EXHIBIT 10(b)
UNITEDHEALTH GROUP INCORPORATED
EXECUTIVE INCENTIVE PLAN
SECTION 1. ESTABLISHMENT.
On February 12, 2002, the Board of Directors of UnitedHealth Group
Incorporated, upon recommendation by the Compensation and Human Resources
Committee of the Board of Directors, approved an executive incentive plan for
executives as described herein, which plan shall be known as the "UnitedHealth
Group Executive Incentive Plan." This Plan shall be submitted for approval by
the shareholders of UnitedHealth Group Incorporated at the 2002 Annual Meeting
of Shareholders. This Plan shall be effective as of January 1, 2002, subject to
its approval by the shareholders, and no benefits shall be issued pursuant
thereto until after this Plan has been approved by the shareholders.
SECTION 2. PURPOSE.
The purpose of this Plan is to advance the interests of the Company and
its shareholders by attracting and retaining key employees, and by stimulating
the efforts of such employees to contribute to the continued success and growth
of the business of the Company.
SECTION 3. DEFINITIONS.
When the following terms are used herein with initial capital letters,
they shall have the following meanings:
(a) "Annual Incentive Award" shall have the meaning set
forth in Section 5 hereof.
(b) "Base Salary" shall mean a Participant's annualized
base salary, as determined by the Committee, as of the last day of
September of a Performance Period.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as it may be amended from time to time, and any proposed, temporary or
final Treasury Regulations promulgated thereunder.
(d) "Committee" shall mean the Compensation and Human
Resources Committee of the Board of Directors of the Company designated
by such Board to administer the Plan which shall consist of members
appointed from time to time by the Board of Directors. Each member of
the Committee shall be an "outside director" within the meaning of
Section 162(m) of the Code.
(e) "Company" shall mean UnitedHealth Group Incorporated,
a Minnesota corporation, and any of its subsidiaries or affiliates,
whether now or hereafter established.
(f) "Earnings" shall mean the Company's net earnings
computed in accordance with generally accepted accounting principles as
reported in the Company's consolidated financial statements for the
applicable Performance Period, adjusted to eliminate (1) the cumulative
effect of changes in generally accepted accounting principles; (2)
gains and losses from discontinued operations; (3) extraordinary gains
or losses; and (4) any other unusual or nonrecurring losses which are
separately identified and quantified in the Company's financial
statements, including merger related charges.
(g) "Earnings Per Share" or "EPS" shall mean the
Company's earnings per share computed in accordance with generally
accepted accounting principles, as in effect from time to time, as
reported in the Company's consolidated financial statements for the
applicable Performance Period, adjusted in the same fashion that
Earnings are to be adjusted as provided in Section 3(f) hereof.
(h) "Maximum Annual Incentive Award" shall mean a dollar
amount equal to one percent (1.00%) of the Company's Earnings for the
Performance Period.
(i) "Participant" shall mean any executive officer of the
Company who is designated by the Committee, as provided for herein, to
participate with respect to a Performance Period as a Participant in
this Plan. Directors of the Company who are not also employees of the
Company are not eligible to participate in the Plan.
(j) "Performance Award" shall have the meaning set forth
in Section 6 hereof.
(k) "Performance Period" shall mean (i) for an Annual
Incentive Award, each consecutive twelve-month period commencing on
January 1 of each year during the term of this Plan and coinciding with
the Company's fiscal year; and (ii) for a Performance Award, such
period or periods as shall be specified from time to time by the
Committee.
(l) "Performance Threshold" shall, with respect to Annual
Incentive Awards, mean one or more pre-established, objective
performance goals selected by the Committee with respect to each
Performance Period and which shall be based solely on Earnings Per
Share.
(m) "Plan" shall mean this UnitedHealth Group Executive
Incentive Plan.
(n) "Return on Equity" shall mean the Company's return on
equity computed in accordance with generally accepted accounting
principles, as in effect from time to time, as reported in the
Company's consolidated financial statements for the applicable
Performance Period, adjusted in the same fashion that Earnings are to
be adjusted as provided in Section 3(f) hereof.
(o) "Target Award" shall mean a percentage, which may be
greater or less than 100%, as determined by the Committee with respect
to each Performance Period.
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SECTION 4. ADMINISTRATION.
(a) Power and Authority of Committee. The Plan shall be
administered by the Committee. The Committee shall have full power and
authority, subject to all the applicable provisions of the Plan and applicable
law, to (i) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it deems necessary or advisable for the proper
administration of the Plan, (ii) construe, interpret and administer the Plan and
any instrument or agreement relating to the Plan, and (iii) make all other
determinations and take all other actions necessary or advisable for the
administration of the Plan. Unless otherwise expressly provided in the Plan,
each determination made and each action taken by the Committee pursuant to the
Plan or any instrument or agreement relating to the Plan (x) shall be within the
sole discretion of the Committee, (y) may be made at any time and (z) shall be
final, binding and conclusive for all purposes on all persons, including, but
not limited to, Participants and their legal representatives and beneficiaries,
and employees of the Company.
