UnitedHealth Group (UNH)

Equity Awards

Awards of equity-based compensation to our named executive officers complement long-term cash incentives and serve the purposes described above under “Long-Term Cash Incentive Awards.” In addition, equity-based awards encourage a strong equity stake in our Company and align the interests of named executive officers and our shareholders. All outstanding equity-based compensation awards to the named executive officers have been awarded under one of three equity-based compensation plans. The most recent equity-based compensation plan, the 2002 Stock Incentive Plan, is the source of current awards.

While the Compensation Committee historically has emphasized stock options and/or stock-settled stock appreciation rights (“SAR”), it has begun using other forms of equity-based grants as general trends in equity-based compensation change. The Compensation Committee determined that equity-based compensation for 2008 should include both SAR grants and restricted stock unit (“RSU”) grants to achieve better balance, effectiveness and decreased leverage of equity-based compensation.

31

Table of Contents

SAR grants were selected because they have a similar accounting treatment to stock options and result in a smaller number of shares being issued from our 2002 Stock Incentive Plan. This extends the life of the authorized pool of shares under the 2002 Stock Incentive Plan that are available for future equity awards. RSU grants were selected because they are full value shares with time vesting and, as such, provide added retention value. In February 2009, the Compensation Committee decided to include awards of performance-based restricted stock units (“performance shares”) as a component of the total compensation awarded to named executive officers. The Compensation Committee believes that the use of performance shares further strengthens the pay-for-performance alignment of the Company’s compensation program. The Compensation Committee’s decision to grant performance shares was informed, in part, by discussions held between the Company and certain of its shareholders regarding the merits of performance shares in a pay-for-performance executive compensation program. The number of performance shares that each named executive officer will receive will be determined at the end of a three-year performance period and will be dependent upon the achievement of average EPS growth percentages and average ROE performance metrics approved by the Compensation Committee.

The Compensation Committee approves all equity awards, including those made to our named executive officers. SAR awards are made with an exercise price equal to or greater than fair market value on the date of grant, and typically have a term of ten years with 25% of the award vesting on each of the first four anniversaries of the date of grant. RSU awards are valued at the fair market value on the date of grant, and typically vest 25% annually on each of the first four anniversaries of the date of grant. The Company does not pay dividend equivalents on RSUs granted to employees.

Equity Awards

Awards of equity-based compensation to our named executive officers complement long-term cash incentives and serve the purposes described above under “Long-Term Cash Incentive Awards.” In addition, equity awards encourage a strong equity stake in our Company and align the interests of named executive officers and our shareholders. All outstanding equity-based compensation awards to the named executive officers have been awarded under one of three equity-based compensation plans. The most recent equity-based compensation plan, the 2002 Stock Incentive Plan, is the source of current awards.

While the Compensation Committee historically has emphasized stock options, it has begun using more SAR grants because they have a similar accounting treatment to stock options and result in a smaller number of shares being issued from our stock incentive plan. This extends the life of the authorized pool of shares under the 2002 Stock Incentive Plan that are available for future equity awards.

The Compensation Committee approves all equity awards, including those made to our named executive officers. SAR awards are made with an exercise price equal to fair market value on the date of grant, and typically have a term of ten years with 25% of the award vesting on each of the first four anniversaries of the date of grant.

29

Table of Contents

In May 2007, the Compensation Committee awarded SARs to our named executive officers, excluding Mr. Hemsley, who did not receive an equity award. These SARs were granted in two tranches, one of which vests over four years as described above, and one of which cliff vests on the sixth anniversary of the grant date to serve as an added retention incentive. The equity awards, as they relate to the named executive officers’ total direct compensation, are discussed under “Compensation of Named Executive Officers” below.

Employee Benefits. Subject to the limited exceptions discussed below, our named executive officers are eligible to participate in our broad-based employee health, welfare and retirement benefit programs. We seek to provide competitive benefits to promote the health, well-being and financial security of all employees, including our named executive officers. These benefits include a 401(k) savings plan, an employee stock purchase plan, short- and long-term disability plans, term life insurance coverage, medical, vision and dental plans, flexible spending account plan and an employee assistance plan.

Executive Benefits. With the exception of Mr. Hemsley, our named executive officers receive supplemental group term life insurance coverage of $2 million and supplemental long-term disability coverage equal to 60% of base salary at Company expense. The named executive officers realize imputed income from these supplemental coverages.

