UnitedHealth CEO cashes in on big pay gap
One-Percenter of the Week: A new study finds the insurer has by far the largest income spread between its bosses and other employees.
One message from Occupy Wall Street that has resonated around the country is that a growing gap between the rich and everyone else is a threat to our nation’s economic future.
You may disagree with the conclusion, but it's hard to disagree with the premise. A lot of academic work, including research by Emmanuel Saez of the University of California, Berkeley, supports it. And the growing gap is shaping things like retail spending patterns, which show booming sales at high-end retailers, stagnant sales at mass-market stores and booming sales again at the dollar stores at the very low end.
In a study released this week, the compensation research group PayScale has identified the Fortune 50 companies with the widest pay gaps -- the biggest disparities between the top manager's pay and workers' median pay.
The top spot goes to UnitedHealth Group (UNH), the health insurance company led by CEO Stephen Hemsley.
Hemsley made 1,737 times the median pay earned by workers at his company in 2009, according to PayScale's study. That compares to an overall CEO-to-regular-worker pay ratio of just 287 that year, according to the Institute for Policy Studies, a think tank that studies trends in worker pay. It was more than twice the disparity at the No. 2 company on the list, Wal-Mart (WMT), which had a ratio of 717.
Hemsley topped PayScale's list of CEO-to-worker pay disparities at Fortune 50 companies by pocketing $101 million, according to Forbes, whose CEO numbers PayScale used in its study. In contrast, UnitedHealth workers earned a median pay of $58,700, according to PayScale.
PayScale estimated median employee pay levels in various jobs and sectors by using total cash compensation, including bonuses, reported by people responding in online surveys. PayScale's pay estimates for workers are based on 23 million survey responses since 2002.
PayScale used 2009 pay data for Hemsley in its study because that's what Forbes used for its latest pay roundup. But Hemsley's realized pay for 2010 was robust as well, at $48.8 million, according to GMI, an independent provider of corporate governance research. That would work out to a CEO pay ratio of 831 -- and still top the PayScale list.
A UnitedHealth spokesman responds that Hemsley's pay was so high in 2009 because he cashed out a lot of stock options he had held for years, and which were due to expire. This is true. Forbes reports that $98.5 million in Hemsley's pay was from stock gains.
Unitedhealth also responds that Hemsley was able to earn so much on stock options because the company and its stock have performed well, due in part to Hemsley's efforts. He joined the company in 1997 and served as president and then chief operating officer through most of 2006, when he became CEO. Indeed, UnitedHealth stock has more than doubled in the past 10 years -- but after trading above $60 in 2005, shares today are trading below $49.
While $101 million is a lot to earn in any year, it's the gap between he and his workers that stands out. It comes at a time when the overall pay gap is widening in our economy, when household income gains are so meager that median household pay last year returned to levels not seen since 1990s, adjusted for inflation.
For earning so much compared to those who work for him, I’m making UnitedHealth's Stephen Hemsley my second "One-Percenter of the Week."
Related: Read about last week's "One-Percenter of the Week," Eugene Isenberg of Nabors Industries.
At the time of publication, Michael Brush did not own any shares mentioned in this column. Brush is an MSN Money columnist and the editor of Brush Up on Stocks, an investment newsletter.