(b) Determinations Made Prior to Each Performance Period. At any
time ending on or before the 90th calendar day of each Performance Period, the
Committee shall:
(i) with respect to Annual Incentive Awards, (A)
designate all Participants and their Target Awards for such Performance
Period, and (B) establish one or more Performance Thresholds, based
solely on EPS; and
(ii) with respect to Performance Awards, (A) designate all
Participants, their target and maximum awards for such Performance
Period, and (B) establish the objective performance factors for each
Participant for that Performance Period on the basis of one or more of
the criteria set forth in Section 6(a) below.
(c) Certification. Following the close of each Performance Period
and prior to payment of any amount to any Participant under the Plan, the
Committee must certify in writing:
(i) with respect to Annual Incentive Awards, (A) the
Company's Earnings and EPS for that Performance Period and (B) as to
the attainment of all other factors upon which any payments to a
Participant for that Performance Period are to be based; and
(ii) with respect to Performance Awards, as to the
attainment of all factors (including the performance factors for a
Participant) upon which any payments to a Participant for that
Performance Period are to be based.
SECTION 5. ANNUAL INCENTIVE AWARDS.
From time to time, the Committee may grant annual incentive awards
under the Plan payable to Participants in cash (an "Annual Incentive Award").
Annual Incentive Awards shall be granted in accordance with the following
provisions:
(a) Formula. In the event that the Company's EPS for a Performance
Period is equal to or exceeds a designated Performance Threshold for that
Performance Period, then each Participant shall receive an Annual Incentive
Award for that Performance Period in an amount not greater than
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(i) the Participant's Base Salary for the Performance
Period, multiplied by
(ii) the Participant's Target Award for the Performance
Period;
provided, however, that in the event that the Company's EPS for a Performance
Period exceeds the highest designated Performance Threshold for that Performance
Period, then each Participant shall receive an Annual Incentive Award for that
Performance Period in an amount not greater than the Maximum Annual Incentive
Award for that Performance Period.
(b) Limitations.
(i) Discretionary Reduction. The Committee shall retain
sole and full discretion to reduce by any amount the Annual Incentive
Award otherwise payable to any Participant under this Plan.
(ii) Continued Employment. No Annual Incentive Award shall
be paid to a Participant who is not actively employed by the Company at
the time the Annual Incentive Award otherwise would be paid except in
the case of retirement, death or permanent disability. If a Participant
retires before the end of a Performance Period or after the end of a
Performance Period but before an Annual Incentive Award is paid, the
Committee may, in its discretion, determine that the Participant shall
be paid a pro rated portion of the Annual Incentive Award that the
Participant would have received but for such retirement. If a
Participant dies or becomes permanently and totally disabled before the
end of a Performance Period or after the end of a Performance Period
but before an Annual Incentive Award is paid, the Committee may, in its
discretion, determine that the Participant (or, in the case of death,
the Participant's estate) shall be paid a pro rated portion of the
Annual Incentive Award that the Participant would have received but for
such death or disability. The Committee shall determine the
Participant's date of disability in a manner consistent with Company
practices.
(iii) Maximum Payments. No Participant shall receive an
Annual Incentive Award under this Plan for any Performance Period in
excess of the Maximum Annual Incentive Award for that Performance
Period.
(c) Payment of Annual Incentive Award. Subject to any deferred
compensation election pursuant to any such plans of the Company applicable
hereto, benefits shall be paid to the Participant in cash as soon as
administratively feasible upon the completion of a Performance Period, after the
Committee has certified that the Performance Threshold has been attained,
determined the Maximum Annual Incentive Award for that Performance Period and
made the other certifications provided for in Section 4(c)(i) hereof.
SECTION 6. PERFORMANCE AWARDS.
From time to time, the Committee may grant Performance Awards under the
Plan payable in cash or in shares of the Company, other securities or other
property (a "Performance Award"). Performance Awards that are payable in shares
of the Company, other securities or other property shall be payable pursuant to
the UnitedHealth Group Incorporated 2002 Stock Incentive Plan. Performance
Awards shall be "qualified performance-based compensation"
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within the meaning of Section 162(m) of the Code. Notwithstanding any other
provision of this Plan to the contrary, the following additional requirements
shall apply to all Performance Awards made to any Participant under this Plan:
(a) Business Criteria. The business criteria to be used for
purposes of establishing performance goals for Performance Awards, the
attainment of which may determine the amount and/or vesting with respect to
Performance Awards, will be selected from the following alternatives (unless
and until the Committee proposes for shareholder approval and the Company's
shareholders approve a change in such criteria), each of which may be based on
absolute standards or comparisons versus specified companies or groups of
companies and may be applied at individual or various organizational levels
(for example, the Company as a whole or identified business units, segments or
the like): revenue growth, Return on Equity, operating cash flows, Earnings per
Share, and operating margin.
