Updated from Oct. 15

UnitedHealth

(UNH) - Get Report

fell 2% Monday after the options backdating scandal claimed its biggest scalp yet: longtime CEO William McGuire.

The Minnetonka, Minn., health insurer said McGuire will step down as CEO on Dec. 1 and as chairman immediately following a board panel's finding of backdating of past stock option awards.

Replacing McGuire as chief executive will be Stephen Hemsley, the current president and chief operating officer, who joined the company in 1997. At the same time, the board created the position of nonexecutive chairman and named Richard Burke, the founding CEO of UnitedHealth and a director since 1977, to the post.

McGuire, though, wasn't the only official on his way out of the health insurer. The board also accepted the resignation of director William Spears and said David Lubben will proceed with his plans to retire and is stepping down as general counsel and secretary.

Hemsley has voluntarily agreed to reprice all options awarded through 2002 to the annual high share price for each year, and "to take any other appropriate action to eliminate any possible financial benefit from options-related issues" found during the options probe. Additionally, McGuire will reprice all the options he received from 1994 through 2002 to the annual high share price for each year.

UnitedHealth's board will have five seats filled by new independent directors during the next three years, and a new senior executive position of chief legal officer will be established. The company will also have a chief ethics officer among its senior executives.

Going forward, the company will eliminate the authority of management to make equity awards. From now on, broad-based equity awards to executives and employees will occur annually and will be approved at the board meeting that generally coincides with UnitedHealth's annual meeting.

UnitedHealth reaffirmed its previously issued guidance for the remainder of 2006 and for 2007, and it plans to hold its quarterly earnings conference call on Oct. 19, as scheduled. However, the company will likely delay filing its third-quarter Form 10-Q with the

Securities and Exchange Commission

. UnitedHealth hasn't determined whether any restatements of will be required.

Shares fell $1.05 to $47.70.