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Health Net Executives Sue for Stock Incentives : Payouts: A state agency has blocked a plan by the former nonprofit company to award its 29 top managers stock totaling $65 million.


WOODLAND HILLS — Health Net Chairman Roger Greaves and five other top executives with the big health maintenance organization are suing the state Department of Corporations for blocking their company's plan to award Greaves and 28 other executives $65 million in stock incentives.

The department ordered Health Net to rescind the stock awards last year or risk facing a revocation of a 1992 state order permitting the Woodland Hills-based HMO to convert from nonprofit to for-profit status, according to Health Net's suit. The suit was filed Sept. 14 in Los Angeles Superior Court.

But Greaves and the other plaintiffs in the suit argue that the stock awards are permitted under that conversion agreement, and that the department has acted "arbitrarily, capriciously" and beyond its authority in preventing the stock payouts.

Stephen Vogt, Health Net's vice chairman, said in a written statement that the stock awards are "part of an incentive plan designed to attract and retain the finest managers available."

Greaves stands to collect $18 million in stock if the awards are permitted, the company said. He and other Health Net executives have already reaped considerable financial rewards in bonuses and stock payouts since the company's for-profit conversion.

When Health Net converted to for-profit status, Greaves and 37 other executives paid $1.5 million for stock that today is valued at $140 million. In January, Greaves and four other Health Net managers paid themselves $3.3 million in bonuses following the company's merger with QualMed Inc., a health maintenance organization based in Colorado. The Department of Corporations lost in a court attempt to prevent Health Net from paying those bonuses, a Health Net spokesman said.

But consumer groups have criticized the stock awards and bonuses as excessive for a company that built its operations while enjoying the tax-exempt status of a nonprofit corporation.

Health Net, the second-largest HMO in the state with 1.2 million members, was established as a nonprofit corporation in 1986. Following the conversion to for-profit status, Health Net was required to transfer 80% of its equity to a successor charity. Health Net created the California Wellness Foundation to serve as that successor charity.

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