In the event that Code Section 162(m) or applicable tax and/or
securities laws change to permit Committee discretion to alter the governing
performance measures without disclosing to shareholders and obtaining
shareholder approval of such changes and without thereby exposing the Company to
potentially adverse tax or other legal consequences, the Committee shall have
the sole discretion to make such changes without obtaining shareholder approval.
(b) Target and Range; Maximum Performance Award. The target and
range of a Participant's possible Performance Awards established by the
Committee shall be between zero and 300% of the Participant's average base
compensation. For this purpose, average base compensation shall be the
Participant's total salary earned during the applicable Performance Period (or
such lower amount as determined by the Committee) divided by the number of years
in the Performance Period. The maximum bonus which may be paid to any
Participant pursuant to any Performance Award with respect to any Performance
Period shall not exceed $10,000,000.
(c) Payment of Performance Awards. Performance Awards shall be
paid no later than three months following the conclusion of the applicable
Performance Period. The Committee may, in its discretion, reduce the amount of a
payout otherwise to be made in connection with a Performance Award, but may not
exercise discretion to increase such amount. If permitted by applicable law,
payments of Performance Awards may be deferred into the Company's Executive
Savings Plan in accordance with rules established by the Committee.
(d) Certain Events. No Performance Award shall be paid to a
Participant who is not actively employed by the Company at the time the
Performance Award otherwise would be paid except in the case of retirement as
provided for in (e) below, death or disability as provided for in (f) below, or
in the event of a Change in Control as provided for in (g) below.
(e) If a Participant retires before the end of a Performance
Period or after the end of a Performance Period but before a Performance Award
is paid, the Committee may, in its discretion, determine that the Participant
shall be paid a pro rated portion of the Performance Award that the Participant
would have received but for such retirement. In such event, (i) the pro
rationing shall be based on the portion of such Performance Period prior to the
Participant's retirement, and (ii) the measurement of Company and Participant
performance shall be based on
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performance through the end of the fiscal year of the Company which ends closest
to the Participant's date of retirement. The Committee shall determine the
Participant's date of retirement in a manner consistent with Company practices.
Any such pro rated Performance Award shall be paid at the same time as other
Performance Awards with respect to the applicable Performance Period.
(f) If a Participant dies or becomes permanently and totally
disabled before the end of a Performance Period or after the end of a
Performance Period but before a Performance Award is paid, the Committee may, in
its discretion, determine that the Participant (or, in the case of death, the
Participant's estate) shall be paid a pro rated portion of the Performance Award
that the Participant would have received but for such death or disability. In
such event, (i) the pro rationing shall be based on the portion of such
Performance Period prior to the Participant's date of death or disability, and
(ii) the measurement of Company and Participant performance shall be based on
performance through the end of the fiscal year of the Company which ends closest
to such date. The Committee shall determine the Participant's date of disability
in a manner consistent with Company practices. Any such pro rated Performance
Award shall be paid at the same time as other Performance Awards with respect to
the applicable Performance Period.
(g) If a Change in Control (as defined below) occurs during a
Performance Period or after the end of a Performance Period but before a
Performance Award is paid, the Company or its successor shall pay each
Participant a pro rated portion of the maximum Performance Award for which such
Participant is eligible with respect to each such Performance Period. Such pro
rationing shall be based on the proportion of each such Performance Period
through the date of such Change in Control. Any such Performance Awards shall be
paid within 90 days of the occurrence of the event constituting such Change in
Control, or, if a timely deferral election is then in effect, shall be deferred
into the Company's Executive Savings Plan. Any such Performance Award shall be
paid regardless of whether the Participant is actively employed by the Company
at the time the Performance Award is to be paid.
"Change in Control" means the occurrence of any of the following events:
(i) The acquisition by any person, entity or "group,"
within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, other than the Company or any of its affiliates,
or any employee benefit plan of the Company and/or one or more of its
affiliates, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 20% or more
of either the then outstanding shares of the Company's Common Stock or
the combined voting power of the Company's then outstanding voting
securities in a transaction or series of transactions not approved in
advance by a vote of at least three-quarters of the Continuing
Directors (as hereinafter defined).
(ii) Individuals who, as of January 1, 2002 constitute the
Board of Directors of the Company (generally the "Directors" and, as of
January 1, 2002, the "Continuing Directors") cease for any reason to
constitute at least a majority thereof (provided that any person
becoming a Director subsequent to January 1, 2002 whose nomination for
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election was approved in advance by a vote of at least three-quarters
of the Continuing Directors (other than a nomination of an individual
whose initial assumption of office is in connection with an actual or
threatened solicitation with respect to the election or removal of the
Directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Securities Exchange Act of 1934) shall be
deemed to be a Continuing Director).
