CalPERS Board Opposes Payments to PacifiCare Execs

Directors of California’s giant public pension fund voted Monday to oppose $345 million in payments that top executives of PacifiCare Health Systems Inc. would reap from the sale of the health insurer to UnitedHealth Group Inc.

The California Public Employees’ Retirement System, or CalPERS, holds a small fraction of PacifiCare shares, but it is the first institutional investor to take a position on the proposed $8.1-billion acquisition. Shareholders are scheduled to vote Nov. 17.

The deal, proposed in July, would grant payments to 39 top PacifiCare executives, including about $180 million to Chief Executive Howard Phanstiel. The payments include accelerated vesting of options granted by Cypress-based PacifiCare and signing bonuses and other incentives to executives who stay with UnitedHealth, the nation’s second-largest health insurer, for several years.

PacifiCare has pointed out that Phanstiel is not getting a “change-of-control” bonus, which executives received in last year’s much-criticized acquisition of Thousand Oaks-based WellPoint Health Networks Inc. by Indianapolis-based Anthem Inc.

During a Monday meeting in San Diego, the CalPERS board also called on the state Department of Managed Health Care, which is responsible for approving the deal, to reject it unless the payments are dropped.

The provisions also have drawn criticism from two elected state officials who are running for governor next year: state Treasurer Phil Angelides and state Controller Steve Westley.

“There is simply no justification for these excessive payouts, which will go to the very same HMO executives who engineered this merger,” Angelides said in a statement.

CalPERS staff members have studied the deal and told the board that the sale was a “net positive” in terms of price. But on Monday the board instructed staff members to meet with the two companies and state regulators in an effort to unwind the pay packages.

PacifiCare spokesman Tyler Mason defended the deal but said the company would do what it could to address concerns.

“These packages are performance-based and they are options granted at a time the company didn’t have the strength to attract top talent,” Mason said.

Shares of Minnetonka, Minn.-based UnitedHealth rose 1 cent Monday to $56.44. PacifiCare shares gained 16 cents to $80.65.