
Aetna CEO Set to Reap About $500M If CVS Deal Closes - mudil
https://www.wsj.com/articles/aetnas-outgoing-ceo-set-to-reap-about-500-million-if-cvs-deal-closes-1512480623
======
aaavl2821
These are just sort of nitpicky comments, but I think in this case they
matter:

* most of this is due to appreciation of stock appreciation rights (an instrument similar to a stock option) he already owns that is already vested ($230M)

* $190M is from common stock he currently owns

* he gets $60-85M as part of a change of control package, which is triggered if he is fired after CVS takes over. this is a standard clause in most contracts

* overall, his package is worth so much because his equity became more valuable over the course of his tenure. any employees who got options at the same time as he did would benefit from most of this as well

so these gains did not come from profits, rather appreciation in the equity of
the company during his tenure. it would be hypocritical to praise startup
founders from reaping capital gains while admonishing this ceo

edit: formatting

~~~
prklmn
> so these gains did not come from profits, rather appreciation in the equity
> of the company during his tenure. it would be hypocritical to praise startup
> founders from reaping capital gains while admonishing this ceo

Why do you think the equity went up in value? It’s because of profit driven -
valuations and profitability usually go hand in hand. The difference between
Aetna and most startups is the business of Aetna adds no value to the
economy/society, it’s a value suck.

~~~
aaavl2821
i disagree. point by point:

* from 2014-2016, aetna's revenue has increased by 9%, its net income by 10%, and its stock price by 82%. i didnt check all the way back to the beginning of the current ceo's tenure, but id imagine it is a similar trend. stock prices and profitability are not as well correlated as wed like to think

* why do you say aetna adds no economic value to society? i understand if you have a high deductible plan with high premiums, it seems like health insurance is evil, but insurance companeis are required to pay out like 80% of the premium revenue they receive as medical benefits. so aetna pays something like $50B a year to pay for people's surgeries, child birth, medications, hospital stays, etc

if you dont think health insurance is valuable youve never been really sick

~~~
itamarst
Health care is valuable. Health insurance is mostly a scam in the US, a way
for insurance companies to take a cut without adding any value.

Talk to someone who has lived in countries with socialized medicine (as I
have): other countries systems' aren't perfect, but they deliver better
results, with less money, and without insurance companies taking massive
profits for doing nothing but denying claims.

Full disclosure: health insurance company once repeatedly refused to pay $5000
bill to lab. When I finally said "I'd like to file a grievance" they magically
discovered a "coding error" and the bill was paid.

~~~
aaavl2821
health insurance companies are not perfect, but id argue they are more a
product of the imperfections of the us healthcare system than a cause of the
imperfections

private health insurance is needed as we do not have public insurance for
everyone. even in countries like the UK, which tend to have better outcomes
and lower cost, private health insurance exists. it gives people more options
if they are willing to pay and can afford it

health insurance companies are easy to scapegoat, but in reality they are not
usually price gouging, but usually only responding to cost increases by
hospitals and health systems. health insurance companies under the ACA must
pay out 80% of premium revenues as medical claims. when you add administrative
costs, health insurance companies have a structural profit ceiling of like 5%.
however increasingly consolidated providers are getting more pricing power and
charging more, so the insurance companies have to increase premiums or lower
costs (claim denials) to protect their structurally thin margins

insurance companies certainly do terrible things like not paying things and
literally inventing coding errors to deny payment. however, in many cases this
is mitigated by the healthcare provider taking assignment of insurance and
dealing with all this on your behalf. although insurance companies can and do
make life harder for docs and influence behavior. but even in countries with
"socialised medicine" doctors are influenced (perhaps more strongly) by
payers.

tldr, dont hate the player hate the game

~~~
prklmn
Ask yourself this question - how do insurance companies in general add value?
Forget payout for a moment. Their value is added in deciding what rates to
charge people, and determining if a claim is valid, that's it. Anything else
they do is value subtraction. Their profit drivers come from raising premiums
and denying more claims, both things kill value. You make a good point about
providers consolidating, and the same point should be made about health
insurance companies consolidating.

