination upon certain events related to termination of employment. Unvested RSUs will vest in full upon death or disability. Unvested RSUs will also vest in full if, within two years of a change in control, an executive terminates employment for good reason or is terminated without cause (i.e., “double-trigger” vesting), 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.

 

(5)

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 2011 — 2013 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 full 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

 

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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.

 

(6)

Amounts represent the number of RSUs granted under our 2002 Stock Incentive Plan. Of the total number of RSUs granted, 53,483 RSUs proportionately vest on February 9, 2012, December 28, 2012 and February 9, 2014 and 59,425 RSUs vest on the fourth anniversary of the grant date, February 9, 2015. These RSUs are subject to earlier termination upon certain events related to termination of employment. Unvested RSUs will vest in full upon death or disability Unvested RSUs will also vest in full if, within two years of a change in control, an executive terminates employment for good reason or is terminated without cause (i.e., “double-trigger” vesting), 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.

 

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Outstanding Equity Awards at 2011 Fiscal Year-End

The following table presents information regarding outstanding equity awards held at the end of 2011 by our named executive officers for fiscal 2011.

 

				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				28,509 84,842 200,000 62,500 187,500 450,000 150,000 300,000 300,000 600,000 300,000 900,000				85,527 84,841 —   —   —   —   —   —   —   —   —   —	(3)  (5)			33.0000 29.7400 59.4200 57.4183 48.3550 45.2800 55.3583 29.7000 36.2382 58.3600 58.3600 58.3600				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					2/9/2011 2/9/2011 2/9/2010 2/9/2010 2/23/2009			82,173 —   34,091 —   28,846	(4)     (7)     (8)			4,164,528 —   1,727,732 —   1,461,915				—   124,793 —   181,820 —	(6)     (6)			—   6,324,509 —   9,214,638 —
David S. Wichmann 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 5/2/2005 12/7/2004 12/7/2004 8/6/2004 8/6/2004 11/28/2003 11/28/2003 2/12/2003 8/5/2002				19,006 56,562 152,732 —   150,000 150,000 65,000 25,000 75,000 154,000 154,000 75,000 75,000 37,500 112,500 200,000 200,000				57,018 56,560 50,910 25,000 —   —   —   —   —   —   —   —   —   —   —   —   —	(3)  (5)  (3)  (10)			33.0000 29.7400 33.9400 54.4100 54.4100 48.5800 59.0000 49.7886 48.3550 39.8500 42.2986 33.1236 31.5350 26.9500 29.3986 22.5086 22.1100				2/9/2020 2/23/2019 6/5/2018 5/28/2017 5/28/2017 5/2/2016 10/31/2015 5/2/2015 5/2/2015 12/7/2014 12/7/2014 8/6/2014 8/6/2014 11/28/2013 11/28/2013 2/12/2013 8/5/2012					2/9/2011 2/9/2011 2/9/2011 2/9/2010 2/9/2010 2/23/2009 6/5/2008			54,162 60,180 —   22,728 —   19,230 9,113	(4)  (9)     (7)     (8)  (3)			2,744,930 3,049,922 —   1,151,855 —   974,576 461,847				—   —   80,225 —   121,214 —   —	(6)     (6)			—   —   4,065,803 —   6,143,126 —   —
Gail K. Boudreaux Executive Vice President and Chief Executive Officer, UnitedHealthcare					2/9/2010 2/23/2009 6/5/2008				19,006 56,562 96,825				57,018 56,560 32,275	(3)  (5)  (3)			33.0000 29.7400 33.9400				2/9/2020 2/23/2019 6/5/2018					2/9/2011 2/9/2011 2/9/2011 2/9/2010 2/9/2010 2/23/2009 6/5/2008			54,162 60,180 —   22,728 —   19,230 29,225	(4)  (9)     (7)     (8)  (3)			2,744,930 3,049,922 —   1,151,855 —   974,576 1,481,123				—   —   80,225 — 121,214 —   —	(6)     (6)(7)			—   —   4,065,803 —   6,143,126 —   —
Larry C. Renfro Executive Vice President and Chief Executive Officer, Optum					2/9/2010 2/3/2009				19,006 46,400				57,018 46,400	(3)  (5)			33.0000 29.7400				2/9/2020 2/3/2019					2/9/2011 2/9/2011 2/9/2011 2/9/2010 2/9/2010 2/3/2009			54,163 60,180 —   22,728 —   53,300	(4)  (9)     (7)     (7)			2,744,930 3,049,922 —   1,151,855 —   2,701,244				—   —   80,225 —   121,214 —	(6)     (6)(7)			—   —   4,065,803 —   6,143,126 —

