The top executive of the city’s largest health maintenance organization, whose salary more than doubled last year to $4.79 million, is poised to reap an even bigger payday if state regulators approve the nonprofit insurer’s conversion to a for-profit public company.

The chief executive officer of the Health Insurance Plan of New York, Anthony Watson, would be awarded a stock option package that sources say could be worth as much as $20 million.

According to a provision in his most recent employment agreement, Mr. Watson would be given an option to purchase 1.2% of the shares that are issued on the six-month anniversary of the conversion. The options are expected to be priced at market value on that date.

While the option would be time-vested over four years, Mr. Watson would be permitted to exercise the option to purchase the stock immediately if another insurance company acquires EmblemHealth, which was recently formed by the union of HIP and another major nonprofit insurer, Group Health Inc. EmblemHealth is seeking approval to change its status to for-profit from the state insurance department.

The compensation agreement for Mr. Watson was approved by the board of directors of EmblemHealth, which includes James Gill, a partner at the law firm, Bryan Cave who is also the chairman of the Battery Park City Authority, and Carl Haynes, the former president of Teamsters Local 237.

A spokesman for EmblemHealth declined to discuss details of the potential pay package, which was submitted to the state insurance department as a proprietary document.

“It is premature to speculate on what might happen if and when a plan of conversion is approved,” a spokesman for HIP, Pat Smith of Rubenstein Associates, said.

The stock package plan threatens to complicate the insurer’s efforts to secure for-profit status.

Labors unions, the largest customer of HIP, have already expressed fears that EmblemHealth’s conversion — and a subsequent sale of the company — could lead to higher premiums for their members, while state regulators have chastised the financially struggling company for excessive spending. The compensation is also raising the eyebrows of state lawmakers.

“When they are considering whether the package is in the public interest, they should be weighing the amount of wealth that will be going into a few private hands as opposed to benefiting the public or the patients,” a Democratic assemblyman of Manhattan, Richard Gottfried, said. Mr. Gottfried is chairman of the Assembly’s health committee.

The disclosure of the pay package also comes at a time when the issue of executive compensation has been in the spotlight of the presidential race, as both Senators Clinton and Obama have offered dueling proposals for tightening restrictions on executive pay.

Compensation of non-profit executives has been a hot political issue in New York as well, with Attorney General Eliot Spitzer in 2004 launching a high-profile lawsuit against Richard Grasso after it was disclosed that Mr. Grasso, head of the then-non-profit New York Stock Exchange, was to be paid $200 million in compensation and retirement benefits.

The state insurance department has raised questions about Mr. Watson’s compensation, which increased last year to $4.79 million, including salary and bonuses, from $2.14 million in 2006, as reported last week by The New York Sun.

Mr. Watson’s gross salary last year was more than three times the size of that of the CEO of GHI, Frank Branchini, whose company is about half the size of HIP.

HIP directors also increased the pay of HIP’s chief financial officer and counsel, Michael Fullwood, to $1.99 million in 2007, up from $896,000 in 2006. The company’s executive vice president for operations, John Steber, also saw his pay rise to $1.5 million from $763,000.

Mr. Watson’s salary and future earnings are also becoming a point of contention with public employees unions, which make up the bulk of HIP’s membership and have demanded a portion of the $1 billion to $3 billion that the state is expected to collect from the stock sale of EmblemHealth.

“The whole point of the merger and potential conversion to for-profit status is about continuing that commitment — not about the enrichment of a particular individual,” the president of the United Federation of Teachers and chairman of the Municipal Labor Committee, Randi Weingarten, told the Sun in a statement. “If that becomes the driving force, then the legislative predicate for allowing the conversion must be re-considered,” she said.

Ms. Weingarten, in a February letter to the superintendent of insurance, Eric Dinallo, on behalf of the Municipal Labor Committee, said union officials are also demanding that the insurance department impose a multi-year “freeze” of any sale of EmblemHealth if it converts to for-profit.

The criticism facing Mr. Watson’s employment agreement is not the first time that his compensation has come under scrutiny.

In 2000, the state insurance department, in a scathing report, criticized the non-profit corporation for lavishing corporate-style perks on Mr. Watson and other executives while the company was in financial trouble.

The report found that HIP, which Mayor Fiorello La Guardia and labor unions founded in 1947 so that city employees would have access to inexpensive health care, spent hundreds of thousands of dollars leasing Mr. Watson two new Jaguars and renting him a luxury resort apartment near Miami where he often took his wife and children.

At the time, a spokesman for HIP said Mr. Watson, a former Olympic long jumper who took over the company in 1990, said the CEO needed the Jaguars because the luxury sedan accommodated his long legs, the Daily News reported.

“He has a real problem fitting into other cars,” the spokesman reportedly said.