Humana's board moved the goalposts so execs could cash in stock - WDRB 41 Louisville News

Humana's board moved the goalposts so execs could cash in stock awards worth millions

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Humana CEO Bruce Broussard (company photo) Humana CEO Bruce Broussard (company photo)
One of Louisville-based Humana's downtown buildings One of Louisville-based Humana's downtown buildings

LOUISVILLE, Ky. (WDRB) – Bruce Broussard, the chief executive of Louisville-based Humana Inc., was paid about $20 million for the second consecutive year in 2017, the company disclosed last week.

But a closer look at Humana’s latest regulatory filing reveals that about a quarter of Broussard’s haul – or $4.9 million – would not have been earned had the company’s board of directors held firm on its commitment to tie the payout to goals that ultimately weren’t met.

Instead, as it became clear that the company would not hit performance targets first set in 2015, Humana’s board decided to move the goalposts.

The last-minute “adjustment” by the board’s compensation committee allowed Broussard and four other top executives to cash in on $8.4 million in stock awards they otherwise would have left on the table, according to Humana’s annual proxy statement filed last week.

Defending its decision to lower the bar for the “performance-based” stock awards, Humana said its failed merger with rival health insurer Aetna created a “challenging operating environment” while the deal was pending from 2015 to 2017.

But David I. Walker, a Boston University law professor who researches executive compensation, questioned Humana’s after-the-fact change to the performance targets.

“Sometimes things are out of the control of the executives -- sometimes they work to their advantage, sometimes they work to their disadvantage -- but it’s important to set the standards at the beginning and to stick with them for the integrity of the system,” Walker said in a phone interview.

Walker said it would be unheard of for a company to reduce an executive’s bonus because performance goals turned out to be too easy to achieve. Therefore, when goals turn out to be too ambitious, executives shouldn’t get graded on curve, he said.

Roy Dunbar, the former Eli Lilly and Mastercard executive who chairs Humana’s compensation committee, declined an interview, saying through company spokesman Tom Noland that the information disclosed in the proxy filing reflects his views of the subject. Noland said the filing also describes the company's view and declined to comment. 

Humana’s compensation committee approved the adjustment in June 2017, resulting in stock awards valued at $4.9 million for Broussard and a total of $3.5 million for four other senior executives. The awards would not have been earned without the change, the company said in the proxy filing.

Executive Title Total pay, 2017 Bonus after 'adjustment'
Bruce Broussard CEO $19.8 million $4.9 million
Brian Kane CFO $5.7 million  $     867,368
Jody Bilney Chief Consumer Officer $4.7 million  $     867,368
Timothy Huval Chief HR Officer $4.7 million  $     867,368
Christopher Todoroff Chief Legal Officer $4.7 million  $     867,368
Source: Humana 2018 proxy statement

Under the original goals Humana’s board set in February 2015, the awards were tied to Humana’s results on two key metrics: the number of health insurance members added to the company’s rolls; and the company’s return on invested capital, a measure of financial performance.

But when it became clear the company would not meet the goal for “strategic membership growth,” the compensation committee threw out that metric and based the stock awards solely on return on invested capital, according to Humana’s proxy statement.

Humana said its membership growth was “fundamentally impacted” by the failed merger with Aetna, which was pending during two annual enrollment periods during which seniors sign up for Humana’s main product, Medicare Advantage plans, according to the filing.

That and other complications from the Aetna deal made it “challenging” to get “an accurate determination of the true performance” of the company’s efforts to add members, Humana said in the filing.

The filing doesn’t disclose how Humana defines “strategic membership,” but the company covered 14 million people in all as of Dec. 31, up from 13.8 million three years earlier. The “strategic membership” goal set in 2015 contemplated Humana adding at least 584,000 members over the three-year period.

To be sure, despite falling short on membership growth, Humana was a much more valuable company on Feb. 24, when the stock awards vested to the executives, than three years earlier when the awards were granted.

The company’s share price rose by about 65 percent over the three-year-period, compared to a 30 percent rise in the S&P 500 index. Today, Humana is worth about $37 billion on the stock market, more than the $34 billion Aetna would have paid for the company.

Despite missing the target set in 2015, Humana listed “strong membership growth” in Medicare Advantage as one of its main accomplishments in 2017, which it called an “extremely successful year.”

Speaking at an investor conference in Miami on Tuesday, Broussard acknowledged that the failed combination with Aetna affected Humana’s performance while the deal was pending, but he was pleased with how the company bounced back.

“I would say that any company -- good managers try to manage through a merger (but) it’s always a distraction of some type … Considering that we came out, and we came out strong and advanced our strategy in a number of ways in 2017, I feel fortunate that our team was able to do it,” he said.

Reach reporter Chris Otts at 502-585-0822,, on Twitter or on Facebook. Copyright 2018 WDRB News. All rights reserved.

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