Sacramento Bee (California)
SAN DIEGO — Accusing health-care executives of “fleecing the shareowners,” trustees of the California Public Employees’ Retirement System on Monday urged PacifiCare Health Systems and UnitedHealth Group to rework an executive pay plan
before moving forward with their proposed $8.1 billion merger.
The board also called on the Department of Managed Health Care to consider holding up state approval until the companies reduce the $345 million compensation package.
“They’re doing a great job of fleecing the shareowners. We need to go ahead and take a strong stand,” Charles Valdes, Investment Committee chairman, said during the board’s annual Southern California meeting on Monday.
The move, approved on a 7-4 vote, came despite a CalPERS financial analysis that estimates the merger would boost the companies’ stock value by $5 billion. CalPERS, the nation’s largest public pension fund with $196 billion in assets, owns 423,100 shares of PacifiCare and more than 7.2 million shares of UnitedHealth.
Trustees Ron Alvarado, Marjorie Berte, Michael Navarro and Tony Oliveira cited the financial windfall and opposed efforts to redo the compensation plan.
“This team of people — created a tremendous value to the shareowners. I’d pay $345 million every day if we create $5 billion shareowner value,” Alvarado said.
Tyler Mason, a spokesman for Orange County-based PacifiCare, said the company has been upfront publicly with its financial deal and has been ready to meet with pension fund leaders. The executive compensation agreements, including stock options, were worked out well before the merger and were designed to attract and retain top executives to help turn around Pacificare in the early 2000s.
“There’s nothing that isn’t disclosed. We’re willing to meet and clarify the situation,” Mason said. “CalPERS will be well-served by the PacifiCare-UnitedHealth merger.”
State regulators are reviewing the proposal by Minnesota-based UnitedHealth, the nation’s second largest health plan, to join forces with PacifiCare, the No.5 health insurer in the state with about 700,000 members, including roughly 100,000 in the Sacramento region. The combined company would have about 25 million members, second only to WellPoint Inc.
“Compensation levels are part of the overall review,” said Lynne Randolph, spokeswoman for the managed health agency.
Last year, Insurance Commissioner John Garamendi blocked state approval of Wellpoint’s giant merger with Anthem Inc. because of a $600 million payout to top executives. He dropped his opposition after the companies agreed not to raise premiums to finance the deal and to spend $265 million on state health
Mason, though, said the PacifiCare deal is different and would fuel competition in the state. Moreover, he said, executives would have earned more than 80 percent of the payouts even without the deal.
After analyzing the UnitedHealth deal, CalPERS investment officials said the merger could generate up to $345 million in bonuses, severance pay and accelerated stock options to the top 39 PacifiCare officers.
Last month, state Treasuer Phil Angelides vowed to use the investment clout of CalPERS and the California State Teachers’ Retirement System to toss out the PacifiCare compensation agreement. Angelides is a trustee of CalPERS and CalSTRS, which own a combined $560 million stake in the two health-care companies.
“CalPERS sent the right message,” Angelides said Monday. “There is no justification for accelerating the options. There is no justification for signing bonuses for (executives) to stay with the company.”
State Controller Steve Westly, a trustee of both funds, also has questioned the merger. “Much of that $ 300million should go to the shareholders who truly own the companies and to consumers who are burdened with skyrocketing health-care costs,” he said in a statement.
One consumer group, the Foundation for Taxpayer and Consumer Rights in Santa Monica, is counting on CalPERS’ stand to pressure regulators to get concessions out of the health-care companies, as happened in the WellPoint deal. The group also called on the governor to return a $78,000 campaign contribution before his state agency acts on the merger.
“When the state’s largest purchaser of health-care acts, regulators should listen,” said Jerry Flanagan, health-care policy director for the foundation.