~~~
nugget
Health insurance companies recruit providers (hospitals and physicians),
negotiate prices for services, manage patient records and billing, detect,
prevent, and prosecute provider fraud, determine market prices based on their
predicted population of insured live, and other random tasks. It's a stretch
to call this no value add, in my opinion. We can, and should, compare the
efficiency of medicare administration to private insurance administration, and
study the best practices of each system. Even in countries with state-
sponsored universal healthcare, like the UK, there are robust private health
insurance systems, which indicates to me that they offer value to consumers
and fill some market need.

------
ryanwaggoner
Well, he led the company while its value went from $10 billion to $69 billion
in 7 years. Doesn't seem ridiculous.

~~~
chasing
Yes it does.

Aetna employees almost 50,000 people.

Aetna owes some success to their CEO. They owe most of their success to their
employees.

~~~
bkanber
I'm all for taxing the rich and compensating workers fairly.

But:

\- Had the company declined, the CEO would have gotten all the blame and been
crucified. Can't give blame if you can't also give credit.

\- The CEO negotiated this deal, the employees did not.

\- A good portion of this $500M is from the value of his stock, which is part
of his compensation. I don't know the percentage of this payout that comes
from stock (WSJ paywall...), but we certainly can't take stock AWAY from him
to reduce his payout.

\- Employees who have cashed in their options will also make money from this
deal. Other stockholders will make money too.

Again -- I am NOT condoning our American trend of over-paid CEOs. More money
in the working class is good for the economy. But this event specifically is
not ridiculous.

~~~
Nrsolis
Something I find curious is the degree to which HN seems to want to break out
the torches and pitchforks when a CEO profits handsomely by increasing
shareholder value. There doesn't seem to be the same animus towards ordinary
developers becoming millionaires in a few short years by getting lucky and
landing at the right unicorn startup pre-IPO.

CEOs interests are aligned perfectly in this situation: increase shareholder
value. The vast bulk of CEO pay is derived from the stock that's granted to
them and vested over time just like it would be for any employee that received
RSUs or stock options.

I don't quite grok the idea that employees with no ownership stake in the
company are somehow owed a share of the capital gain when they've got no
capital of their own at risk.

A big part of my compensation is commission and another big part is RSUs. If I
don't deliver results and if I don't align my goals with that of the major
shareholders and the market, I don't make as much money. I don't see how this
contravenes the startup/get-rich zeitgeist here in HN.

Capitalism for me but not for thee?

~~~
pg314
> CEOs interests are aligned perfectly in this situation: increase shareholder
> value.

That is wrong. The CEO's risk is asymmetric. Huge upside with limited
downside, which encourages reckless risk taking. It is also shorter term
(until his grants vest), encouraging short term profit over long term value.

> I don't quite grok the idea that employees with no ownership stake in the
> company are somehow owed a share of the capital gain when they've got no
> capital of their own at risk.

Is the CEO not an employee? Why would he be owed a share of the capital gain,
and other workers not?

~~~
Nrsolis
His risk isn't asymmetric. He (or she) has got to justify their job each and
every quarter to the investors. A couple of bad quarters and you can expect
the shareholders to be looking for a scalp and it's usually the CEO.

I think you maybe underestimate the job market for senior executives. It's not
like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes
they land a new gig. A lot of the times they don't.

I'd also suggest you try the job of leading people and groups of that size.
There are very few who can do this sort of work effectively.

Also consider that a CEO has to consider the types of challenges he or she
would like to tackle. A Board of Directors is shopping for talent and trying
to get the right fit. Why does a CEO not get the same opportunity to negotiate
a pay package?

~~~
s73ver_
"His risk isn't asymmetric. He (or she) has got to justify their job each and
every quarter to the investors. A couple of bad quarters and you can expect
the shareholders to be looking for a scalp and it's usually the CEO."

But what actual risk is the CEO taking? Sure, the board might decide to let
them go. But that usually comes with a multi-million dollar severance package.
They're not hurting. There is no practical downside. On the other hand,
someone who gets laid off because of the company tanking does get hurt,
through no fault of their own.

"I think you maybe underestimate the job market for senior executives. It's
not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes
they land a new gig. A lot of the times they don't."

