April 19


The CEO of Humana had disclosed compensation of $19,768,525. With median employee pay of $57,385 – on the low end for a health service company – the ratio was 344:1.

Many shareholders will likely vote against this package due to the Compensation Committee’s decision to dramatically change the calculations regarding vesting of performance share units. Strategic membership growth was one of two performance metrics included when performance share units were granted in 2015. The metrics were not met – the company has a number of explanations as to why – so the Committee eliminated that metric.

Here’s how it is disclosed: “The Committee determined that the Company’s strategic membership growth would not be considered for purposes of determining the outcome of the performance metrics for the 2015 PSUs, and that the sole metric would therefore be ROIC. As a result of the Committee’s determination and resulting adjustments, the 2015 PSUs vested at 95% of the target level, rather than at a 0% level had the adjustments not been applied. “

The 2016 proxy statement highlights its pay for performance compensation features as an example of “strong corporate governance“ because they are “designed to put a substantial portion of executive pay at risk and dependent upon our financial and strategic performance, to motivate and challenge our executives to achieve positive returns for our stockholders.” This year’s proxy also has similar language: describing elements of compensation that “only have value if certain key performance results are achieved.” They forgot to mention, “or the Compensation Committee decides to change the metrics.”

The point of “performance shares” isn’t to reward executives for their day-to-day work. That element of compensation is known as “salary” (and the CEO makes $1.2 million). After ISS recommended against the compensation, Humana filed a defense of its package. The company says that to allow the PSUs to not vest would have been an “overly punitive result.”  

It isn’t punishment to not get something that wasn’t earned. That some board members and many executives think it is, is the crux of the problem with CEO pay in the United States.

Rosanna Weaver