Forbes magazine reports that William W. McGuire, CEO of UnitedHealth Group) received compensation of $124.8 million in 2005. Managed Care Magazine also says that the average executive compensation (excluding unexercised stock options) for an executive of a ‘top 10 for profit health plan’ was $11.7 million and that was back in 2000.
Are these high salaries a good for the welfare of American citizens?
Liberals would state that this is an outrage. The Dissident Voice website abhors these “robber barons” stating:
William McGuire of UnitedHealth Group, the nation’s leading insurer, was the third-highest paid CEO on the Forbes list. His pay of $124.8 million could cover the average health insurance premiums of nearly 34,000 people….
While workers are having a tougher time making ends meet, CEOs are getting perks worth more than worker paychecks. CEO freeloaders expect perks such as lifetime use of company jets, chauffeured cars, company apartments, club memberships, sports tickets, financial planning, personal assistants and more.
In CEO World, the more money you make, the less you should have to pay for.
BusinessWeek‘s profile of McGuire is much more complimentary. It shows how McGuire has helped increase consumer choice in the marketplace.
When McGuire took over in 1991, UnitedHealth was little more than a regional health-maintenance organization. By trying to offer something for every-body and identifying lucrative niches, McGuire, now 55, has turned it into one of the most diversified health-services companies. If you don’t like the restrictions of an HMO plan, you can sign up for a preferred-provider organization. Belong to AARP? You can sign up for a special drug-discount card…
[McGuire has also] set up a program to track cardiology centers of excellence, so that patients can find the best places for treatment.
Economists generally would not have a problem with the large compensation in a competitive marketplace. Firms who pay executives more than their marginal productivity will lose money and competitors with less expensive CEOs could earn more profits.
McGuire does seem to be a productive CEO; according to Forbes UnitedHealth Group returns are 19% higher than the S&P 500 over his tenure. Further, the majority of McGuire’s compensation was in the form of stock options. With stock options, however, it is dificult to ascertain what amount was given as compensation (amounts below the current value of the stock) and which amount was due to increased productivity which raised the stock price.
So what is the solution? Regulating CEO salaries is not desirable. Shareholders should be the ones who are outraged at the compensation which is cutting into their profits. If the health care insurance market is not competitive, United Health can pass on the cost of McGuire’s salary to consumers. I believe that the health insurance market is very competitive and this is not an option for united health. Thus, the ones who truly suffer from the large CEO salary are United Health shareholders. If citizens wish for a more equitable society, that can be accomplished with a more progressive tax structure. While seeing exorbitant CEO salaries highlights the sad inequitities of society, putting a cap on salaries is not the solution.