They land on their feet more often than not. And, again, they're not hurting
for money. If they don't find another job, their children are not going to go
hungry.

~~~
Nrsolis
If you got fired from a job that had a potential $500M payday attached to it
and only got a $25M severance package at the end of it, trust me, you'd be
pretty bummed about it. Go looking for CEOs that got fired and see where they
landed. it's one and done for a lot of them.

Again, there is no room for socialist populism here. He negotiated a package
and he delivered results. His interests as a CEO are aligned with the
shareholders who risk their capital with ownership of the company. They trust
the board and the CEO to increase the value of their investment.

Why is this controversial? Why does it matter if he's rich before or after he
does the job? All of these guys are already wealthy before they even sign up.
They don't need to do this work to survive.

Somehow the notion seems to go around that anyone who makes a boatload of
money suddenly has to kowtow to the public on whether or not they deserve that
money. That's not how this works.

~~~
pg314
> If you got fired from a job that had a potential $500M payday attached to it
> and only got a $25M severance package at the end of it, trust me, you'd be
> pretty bummed about it.

Trust me, I wouldn't be. I pity the person who is bummed to have only $25M.

> He negotiated a package and he delivered results. His interests as a CEO are
> aligned with the shareholders who risk their capital with ownership of the
> company. They trust the board and the CEO to increase the value of their
> investment.

Ever tried getting a CEO's compensation reduced as a shareholder? Warren
Buffett describes it as follows: "the deck is stacked against investors when
it comes to the CEO’s pay" [1].

[1]
[http://www.berkshirehathaway.com/letters/2005ltr.pdf](http://www.berkshirehathaway.com/letters/2005ltr.pdf)

~~~
jimbokun
That is outstanding reading. Like the closing quote of that section:

"Though I have served as a director of twenty public companies, only one CEO
has put me on his comp committee. Hmmmm . . ."

Everyone in this thread claiming CEOs usually "earn" their compensation needs
to read this and explain why Buffet's arguments are wrong.

(Not because it's Buffett, because his arguments are well thought out and
reflect a lot of personal experience with the topic.)

------
gxs
I know it's foolish to compare myself to the top 0.01%, but every year it
seems like I fall further behind.

Athletes used to make tens of millions of dollars. Nowadays some retire with
over a billion dollars of lifetime earnings.

CEOs used to make what? It was common to hear 20-25MM a year, today that
number seems ridiculously low.

I know staff on professional sports teams, low men on the totem pole, who make
quarter million dollar bonuses.

I realize these are one off examples that aren't common, but they make the gap
seem so large.

~~~
southphillyman
I use increasing athlete salary as an easy analogy to help ppl understand
wealth disparity in this country. Micheal Jordan once made $4 million dollars
in the prime of his career. Today Steph Curry can sign a $200 million deal in
2017 because that amount is nothing to his owner. Russell Westbrook signed a
$200 million NBA extension to go with his $200 million sneaker endorsement
this summer. Sounds crazy if you've been following sports. Their salaries
aren't out of control though, it just seems that way because our wages are
stagnant due to having none of the leverage athletes have via unions/skillset.
Athlete salary has grown in proportion to the wealth they help generate, most
of our salaries have not.

~~~
gxs
Exactly - you articulated what I was trying to say better than I did.

------
dmode
Give him some tax cuts to go with it

~~~
mudil
Republican tax cuts are targeting small businesses and the middle class. Nice
try

~~~
nathantotten
I know this is off topic from this thread, but I’m honestly curious as to why
you think this. What evidence exists to support your statement?

Normally, I would just assume this type of comment is simply trolling, but I
looked at your profile and it seems you are a real person with generally
intelligent comments so now I’m curious.

~~~
mudil
I didn't read the budget, and likely you didn't read it too. We can't do all
things at the same time, so we have experts to take care of things. (Say, you
get a CT scan, you are not going to view it and interpret it, your radiologist
will.) The same with the budget: I trust the president and the Republicans, as
I take their word for it.

~~~
maxxxxx
"I trust the president and the Republicans, as I take their word for it."

That's a bad strategy for a citizen in a democracy. If you blindly believe a
party or politician you can't make educated choices.

