Don't Begrudge the Billionaire His Billions

By Dr. Duru written for One-Twenty

April 21, 2006


Uh oh. How could it be? Dr. Duru defending the cause of the filthy rich and fabulously wealthy? OK...hold on. Hear me out for a few minutes. I have watched and heard for days, maybe weeks, all this bellyaching about CEO Dr. William W. McGuire's outlandish stock compensation package from UnitedHealth (UNH). And frankly, I am already tired of it. Now, if the SEC finds foul play, such as back-dating of options, then I will be the first one in line to jeer amongst the gallows. But if the SEC finds no evidence of illegal financial activity, I suspect the complaints about the good doctor's compensation package will continue.

So what irritates me? I am primarily irritated by this notion that the CEO of a health insurance (or any health care company by implication) should not be making money hand over fist at his job. You faithful readers know that I have often bemoaned the plight of the average American worker and have identified the growing gap between those who own capital and those who rely on their meager wages for getting by. Do not fear. I am not turning my back now! But the problem I have is that the folks who are complaining about McGuire's compensation are ignoring the fact that McGuire works for a company that operates to make a profit. According to the rules of this capitalist system, such companies are supposed to make as much money as they can within the rules. The folks who run the public companies have a duty to their shareholders to increase shareholder wealth, and they personally seek to benefit as much as possible from their success at generating this wealth. Dr. McGuire has apparently done all this bigtime - like a big fat baller even! I am not clear on the length of his tenure, but he received stock option grants at least as far back as 1994. At the beginning of 1994, UnitedHealth's (UNH's) stock closed at $4.70. It is now sitting at $50 after having peaked at almost $65 at the end of last year. Folks...that is some SERIOUS wealth generation. Consider McGuire's mission accomplished hand over fist! And note well, the MARKET has CHOSEN to shower this company with these riches. Despite the potential dilution that stock option grants create, the market has consistently driven this copmany's stock price upward for many years. Also note that when the stock began its big run at the beginning of 1989, the stock was around 15 cents. FIFTEEN cents, folks! Now wouldn't it have been nice if we each had socked away, say, $500 every year for the past 15 years in this company? That is a lot of health bills that could get paid even without UNH insurance.

Now, for those of you who do not like this math, I ask you to step up to the plate and take your arguments to their logical conclusions. For example, you think good healthcare is a right of every citizen and no one should be getting this rich from providing this critical service? Hey, then let's nationalize healthcare. Let's turn all these companies into non-profits. Let's cap salaries of all healthcare workers and index raises to inflation. Anyone want to guess what will happen under such a system? But, hey, if we can get the government to run this bonkers healthcare system better, then I am all for it. I just need to see some serious evidence and one well-reasoned case. You don't like public healthcare, but still think millions and billions are too much for anyone to make in this industry? Well, if these profits are truly out-sized, then there should be lots of competitors nipping at UNH's heels offering lower-cost solutions and taking market share. The insurance industry is indeed brutal, but somehow UNH has been a consistent winner. Maybe the government is not encouraging enough competition. Maybe UNH has carved out some kind of special, unassailable niche. I frankly do not know how this company has been able to make so much money, so consistently. But if competitors have not been able to reduce these margins, the only other option left is the government itself. Heck, maybe we want to increase taxes on the rich to help pay for the healthcare that UNH funds. Oops. I forgot. We have been busy reducing the taxes of the rich for years. I guess that idea is a non-starter! Besides we are trying to fix our hot air balloon of a budget deficit by decreasing taxes. Ah, I digress...

So, if taking away the profit-making engine cannot work, let's return to the math. Given that UNH's stock has been rising steadily for so many years, any sale that UNH executives have made of their stock has actually capped their wealth. Sure, maybe the options grants were backdated to low points of the given year, and maybe the execs promptly sold after the stock doubled or tripled. But heck, they could have made MUCH more money simply holding onto their options for much longer. Imagine how much we would be complaining then? And even if the stock option grants were randomly granted in time as they should have been, I strongly suspect many folks would still be complaining about a healthcare CEO worth, say, half a billion, heck, let's even say $300 million, instead of greater than one billion dollars. Is that really more acceptable? Looks like just a matter of degree to me. Sure, most of us do not even know what we would do with a billion dollars, much less $500 million, but don't hate just because you could not figure out how to run a health insurance company and drive its performance so well that the stock market wants to take yourcompany's value to the stratosphere. Figure out how to either join in on the bandwagon (buy some shares!) or hit the pavement with some serious suggestions of reforming the entire system that creates such largesse in the first place. McGuire's proposals to bring executive stock option grants to an abrupt end are silly knee-jerk reactions to public pressure and the heat of being in the media spotlight. Bottom-line...his company will continue to generate lots of profits, lots of cash, and it has to go somewhere...You think it is going to be returned to the system?!? Yeah, right...

Be careful out there...and stay healthy...for the goodness of your own wealth!

DrDuru, 2006