A New Fortune for the Abdicating Queen of WellPoint
Last year we discussed the abdication of Angela Braly, the former queen of giant insurance company WellPoint. We then speculated about how much she might abscond with. Now the Associated Press has reported:
The compensation paid to outgoing Wellpoint Inc. CEO Angela Braly last year rose 56 percent, even as the company's shares slid on lower enrollment in its Blue Cross Blue Shield health plans.
Braly, who resigned in August, received 2012 compensation valued at $20.6 million, according to an Associated Press analysis of the company's annual proxy statement. Most of the increase came from stock options.
Braly, 51, became CEO in 2007. She received a $1.2 million salary last year, up slightly from $1.1 million in 2011. Her compensation included a performance-related bonus of nearly $1.4 million. More than 85 percent of Braly's compensation came from stock options and awards, which totaled $17.8 million. That total was up from about $10 million the year before.
She also received $179,618 in other compensation, including $3,700 spent on security measures for her and her family due to concerns about her safety 'as a result of the national health care debate,' according to the proxy, which was filed Tuesday with the Securities and Exchange Commission.
Despite Bad Financial Performance and Investors' Losses
Remember, though, that Braly was asked to leave:
investors had grown frustrated with the company's performance, leading Braly to resign last August.
In particular, in terms of financial performance
shares fell 8 percent last year to close 2012 at $60.92, while the Standard & Poor's 500 index rose more than 13 percent.
WellPoint's 2012 earnings were nearly flat compared to 2011. The insurer earned $2.65 billion, or $8.18 per share, last year, as total revenue climbed 1.6 percent to $61.71 billion.
A slightly different analysis by the Indianapolis Business Journal came up with similar results,
WellPoint’s membership growth came mainly from its acquisition of Virginia-based Amerigroup Corp., which operates Medicaid managed care plans for states. The rest of WellPoint’s existing business lost customers during 2012.
And while WellPoint has boosted earnings per share by continuing to buy back shares, overall profit was unchanged last year compared with about $2.6 billion in 2011.
WellPoint raised its dividend in 2012 and acquired 1-800-Contacts Inc. But its stock price fell 8 percent to close the year at $60.92 per share. Even taking into account dividends, WellPoint shares lost 6.3 percent of their value during the year.
So while the nominal owners of the company, the investors, lost money on their investments, the CEO who presided over this loss left with a huge pile of cash.
The Royal Court of WellPoint Also Prospered
Incidentally, the Indianapolis Business Journal also showed that WellPoint executives who did not leave generally got big increases in their compensation, again while the company owners to whom they ostensibly report lost money,
WellPoint Inc.’s top brass all enjoyed double-digit bumps in 2012 compensation, according to a proxy released April 2, even though the stock price fell and the company admittedly did not meet its financial goals.
The Indianapolis-based health insurer’s board of directors approved higher salaries and larger potential stock awards heading into 2012 after most of its top executives saw their pay hold steady or decline in 2011.
The company’s performance merited its executives receiving only 83 percent of their target stock awards. But because the board had already established larger pools of stock to award to executives, the value of those awards still rose over previous years. Bonus amounts fell in 2012 compared with the previous year.
The extra cash and stock drove up Chief Financial Officer Wayne DeVeydt's overall pay 11.9 percent to nearly $4.4 million.
Ken Goulet, executive vice president of WellPoint's commercial insurance business, saw his total compensation rise 18.2 percent to nearly $4.4 million.
And Lori Beer, executive vice president of information technology, enjoyed a 17.9-percent boost. She earned $3.2 million, although that was still below the nearly $4.5 million she received in 2010.
John Cannon, the general counsel, saw his compensation more than double to nearly $6.5 million. But that was partly because WellPoint hiked his salary by $350,000 and gave him a $500,000 bonus for agreeing to serve as interim CEO after the August resignation of former CEO Angela Braly.
Despite Angry Policy-Holders and Ethical Missteps
So the compensation given the outgoing CEO and some of the remaining top hired managers seemed wildly out of proportion to the company's financial results. Could the generosity they received be based on how well the company performed in other dimensions? That, of course, seems equally improbable.
The Los Angeles Times noted,
Braly had also caught the ire of consumers and even President Obama in 2010 for trying to raise rates by up to 39% in California. The national outrage that ensued helped Obama win approval for his healthcare overhaul in Congress.
Furthermore, as we have discussed again and again, most recently here, WellPoint has a very sorry record of ethical misadventures. (The updated list is at the end of this post.) So one could certainly not justify the huge payments given WellPoint hired managers by their upstanding ethical leadership.
Summary
In a new book just published by Robert A G Monks, entitled Citizens Disunited, the author describes one of the biggest problems affecting the US economy and society as the rise of "manager-kings." Clearly, Angela Braly could be called the former "manager-queen" of WellPoint. The company seemed to be run primarily for the benefit of the queen and her court, while its investors lost money, its customers became outraged, and it stumbled from one ethical quandary to another.
In the eighteenth century, British colonial subjects in North America succeeded in a revolution that lead them out from under the rule of a British King. How many examples do we have to have before there is action to repudiate the rule of our new manager-kings and queens? And to turn health care back into a calling meant to put patients' and the public's health first, rather than a feudal society meant to benefit its nobility?
As we have said again, again, again,...
True health care reform would decrease the size and scope of health care organizations, and make their leaders accountable to ownership, when appropriate, and to the community at large for patients' and the public health.
Appendix: WellPoint's Ethical Misadventures
- settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see 2005 post here).
- subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see 2007 story here).
- California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission). The company was ordered to pay a million dollar fine in early 2007 for this (see post here). A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post here). WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post here). It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post here). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post here). In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post here).
- California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contracts (see 2007 post here).
- formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post here).
- announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post here).
- was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see 2009 post here).
- settled charges that it had used a questionable data-base (built by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see 2009 post here).
- violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see 2010 post here).
- exposed confidential data from about 470,000 patients (see 2010 post here) and settled the resulting lawsuit in 2011 (see post here).
- fired a top executive who publicly apologized for the company's excessively high charges (see 2010 post here).
- California Anthem subsidiary was fined for systematically failing to make fair and timely payments to doctors and hospitals (see 2010 post here).
- management was accused of hiding the company's political contributions from the company's own stock-holders (see 2012 posts here and here).
- settled charges that its Anthem subsidiary cheated former policy-holders out of money owed when that company was converted from a mutual insurance company (see 2012 post here)