~~~
mudil
Nobody does blindly anything. We make choices, and that is my choice. I trust
the Republicans in Congress, and I am happy with their legislative agenda.
Let's respect each other choices, and not denigrate anyone for being
politically blind. We all have brains, personalities, education, and we all
deserve respect.

~~~
maxxxxx
Did you do any reading about the budget? I haven't read the whole thing but it
seems pretty obvious to me that main benefits will go to the highest incomes
and corporations and only a small percentage to the middle class. Unless you
define middle class as people with net worth in the millions.

------
ethagknight
It helps to understand the breakdown of how he got to this level of benefit.
My guess: it doesn't sound like he just gets a $0.5B payout at close, but
instead its the value of his Aetna holdings after close + his termination
contract. To break it down, say he gets option for 300,000 shares at $30/share
($9mm) each year over the last 7 yrs, and the company stock price has gone
from $30 to $207 per share, with steep ramp in price at the end of his reign,
he is left with 2.1mm shares worth $177 more per share than he paid for them,
netting him $370,000,000. His change in control contract is worth $85mm,
bringing him to $450mm. Right or wrong, it makes more sense when broken down.

Disclaimer: I know very little about whats normal in stock options and
executive pay, but a $10mm/yr salary for a man serving as CEO and chairman of
a $70B company doesn't seem as far fetched as the $500mm total comp makes it
sound

------
Kyragem
Oligarchy at its best: Aetna/CVS workers mostly making minimum wage and doing
all the work while the CEOs earning insane paychecks. Would this guy really be
worse off if he only made 50M and the other 450M would go to the employees?

~~~
elvirs
would you accept $50 bonus and $1 to each of your 450 covorkers if you were
set to receive $500 bonus instead?

~~~
sverhagen
Interesting how that question is phrased.

Would you accept $50 (million dollar)? Hell yeah.

What would you choose between $50 and $500. Maybe $500, not sure if I could
live with myself, but I can see how some people would.

But why is $500 even on the table? Why isn't someone (a board, a shareholders'
meeting) telling this guy: $50 (million) should be enough.

~~~
elvirs
because that bonus is based on how much he saved or made for that company.
he/she must have saved/made the company at least 3 times as much and was
promised the bonus by that same board if he achieves the goal. board does not
gift him the bonus, board owes him.

------
ericd
I wonder if there's a reasonable way to normalize the value of stock incentive
packages, such that they only become worth outsized amounts if you actually
outperform the other companies in your sector. That way, they can't just ride
a bull market to a massive payday, and similarly, a bear market doesn't
automatically destroy their compensation.

------
dmode
Not sure if people know, but corporate compensation is rigged in the US. It is
mostly determined by a compensation committee appointed by the board, and
consisting of members of the same oligarchy. By contrast, CEOs in other
countries don't make such obscene numbers

~~~
bkanber
> By contrast, CEOs in other countries don't make such obscene numbers

By contrast, _companies_ in other countries don't make such obscene numbers.
Don't forget that our economy eclipses everyone else's. Our economy is on par
with the entire EU's, and is still larger than China's which has several times
our population.

------
yequalsx
Whatever your politics that $500 million comes from profit in healthcare.
Aetna has an economic incentive to denvy as much care as they can. That $500
million to one person is part of the overall cost of healthcare in the U.S. Is
this really money well spent on healthcare?

~~~
sitkack
More importantly, that 500M was money siphoned away from healing people. This
is a share of the reward in not healing the sick.

~~~
rukittenme
Not necessarily... If we pretend the $500m is "profit", that $500m could have
been created by Aetna offering better preventative care or it could have been
created by letting people die in the name of corporate greed.

Aetna's valuation has grown out of the passage of the ACA. I find it unlikely
that the second is true. The first certainly has happened but its unlikely
that it accounts for all of the profit.

I put profit in quotes because the $500m is a bonus from the sale of the
company, not an "income - expenses" profit.

