BUSINESS

Extreme payoff: What CEOs get when they leave is a real eye-opener

Regulators and physicians are paying more attention to managed care executives who receive "golden parachutes" after mergers.

By Robert Kazel, AMNews staff. Aug. 23/30, 2004.

The high salaries of managed care executives have stirred controversy and caused consternation among doctors. But what's getting some regulators and physicians even more upset these days are the enormous sums insurance chieftains are being paid not to work.

As the consolidation of the health insurance industry has continued, top executives have benefited from golden parachutes, provisions in their compensation contracts that guarantee bonuses and benefits should their company ever be acquired by another. Or they've gotten golden handcuffs, which are essentially the same thing, except that the executive stays, often in a reduced role.

These frequently sizeable severance packages could include cash, stock grants and options, pension bonuses, insurance benefits and other perks that ostensibly help ease the pains of separation from the executive suite. These payouts occur in all industries, but those in the health insurance sector appear to be coming under fire in particular.

"Margins in the managed care world are extremely tight, and to know that their money is being tossed around in the millions just baffles me," says Brian Kelley, a partner in Ray and Berndtson, a New York consulting and executive search firm. "It's a terrible statement that we have these payouts to these senior leaders. We need to treat this as the crisis that it is."

Because of the magnitude of acquisition-related payouts, state regulators charged with reviewing mergers are, in some cases, scrutinizing deals like never before.

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