We sponsor an unfunded, non-qualified deferred compensation plan (the “Executive Savings Plan”) in which our named executive officers are eligible to participate. Under the Executive Savings Plan, our named executive officers may annually defer up to 80% of base salary (100% prior to 2007) and up to 100% of annual and/or long-term cash incentives. This plan also provides a Company matching contribution to our named executive officers on their annual contributions up to 50% of the amounts deferred at the time of each deferral, but this matching contribution applies only to the first 6% of their eligible annual earnings (base salary plus annual cash incentive award payouts) to lessen the discriminatory impact of qualified retirement plan rules under Section 401(k) of the Internal Revenue Code.

We sponsor the Executive Savings Plan for the benefit of our named executive officers in light of the lack of competitive executive retirement benefits as compared to the practices of our peer group companies. See the “2007 Non-Qualified Deferred Compensation” table below for additional information regarding contributions, earnings and distributions for each named executive officer under the Executive Savings Plan.

Perquisites. We do not believe that providing generous executive perquisites is either necessary to attract and retain executive talent nor consistent with our pay-for-performance philosophy. Therefore, we do not provide perquisites such as executive physicals, company automobiles, security services, private jet services, financial planning services, club memberships, apartments, vacation homes, or drivers for business or personal travel to our executives. Our corporate aircraft use policy was amended in April 2007 to prohibit personal use of corporate aircraft by any executive, including our named executive officers. Because there is essentially no incremental cost to the Company, however, the amended policy does permit an executive’s spouse to accompany the executive on a business flight on Company aircraft.

Employment Agreements. In 2006 and 2007, the Company entered into new employment agreements with each of our named executive officers, as discussed under “Compensation of Named Executive Officers” and described in greater detail in “Executive Employment Agreements” on pages 57 to 60. None of these agreements provides for fixed minimum annual equity awards, fixed cash incentive awards, perquisites, or the provision of supplemental retirement benefits. In general, the

30

Table of Contents

Compensation Committee believes that it is advantageous to both the Company and its named executive officers to have the terms and conditions of their employment arrangements, including the terms and conditions upon which those arrangements could be ended, clearly defined. In addition, these employment agreements provide the Company non-competition, non-solicitation, and non-disclosure commitments from executive officers in exchange for specified severance arrangements.

Post-Employment Payments and Benefits. The employment agreements with our named executive officers provide for certain severance payments in connection with their termination of employment under various circumstances, typically termination by the Company without “cause” or in some cases by the executive for a “good reason.” The meaning of each of these terms is discussed under “Executive Employment Agreements” below. During 2006, the Compensation Committee made a number of changes in the Company’s policies applicable to post-employment payments and benefits, including the elimination of enhanced cash severance payments that were previously payable upon termination in connection with a change in control and elimination of excise tax gross up payments payable in connection with a change in control. In 2006, we also reduced the amount and circumstances under which severance payments and benefits would be provided to Mr. Hemsley under his employment agreement.

Our named executive officers, other than Mr. Hemsley, do not have SERP benefits and, with the exception of existing supplemental executive retirement plan obligations that we may assume as a result of acquisitions, we do not provide such benefits. In April 2004, Mr. Hemsley and the Company entered into a SERP agreement that provides him a lump sum payment upon his retirement. Although the provision and amount of this SERP benefit to Mr. Hemsley were consistent with comparable arrangements of senior executives of peer group companies, in light of the value conferred to Mr. Hemsley from previously granted stock options, the Company and Mr. Hemsley agreed, pursuant to the terms of his prior employment agreement with the Company, to cap the amount of the SERP lump sum payment at $10.7 million, the amount vested and accrued as of May 1, 2006.

Our stock option, SAR, and other equity-based incentive award agreements typically provide that the awards become fully vested and exercisable if the executive’s employment ends due to death or disability, or if a change in control of the Company occurs. We adopted acceleration of the vesting of equity awards upon a change in control in 1994 to offer our executives greater protection in the context of a corporate restructuring. Our equity award agreements also generally provide for continued vesting and exercisability during any period in which an executive receives severance and for continued exercisability of an award for a limited period of time after termination of employment for other reasons. In addition, certain equity awards granted from 2002 to 2005 provide for continued vesting and exercisability for up to five years after retirement.

The circumstances under which severance and other post-employment payments and benefits will be made or provided and the amount of such payments and benefits are described in greater detail under “Potential Payments Upon Termination or Change-in-Control” below. We have provided these post-employment payments and benefits and severance payment triggers because they have enabled us to obtain specific post-employment non-competition, non-solicitation, and non-disclosure agreements with our executives that we believe are of value to the Company and our shareholders.