(iii) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, liquidation or dissolution of
the Company or of the sale (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company
other than a reorganization, merger, consolidation, liquidation,
dissolution or sale approved in advance by a vote of at least
three-quarters of the Continuing Directors.
(iv) The first purchase under any tender offer or exchange
offer (other than an offer by the Company or any of its affiliates)
pursuant to which shares of the Company's Common Stock are purchased.
(v) At least a majority of the Continuing Directors
determine in their sole discretion that there has been a change in
control of the Company.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in the Plan:
(a) Amendments to the Plan. The Committee may amend this Plan
prospectively at any time and for any reason deemed sufficient by it without
notice to any person affected by this Plan and may likewise terminate or curtail
the benefits of this Plan both with regard to persons expecting to receive
benefits hereunder in the future and persons already receiving benefits at the
time of such action, provided, however, that Section 6(g) of this Plan shall not
be amended, or its benefits terminated or curtailed, with respect to any
Performance Period during which a Change in Control occurs, occurred, or is
anticipated to occur.
(b) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent it shall deem desirable to carry the
Plan into effect.
SECTION 8. NONTRANSFERABILITY.
Participants and beneficiaries shall not have the right to assign,
encumber or otherwise anticipate the payments to be made under this Plan, and
the benefits provided hereunder shall not be subject to seizure for payment of
any debts or judgments against any Participant or any beneficiary.
Section 9. TAX WITHHOLDING.
In order to comply with all applicable federal or state income, social
security, payroll, withholding or other tax laws or regulations, the Committee
may establish such policy or policies
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as it deems appropriate with respect to such laws and regulations, including
without limitation, the establishment of policies to ensure that all applicable
federal or state income, social security, payroll, withholding or other taxes,
which are the sole and absolute responsibility of the Participant, are withheld
or collected from such Participant.
SECTION 10. SHAREHOLDER APPROVAL.
The material terms of this Plan shall be disclosed to and approved by
shareholders of the Company in accordance with Section 162(m) of the Code. No
amount shall be paid to any Participant under this Plan unless such shareholder
approval has been obtained. No award under this Plan shall be granted more than
five years after the Company's 2002 annual meeting of shareholders unless
shareholders have re-approved the Plan to the extent required by Section 162(m)
of the Code.
Section 11. MISCELLANEOUS.
(a) Effective Date. This Plan shall be deemed effective, subject
to shareholder approval, as of January 1, 2002.
(b) Headings. Headings are given to the Sections and subsections
of the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(c) Applicability to Successors. This Plan shall be binding upon
and inure to the benefit of the Company and each Participant, the successors and
assigns of the Company, and the beneficiaries, personal representatives and
heirs of each Participant. If the Company becomes a party to any merger,
consolidation or reorganization, this Plan shall remain in full force and effect
as an obligation of the Company or its successors in interest.
(d) Employment Rights and Other Benefit Programs. The provisions
of this Plan shall not give any Participant any right to be retained in the
employment of the Company. In the absence of any specific agreement to the
contrary, this Plan shall not affect any right of the Company, or of any
affiliate of the Company, to terminate, with or without cause, any Participant's
employment at any time. This Plan shall not replace any contract of employment,
whether oral or written, between the Company and any Participant, but shall be
considered a supplement thereto. This Plan is in addition to, and not in lieu
of, any other employee benefit plan or program in which any Participant may be
or become eligible to participate by reason of employment with the Company. No
compensation or benefit awarded to or realized by any Participant under the Plan
shall be included for the purpose of computing such Participant's compensation
under any compensation-based retirement, disability, or similar plan of the
Company unless required by law or otherwise provided by such other plan.
(e) No Trust or Fund Created. This Plan shall not create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any affiliate and a Participant or any other
person. To the extent that any person acquires a right to receive payments from
the Company or any affiliate pursuant to this Plan, such right shall be no
greater than the right of any unsecured general creditor of the Company or of
any affiliate.
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(f) Governing Law. The validity, construction and effect of the
Plan or any incentive payment payable under the Plan shall be determined in
accordance with the laws of the State of Minnesota.
(g) Severability. If any provision of the Plan is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction, such
provision shall be construed or deemed amended to conform to applicable laws, or
if it cannot be so construed or deemed amended without, in the determination of
the Committee, materially altering the purpose or intent of the Plan, such
provision shall be stricken as to such jurisdiction, and the remainder of the
Plan shall remain in full force and effect.
(h) Qualified Performance-Based Compensation. All of the terms and
conditions of the Plan shall be interpreted in such a fashion as to qualify all
compensation paid hereunder as "qualified performance-based compensation" within
the meaning of Section 162(m) of the Code.
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