UnitedHealth Group (UNH)

Annual Cash Incentive Awards

The annual cash incentive award program creates a strong financial incentive for achieving or exceeding a combination of enterprise, business unit and individual goals. Annual cash incentive awards are paid if our Company meets or exceeds the performance goals approved by the Compensation Committee for that year. These awards are considered qualified performance-based compensation under Section 162(m).

The amount of the annual cash incentive is based on the “annual incentive target percentage” for each named executive officer established by the Compensation Committee at the beginning of each year. The annual incentive target percentage is a percentage of the named executive officer’s base salary and is based on a review of competitive opportunities. Generally, the maximum cash incentive award that may be earned by a named executive officer is equal to two times the applicable annual incentive target percentage.

The amount of the annual cash incentive award to be paid to each named executive officer is approved by the Compensation Committee in the first quarter of the following fiscal year. The Compensation Committee may exercise its discretion to decrease the amount of the cash incentive award which is payable, for either threshold or maximum financial performance results, as described below.

The performance goals for the 2007 annual cash incentive awards were based on our earnings per share (“EPS”), reflecting the Compensation Committee’s belief that growth in EPS correlates to growth in shareholder value. This EPS goal was determined by considering historical EPS performance for the Company as well as market expectations. Specifically, the Compensation Committee approved the following EPS performance goals for our named executive officers:

Upon satisfaction of these EPS performance goals, the Compensation Committee established each named executive officer’s annual incentive compensation award in the following manner:

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Our Executive Incentive Plan provides that, in determining the achievement of EPS goals, the Compensation Committee shall adjust the Company’s reported EPS for the impact of changes in accounting principles, extraordinary items and unusual or non-recurring losses. Reported EPS in 2007 was increased by $0.08 to exclude expenses related to the Company’s actions to minimize compliance burdens under Section 409A of the Internal Revenue Code (“Section 409A”). The Company exceeded the “target” EPS goal established by the Compensation Committee for 2007. This adjustment did not effect the Company’s ability to meet the maximum EPS goal, which would have been met without making the adjustment. The incentive target percentages for annual cash incentive awards to our named executive officers and the actual annual award paid are set forth in the table below:

The factors considered by the Compensation Committee in the exercise of its discretion in the approval of annual cash incentive award amounts are discussed under “Compensation of Named Executive Officers” below.

Long-Term Incentive Compensation. Long-term incentive compensation consists of long-term cash incentive awards and equity awards.

Annual Cash Incentive Awards

The Compensation Committee makes annual cash incentive awards to executive officers, including the named executive officers, under our shareholder-approved Executive Incentive Plan. Annual cash bonuses are paid if and to the extent our Company meets the financial performance goals approved by the Compensation Committee for that year. The amount of annual cash bonuses is determined by means of an annual incentive target percentage that is approved by the Compensation Committee at the beginning of each year. This element is included in the executive compensation program because it focuses the leadership of our Company on achieving annual financial goals that are indicative of improved year-over-year performance, constitutes at-risk compensation payable only if the goals are achieved, and represents common market practice.

The Executive Incentive Plan specifies that the performance goal to be satisfied each year shall be expressed in terms of our earnings per share (EPS), reflecting the Compensation Committee’s belief

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that growth in EPS closely correlates to growth in shareholder value and is the gating factor that must be met before any annual cash incentive award is payable. As discussed in greater detail below, the Compensation Committee uses other performance metrics to determine the actual annual cash incentive amounts payable to our executive officers.

At the beginning of each year, management recommends, and the Compensation Committee approves, an initial EPS goal that must be achieved before any bonus amount is paid to a named executive officer, and a second EPS goal that must be achieved for a bonus of up to the maximum amount to be payable. For EPS performance between the two EPS goals, a bonus of up to the individual target amount may be paid. For EPS performance above the second EPS goal, an award of up to the maximum annual cash incentive target amount is payable. In recent years, the Compensation Committee has approved the second EPS goal at an amount equal to the EPS guidance our Company provides to investors at the beginning of the year, and an initial EPS goal at 90% of the second EPS goal.

Although the Executive Incentive Plan permits a theoretical maximum individual annual cash incentive payout equal to 1% of our Company’s net earnings (as defined in the plan), the Compensation Committee has generally used its discretion to limit the maximum bonus amount for each executive officer to 200% of his or her target bonus amount. The Compensation Committee routinely, exercises discretion to reduce (but not increase) the amount of any annual incentive otherwise payable under the terms of the Executive Incentive Plan. In exercising this discretion for executive officers, the Compensation Committee typically considers a variety of factors, including financial metrics such as revenue growth or operating income at either enterprise-wide or business unit levels, return on assets employed, progress against strategic initiatives, individual performance measures and, for executive officers other than the CEO, the CEO’s recommendations. The Compensation Committee does not assign specific weightings to these factors. The discretionary adjustments allow the Compensation Committee to factor individual performance into its annual cash incentive payout decisions and thereby reward individual performance that furthers our Company’s stated mission.