Saying goodbye gets costlier at UnitedHealth …

UnitedHealth (UNH) CEO Stephen J. Hemsley got some ink this week for his 2009 pay package, which jumped to $8.9 million from $3.2 million, by the calculation in the company’s proxy. The Associated Press tallied it differently, but notes that UnitedHealth’s profit rose 31% to $3.8 billion even as it saw a 6% decline in enrollment for its commercial insurance business

Yet what intrigued us most about the proxy UnitedHealth filed on Wednesday was the big increase in Hemsley’s potential payout if he’s shown the door — or seeks it out himself.

If he’s fired “without cause” — ie, if he’s laid off or dismissed for poor performance — his total payout has risen 32% to $17.4 million, according to this year’s proxy, from $13.2 million in last year’s proxy. A merger or acquisition could trigger a payment of $18.7 million, up 42%, also from $13.2 million.

And if he retires, also known as walking out the door voluntarily? That now yields a cool $21.9 million, up by a third from $16.5 million last year. (The board would have some discretion over a portion of the payout in some cases.)

The biggest chunk of that is a $10.7 million payout from a special pension arrangement just for Hemsley. But that hasn’t changed since last year. Rather, the secret to the expanding severance lies in his equity awards.

According to last year’s proxy, Hemsley’s departure wouldn’t have triggered any special vesting or maturing of past restricted-stock awards or options. This year, it adds between $3 million and $5.4 million, at Dec. 31 share prices, depending on whether he were to be fired, quit or die. His potential cash severance actually declined — from $2.5 million for a generic layoff, vs. $1.3 million this year, for example — but the acceleration of equity awards more than made up for it. And at “maximum performance,” the proxy tells us, the payout would be as much as $3.5 million higher still

What changed? Two sentences on p. 42 of this year’s proxy give a hint:

“[E]quity 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.”

The 82-page proxy doesn’t appear to spell out just what those “certain conditions” might be, but we think that’s the law-school equivalent of, “All the other kids are doing it.”

Meantime, about those mere retirement benefits the proxy downplays: For Hemsley, the deferred-compensation plan alone is worth $6.6 million, a figure not included in his overall severance numbers.

Image source: Jack Spades via Flickr