Risk & Compliance

Calpers to Oppose Health-Care Merger

Bonuses, severance payments, and vested stock options totaling more than $600 million are ''beyond the realm of excessive.''
Stephen TaubJune 16, 2004

The California Public Employees’ Retirement System announced that it would oppose the proposed merger of WellPoint Health Networks and Anthem Inc., citing excessive pay packages to be given to top WellPoint executives.

Calpers is calling on other shareowners to oppose the merger, which would create the largest U.S. health insurance company with 27 million members. In addition, the nation’s largest pension fund — which owns 721,840 shares of WellPoint stock and 612,938 shares of Anthem stock — will ask the state Department of Managed Health Care to hold a hearing immediately to determine whether this excessive compensation violates the federal Knox Keene Act.

The pension fund asserted that WellPoint executives can potentially receive bonuses, severance payments, and vested stock options totaling more than $600 million. “This is beyond the realm of excessive,” said Sean Harrigan, president of the Calpers Board of Administration, in a statement. “We oppose this merger because the only ones it will help are the elite corps of senior managers who have structured it in a way that benefits those without any tie to future performance of the future entity.”

Under WellPoint’s “officer change in control” plan, 293 executives are in line to receive huge bonuses, whether or not they stay with the company following the completion of the merger.

A disproportionate share of these payouts would go to a handful of top WellPoint executives, Calpers pointed out. According to the pension fund, chairman and chief executive officer Leonard Schaeffer become chairman of the merged company and will be entitled to $76 million in severance, stock options, and enhanced retirement benefits.

“All this is doing is putting more money in the pockets of management,” said Rob Feckner, chair of the Calpers Investment Committee, “not putting money back into the company to assure the long-term value shareowners require.”