Compensation for most health plan CEOs rose in 2011 to $87 million in total

Executives in the top spots at the country’s seven largest publicly traded health plans were paid a collective $87 million for their services in 2011.

Cigna CEO David Cordani made the most, at $19.1 million. Humana’s Mike McCallister had the smallest compensation package, with $7.3 million. Health Net CEO Jay Gellert saw the largest pay increase, with a 35% rise in compensation compared with 2010. Most chief executives’ compensation went up, although WellPoint’s Angela Braly saw her compensation fall by 2%, and Coventry Health Care CEO Allen Wise made 5% less in 2011 than in 2010.

The base pay of most CEOs is around $1 million, because of tax rules on executive salaries. But in every case, other financial rewards pushed the total pay packages into the multimillions. In 2011, Cordani made 94 times the average primary care physician’s compensation, using the latest Medical Group Management Assn. figures.

Taking the largest seven shareholder-owned companies as a group, pay packages for the top executives went up $11.1 million, or 14.7%, in 2011 over 2010. In most cases, executive pay rose with shareholder income, but the increases in profit and income were not always proportional. Health Net was restructuring after selling off its East Coast business, and its per-share earnings were down 61% for 2011 compared with 2010. Still, Gellert’s compensation went up 35% in 2011 from 2010.

Most executive pay is dependent on performance and based on complicated formulas described in company filings with the Securities and Exchange Commission.

Under the “say-on-pay” securities rule that took effect in April 2011, the health plans’ shareholders — like shareholders in every other industry — have the power to cast an advisory vote over executive compensation at least once every three years. To date, no health plan shareholder group has rejected a pay package.

Rejections have been very rare across all industries, but the few notable ones, like the one at Citigroup in April, mean investors see they do wield some power, said John Shannon, an Atlanta-based partner in the Employee Benefits and Executive Compensation group at the Alston & Bird law firm.

“When a Citigroup or company of that stature has a failed ‘say-on-pay’ vote, that garners a lot of attention and generally does have an effect,” he said. Even when the vote is less than overwhelmingly in favor of approval, that sends a message to the company’s leadership to tread carefully and talk to investors about compensation, because the company doesn’t want to risk a rejection the next year, he said.

CtW Investment Group, a union-backed shareholder activist organization, sent an open letter to Cigna shareholders on April 3 urging them to reject Cordani’s pay package in part because the company benefited from unexpectedly low health care utilization, and his nonequity incentive pay has been much higher than that of his counterparts at other health plans. According to Cigna’s hometown newspaper, the Hartford Courant, demonstrators showed up outside the company’s annual meeting April 25 in part to protest Cordani’s pay, which was later approved.

In addition to stock options and bonuses, some CEOs continue to benefit from fringe benefits, including use of corporate aircraft, something Cordani, McCallister and Aetna CEO Mark Bertolini all enjoyed.