 

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				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)
Anthony Welters Executive Vice President					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				19,006 —   23,639 —   150,000 100,000 40,000 100,000 270,000				57,018 56,560 21,212 25,000 —   —   —   —   —	(3)  (5)  (3)  (10)			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					2/9/2011 2/9/2011 2/9/2010 2/9/2010 2/23/2009 6/5/2008			52,837 —   22,728 —   19,230 17,087	(4)     (7)     (8)  (3)			2,677,779 —   1,151,855 —   974,576 865,969				—   80,225 —   121,214 —   —	(6)     (6)(7)			—   4,065,803 —   6,143,126 —   —
George L. Mikan III Former 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				19,006 56,562 152,732 —   175,000 125,000 45,000 100,000 190,000 150,000				57,018 56,560 50,910 75,000  —   —   —   —   —   —	(3)  (5)  (3)  (10)			33.0000 29.7400 33.9400 54.4100 54.4100 48.5800 60.0700 48.5700 42.8650 30.7050				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					2/9/2011 2/9/2011 2/9/2011 2/9/2010 2/9/2010 2/23/2009 6/5/2008			54,163 60,180 —   22,728 —   19,230 9,113	(4)  (9)     (7)     (8)  (3)			2,744,930 3,049,922 —   1,151,855 —   974,576 461,847				—   —   80,225 —   121,214 —   —	(6)     (6)			—   —   4,065,803 —   6,143,126 —   —

 

(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, 2011 of $50.68.

 

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

 

(4)

Vest 33-1/3% on February 9, 2012, December 28, 2012 and February 9, 2014, 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. These RSUs are eligible to and did receive dividend equivalents converted into additional shares; accordingly, the number of shares shown has been rounded to the nearest whole share. For more information on RSUs cancelled in 2011, please see “2011 Option Exercises and Stock Vested” table.

 

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

 

(6)

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 2011 is at 150% of the target number established by the Compensation Committee because we currently believe that is the probable outcome of the performance conditions based on the Company’s performance through December 31, 2011. The number of performance shares reported above for 2010 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, 2011.

 

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(7)

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. Mr. Hemsley was retirement eligible on the grant date and Mr. Welters became retirement eligible in 2010.

 

(8)

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. Hemsley was retirement eligible on the grant date and Mr. Welters became retirement eligible in 2010.

 

(9)	Vest 100% on the fourth anniversary of the grant date. These RSUs are eligible to and did receive dividend equivalents converted into additional shares; accordingly, the number of shares shown has been rounded to the nearest whole share.

 

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

2011 Option Exercises and Stock Vested

The following table presents information regarding the exercise of stock options during 2011 by our named executive officers and vesting of restricted stock awards held by our named executive officers for fiscal 2011.

 

Name		Option Awards								Stock Awards
		Number of Shares Acquired on Exercise  (#)				Value Realized on Exercise  ($) (1)				Number of Shares Acquired on Vesting (#)				Value Realized on Vesting ($)
Stephen J. Hemsley			1,200,000				28,829,810(2)				257,514				12,851,000 (3)
President and Chief Executive Officer
David S. Wichmann			300,000				9,912,270(4)				180,151				8,974,680 (5)
Executive Vice President and Chief Financial Officer
Gail K. Boudreaux			—				—				200,263				9,957,151 (6)
Executive Vice President and Chief Executive Officer, UnitedHealthcare
Larry C. Renfro			—				—				34,226				1,465,738 (7)
Executive Vice President and Chief Executive Officer, Optum
Anthony Welters			96,562				1,631,685(8)				187,990				9,368,334 (9)
Executive Vice President
George L. Mikan III			145,000				3,673,217(10)				180,151				8,974,680 (11)
Former Executive Vice President and Chief Financial Officer

 

(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.

 

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(2)	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
1/7/2002		10/26/2011		550,000		4:1		$49.0037		$25.0925
1/7/2002		10/27/2011		650,000		4:1		$49.2135		$25.0925

 

(3)	Reflects the vesting of a portion of the RSUs granted to Mr. Hemsley. 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		2/3/2011		14,423		$43.04		$620,766
2/9/2010		2/9/2011		10,242		$42.07		$430,881

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award		Performance Period Completion Date		Number of Shares Acquired on Vesting		Market Price at end of Performance Period		Value Realized on Vesting
2/23/2009		12/31/2011		230,770		$50.68		$11,695,424

Also reflects the cancellation on December 21, 2011 of 2,079 RSUs granted on February 9, 2011 with a value of $103,929 for the payment of FICA tax liability. The value realized was computed based on a closing stock price of $49.99 on December 21, 2011.