~~~
yequalsx
This is from be ACA but I think it gives the general idea of the tactics
insurance companies use:

[https://health.usnews.com/health-
news/articles/2008/08/25/ho...](https://health.usnews.com/health-
news/articles/2008/08/25/how-crafty-health-insurers-are-denying-care)

Here's one from after ACA passed and was implemented:

[https://www.cbsnews.com/news/mental-illness-health-care-
insu...](https://www.cbsnews.com/news/mental-illness-health-care-
insurance-60-minutes/)

The ACA attempted to make things more fair in terms of appealing denials and
mandating certain coverages. It's not reasonable to believe that Aetna's
profit comes from offer better preventative care. I'd need to see some
evidence to believe that. Certainly before ACA health insurance companies let
people die in the name of corporate greed. They have an economic incentive to
deny care. Evidence of this is in the fact that the CEO is getting a $500
million bonus.

Yes the $500 million comes from stock price increase. But that comes from
profit and the profit, at least partly, comes from denying care.

EDIT:

[https://twitter.com/RoseAnnDeMoro/status/922627477553397761/...](https://twitter.com/RoseAnnDeMoro/status/922627477553397761/video/1)

It happens often enough that there is a market for lawyers to help out when
insurance claims are denied.

[https://scottglovsky.com/practice-areas/health-insurance-
den...](https://scottglovsky.com/practice-areas/health-insurance-denial-
lawyer/)

~~~
rukittenme
> profit, at least partly, comes from denying care.

This is the same as saying Dole makes part of their profit by selling rotten
bananas. A factual statement but the implication of it is incorrect. The bulk
of Aetna's business is to sell health insurance to healthy people. Its cheaper
to never provide service than to deny payouts.

> Yes the $500 million comes from stock price increase. But that comes from
> profit

Stock prices rise and fall without any consideration to profit. See Amazon.
Aetna's valuation can be based on a thousand different factors. The fact that
an offer has been made to purchase Aetna can increase its stock price.

~~~
yequalsx
Revenue comes from selling policies. The company has a financial incentive to
deny care because that increases the profit. It's one way they try to control
expenses and thereby increase profit. After Katrina State Farm famously denied
coverage to many people on the grounds that it wasn't storm damage but rather
flood damage. Companies that have an incentive to get out of spending money
generally try to do so. Health insurance companies hire people for the express
purpose of looking for loopholes and ways to deny coverage. This is well
documented.

You have in the comment above and in other comments spoken in terms of what
could be. Do you have evidence that Aetna's valuation was not based on
profitability? Do you deny that Aetna has a financial incentive to deny
coverage or to look for ways to get out of paying for coverage? Do you believe
that the $500 million for one person is money well spent in the U.S.
healthcare system?

~~~
rukittenme
> Do you have evidence that Aetna's valuation was not based on profitability?

No. But if you read the comment of the person I originally responded to,
you'll see that this discussion is irrelevant to the overall point. Any
clarification of Aetna's valuation has been for your understanding of stock
valuations in general. Not to pursue some point about Aetna's ethical or
unethical valuation.

> The company has a financial incentive to deny care because that increases
> the profit.

> Do you deny that Aetna has a financial incentive to deny coverage or to look
> for ways to get out of paying for coverage?

Yes, categorically. If Aetna signs an agreement to pay health expenses and
fails to follow through they face three major consequences:

\- They can be sued for breach of contract.

\- They can lose market power as their brand loses public trust.

\- They can face fines from government regulators.

If Aetna is denying claims that they were never contractually obligated to pay
in the first place, then I see that as fraud prevention.

> Do you believe that the $500 million for one person is money well spent in
> the U.S. healthcare system?

Why should I even have an opinion on the subject? I have never given Aetna or
CVS my business. It's not my money they're swapping.

CVS is in a highly competitive market segment. If they were ripping off their
customers they would have never acquired the market power to pay this CEO a
bonus of $500m.

~~~
yequalsx
_Yes, categorically. If Aetna signs an agreement to pay health expenses and
fails to follow through they face three major consequences: \- They can be
sued for breach of contract. \- They can lose market power as their brand
loses public trust. \- They can face fines from government regulators._

I think you are ignorant about how things work in the U.S. There haven't been
strong regulators for quite some time. The average person has neither the
money, time, or willpower to fight an insurance company. The legal costs can
be quite high. The time required to get a favorable ruling that actually gets
enforced is often times quite long. Witness Exxon and the time required to get
them to pay for the Valdez accident.

