This excerpt taken from the UNH DEF 14A filed Apr 30, 2007.
Long-Term Equity Awards
All outstanding equity-based compensation awards to employees (other than equity awards assumed in connection with certain acquisitions) have been awarded under one of three equity-based compensation plans, the most recent of which, the 2002 Stock Incentive Plan, is the source of current awards. As compared to peer group companies, we have historically ascribed a significantly higher portion of the total compensation opportunity of our executives to equity-based compensation. By doing so, we provide to our executives a direct and substantial interest in the long-term performance of our Companys stock, which we believe establishes the strongest and most direct alignment between the interests of our executives and our shareholders. We also believe that our emphasis on equity-based compensation has contributed to an entrepreneurial Company culture that has served our shareholders well in a highly competitive and rapidly evolving industry. We believe that the forms of equity-based compensation we have emphasized, stock options and stock-settled SARs, when combined with our stock ownership guidelines, align our executives interest with those of our shareholders. First, stock options and SARs deliver value to an executive only to the extent that our stock price increases after the date of grant. Then, our stock ownership guidelines serve to motivate our executives to maintain that value and further the long-term return to shareholders.
With the elimination at the beginning of 2006 of favorable accounting treatment that had been accorded to stock options, we have begun to favor stock-settled SARs over stock options because a SAR that is comparable in value to a stock option will ultimately result in a smaller number of shares being issued under our equity-based compensation plans. In addition to stock options and SARs, we have occasionally made awards of restricted stock, but typically only in situations where we are hiring
an executive who is forfeiting significant amounts of equity-based incentives as a result of leaving his or her former employer. We favor the use of stock options or SARs over time-vested restricted stock because of their pay for performance features.
We generally grant stock options and SARs with a term of 10 years with typically 25% of the covered shares vesting and becoming exercisable on each of the first four anniversaries of the date of grant. The Compensation Committee believes the four-year vesting terms together with grants made in successive years helps create a long-term incentive and strikes an appropriate balance between the interests of the Company, our shareholders and the individual employee in terms of the incentive, value creation and compensatory aspects of these equity awards.