Healthy compensation for WebMD exec…

While bills from health care providers may leave many feeling green around the gills, there are some in the health care industry whose finances have a better shot of staying in the pink. At least, that’s the case for a top executive at WebMD Health Corp. (WBMD), according to the proxy that the company filed last week.

We’re talking about Chairman of the Board Martin Wygod, who received stock awards for 2010 with a grant date fair value of more than $3.5 million, option awards worth more than $1.15 million, a bonus of more than $1.17 million, and an award under the “Supplemental Bonus Plan” (or “SBP”) of $577,500.

Since Wygod’s base salary is a comparatively paltry $120,000 per annum, the bonuses and equity awards account for nearly all of the nearly $6 million in total compensation that he got last year. Both of the bonus amounts – approved in February, 2011 – were discretionary awards granted by the Compensation Committee. The proxy explains that:

“Mr. Wygod’s bonus and SBP Award were intended to recognize his role in WebMD’s strategic initiatives in 2010 and his leadership with respect to significant transactions during 2010, including the sale of WebMD’s holdings of auction rate securities, the two self-tender offers made by WebMD for its Common Stock during 2010, and the retiring of two series of convertible notes through repurchases and conversions in connection with redemptions.”

The bonuses add up to a very healthy $1.75 million, and they exceed the $1.4 million in bonuses that Wygod received in 2009.

And as discretionary bonuses go, these definitely live up to their name. The proxy explains that the Compensation Committee “considered WebMD’s financial and operational performance in setting annual bonuses for its executive officers,” then goes on to say:

“However, the Compensation Committee did not attempt to tie the amounts of the 2010 annual bonuses for these executive officers to any specific measures and, instead, based its bonus determinations on its subjective view of our company’s results and management’s accomplishments.”

While exchanging those “subjective views”, the Committee considered such factors as an increase in advertising and sponsorship revenues during a time when many media companies were struggling, and the “financial and operational performance of its private portals”, which it deemed to be “adequate in light of general economic conditions affecting its clients and potential clients.”

All that may be a little too squishy for shareholders, though, who reacted negatively after the company released its mid-July earnings report (summarized nicely in this Dow Jones article). A gaggle of law firms have filed class action lawsuits on behalf of shareholders, alleging that that officers and directors misled them by either misrepresenting or failing to disclose the fact that WebMD was losing sponsors because of extended legal and regulatory reviews. They also claim that other customers put off advertising on WebMD’s website as a result of smaller advertising budgets, but that the company’s leaders didn’t tell them about that, either. Since all that unfolded, WebMD’s stock trading price has plummeted by more than 26%, and earnings per share have fallen from $2.45 to $.97.

Compare that to 2010, when the stock gained close to 33%; but whereas last year WBMD nicely outperformed the health-information industry and the S&P 500, this year it’s lagging badly. One could reasonably conclude that the subsequent stock-price drop means that the company is just rewarding short-term gains.

The board of directors will figure out how best to defend and run the company. But if we were writing a prescription to help them improve WebMD’s relations with shareholders, we’d advise them to follow a regimen of making timely, full disclosures of all material information, and to base executive bonuses and equity awards on more than just subjective criteria.

Image source: heipei via flickr


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