In an ideal world your point would be relevant. We do not live in a truly free
market. We live in an environment of regulatory capture. An era of force
arbitration which is well known to favor the corporation. We do not live in an
environment where corporate malfeasance is properly punished. Look at the
fines banks had to pay for knowingly laundering drug money. It was far less
than the profit. BP famously has leaky oil pipelines in Nigeria because it can
get away with it. Comcast has virtually no public trust and yet it continues
to profit greatly. Your view is not justified by reality.

It is well documented that health insurance companies hire people to look for
loopholes. To delay and ultimately try to deny coverage. This is not
disputable.

~~~
rukittenme
> It is well documented that health insurance companies hire people to look
> for loopholes. To delay and ultimately try to deny coverage. This is not
> disputable.

Everything you said before this point is irrelevant.

It's trivial to find the list of lawsuits lost and fines paid[1].

Read this excerpt:

> In 1999 a California jury awarded $116 million in punitive damages to the
> widow of a man whose death from stomach cancer was alleged to have been
> caused by the refusal of an Aetna subsidiary to approve treatment approved
> by its own doctors.

$116 million for failing to pay what would have been $100k max for treatment.
Aetna certainly has a financial interest in upholding their agreements. They
would have to deny 1160 identical cases before breaking even. Assuming that
none of those 1160 sued for damages.

1\. [https://www.corp-research.org/aetna](https://www.corp-research.org/aetna)

~~~
yequalsx
_The case was then settled out of court for an undisclosed amount that was
reported to be around $20 million._

I know a medical malpractice attorney. He only takes cases he is absolutely
sure to win. The gray areas he leaves alone. It is in these gray areas that
insurance companies mostly try to get away with paying claims.

What I wrote prior was not irrelevant. You have a naive view of how markets
work in the U.S.

~~~
rukittenme
It _is_ irrelevant. You're talking about oil spills in Nigeria. I'm talking
about _one specific health-care company in America_. I don't care to hear your
opinions on the market and how it operates. I also don't care to hear
anecdotal testimony about your friend's business practices.

It is a matter of public record when Aetna has been fined and when Aetna has
been sued. It is _trivial_ to research the subject.

I'm not sure why we're still having this conversation. Aetna's P/E ratio is
50% higher than the market average which means its price (and therefore CEO
bonus) are driven by future growth potential. Not profit "extracted" in the
here and now.

------
Someone1234
Do all the other workers get a proportionately large cut (relative to their
incomes)?

~~~
maxxxxx
They should be more worried about layoffs.

------
peg_leg
For 10% of that he can buy enough of congress to make that happen

------
AngeloAnolin
Is there a non-pay-walled site to read the whole article?

~~~
ethagknight
Marketwatch has some information [https://www.marketwatch.com/story/aetna-ceo-
bertolini-could-...](https://www.marketwatch.com/story/aetna-ceo-bertolini-
could-exit-after-cvs-deal-with-500-million-2017-12-05?siteid=rss&rss=1)

------
diegorbaquero
No paywall:
[https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.wsj.com%2Fa...](https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.wsj.com%2Farticles%2Faetnas-
outgoing-ceo-set-to-reap-about-500-million-if-cvs-deal-closes-1512480623)

------
downandout
Paywall bypass:

[https://m.facebook.com/flx/warn/?u=https%3A%2F%2Fwww.wsj.com...](https://m.facebook.com/flx/warn/?u=https%3A%2F%2Fwww.wsj.com%2Farticles%2Faetnas-
outgoing-ceo-set-to-reap-about-500-million-if-cvs-deal-closes-1512480623)

~~~
zentiggr
Yeah, from paywall to worse. NBD

~~~
downandout
I’m genuinely confused by this response. All that URL does is have you click
from Facebook, which makes FB the referrer, which WSJ has anointed a paywall
free zone.

What am I missing?