 

(4)	Mr. Wichmann’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
1/7/2002		10/28/2011		300,000		4:1		$48.8784		$18.2375

 

(5)	Reflects the vesting of a portion of the RSUs granted to Mr. Wichmann. 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		2/3/2011		9,616		$43.04		$413,873
2/9/2010		2/9/2011		7,576		$42.07		$318,722
6/5/2008		6/5/2011		9,113		$48.85		$445,170

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award		Performance Period Completion Date		Number of Shares Acquired on Vesting		Market Price at end of Performance Period		Value Realized on Vesting
2/23/2009		12/31/2011		153,846		$50.68		$7,796,915

 

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(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		2/3/2011		9,616		$43.04		$   413,873
2/9/2010		2/9/2011		7,576		$42.07		$   318,722
6/5/2008		6/5/2011		29,225		$48.85		$1,427,641

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award		Performance Period Completion Date		Number of Shares Acquired on  Vesting		Market Price at end of Performance Period		Value Realized on Vesting
2/23/2009		12/31/2011		153,846		$50.68		$7,796,915

 

(7)	Reflects the vesting of a portion of the RSUs granted to Mr. Renfro. 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
2/3/2009		2/3/2011		26,650		$43.04		$1,147,016
2/9/2010		2/9/2011		7,576		$42.07		$   318,722

 

(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		Market Price at Exercise		Exercise Price
2/23/2009		7/25/2011		5,000		$51.63		$29.74
6/5/2008		12/13/2011		40,000		$48.20		$33.94
2/23/2009		12/13/2011		51,562		$48.20		$29.74

 

(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		2/3/2011		8,904		$43.04		$383,228
2/9/2010		2/9/2011		6,828		$42.07		$287,254
6/5/2008		6/5/2011		17,087		$48.85		$834,700

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award		Performance Period Completion Date		Number of Shares Acquired on  Vesting		Market Price at end of Performance Period		Value Realized on Vesting
2/23/2009		12/31/2011		153,846		$50.68		$7,796,915

 

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Also reflects the cancellation on December 21, 2011 of 1,325 RSUs granted on February 9, 2011 with a value of $66,237 for the payment of FICA tax liability. The value realized was computed based on a closing stock price of $49.99 on December 21, 2010.

 

(10)	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
10/28/2003			5/2/2011				17,500				2:1			$	49.3693			$	26.175
10/28/2003			5/2/2011				52,500				2:1			$	49.4856			$	28.10
2/12/2003			5/2/2011				75,000				4:1			$	49.3193			$	20.725

 

(11)	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			2/3/2011				9,616			$	43.04			$	413,873
2/9/2010			2/9/2011				7,576			$	42.07			$	318,722
6/5/2008			6/5/2011				9,113			$	48.85			$	445,170

Also reflects the performance shares earned for the 2009 – 2011 performance period that ended on December 31, 2011 because performance targets were met. The value shown as realized on 12/31/2011 is based on the number of shares earned for the 2009 – 2011 performance period using the per share closing market price of our common stock on December 31, 2011, although shares were not issued until Committee certification of results on February 7, 2012:

 

Date of Award		Performance Period Completion Date				Number of Shares Acquired on Vesting				Market Price at end of Performance Period				Value Realized on Vesting
2/23/2009			12/31/2011				153,846			$	50.68			$	7,796,915

2011 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 2011.

 

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)		—
David S. Wichmann Executive Vice President and Chief Financial Officer		N/A		—		—		—
Gail K. Boudreaux Executive Vice President and Chief Executive Officer, UnitedHealthcare		N/A		—		—		—
Larry C. Renfro Executive Vice President and Chief Executive Officer, Optum		N/A		—		—		—
Anthony Welters Executive Vice President		N/A		—		—		—
George L. Mikan III Former Executive Vice President and Chief Financial Officer		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 was frozen in 2006 and 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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2011 Non-Qualified Deferred Compensation

The following table presents information as of the end of 2011 regarding the non-qualified deferred compensation arrangements for our named executive officers for fiscal 2011.

 

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			282,000				141,000				127,511			—					7,766,319
President and Chief Executive Officer
David S. Wichmann			133,615				66,808				29,431			—					1,847,201
Executive Vice President and Chief Financial Officer
Gail K. Boudreaux			189,615				66,808				(7,979	)		—					721,159
Executive Vice President and Chief Executive, UnitedHealthcare