The state Division of Insurance has launched an unprecedented examination of executive compensation at Massachusetts insurers after disclosures that Liberty Mutual Holding Co. paid its top executive roughly $50 million a year.
The agency sent letters to roughly 100 Massachusetts insurers requesting details on how they set executive pay, including minutes from company meetings. It asked companies to report the pay for every board member, officer, or employee earning more than $100,000 a year in 2010 and 2011.
The agency plans to compile the information in a report, rather than to challenge outsize pay packages....
The agency decided to launch the examination after the Globe reported two months ago that Liberty Mutual, the largest insurance company based in Boston, paid former chief executive Edmund F. “Ted” Kelly roughly $200 million over the past four years, making him one of the highest paid chief executives in the country. The disclosure irked watchdog groups because Liberty Mutual is mutually owned by its policyholders, so any surplus profits should be distributed to customers as dividends or invested back into the company.
In addition, the company failed to disclose Kelly’s pay last year either to its policyholders or regulators...
Governor Deval Patrick, who appoints the insurance commissioner, has previously called Kelly’s pay “breathtaking,” but said it isn’t the government’s role to dictate how much private companies pay their workers. Patrick’s office declined to comment Thursday....
Executive pay has became a hot topic nationally following the financial crisis, and scrutiny has intensified in Massachusetts following the Liberty Mutual revelations....
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Related: McGrory Makes Me Laugh About Liberty Mutual Looting
I need a few more laughs:
"View from the top at Liberty Mutual" by Brian McGrory June 13, 2012
My next life, I want to be the mahogany salesman with the Liberty Mutual account.
I say this after being led this week around the executive floor of Liberty Mutual’s Boston headquarters, home to some of the highest paid insurance officers in America. There was mahogany everywhere — doors, paneled walls, custom-made cabinetry, exquisite trim. I wouldn’t have been surprised to see a men’s room with mahogany urinals.
(Blog editor smiles)
What was I doing at Liberty Mutual? Believe me, there were moments I wondered that myself. I had asked questions about a $3 million renovation to the executive offices in 2005, not to be confused with the $4.5 million renovation to the chief executive’s office in 2011, and suddenly company spokesman John Cusolito, my on-again, off-again friend, called with an invitation to stop by. Before I knew it, I was being given a tour of Liberty Mutual by David Long, the relatively new chief executive officer....
Long confirmed that Ted Kelly, the recently retired $50 million-a-year Liberty Mutual CEO, is in the executive pension plan. Yes, the person who took nearly $200 million from the company in the last four years is still getting more.
How much more? I’d ask readers to once again put away any sharp objects, put down all carbonated beverages, and take a very deep breath before you read what’s next. Here goes: Approximately $3.3 million a year.
That, anyway, was my back of the envelope calculation, taking into account what I know about the parameters of the company’s plan, melded to Long’s statement that Kelly’s “retirement package excludes long-term compensation.” When I sent my math to company officials on Tuesday, they confirmed that it was just about right.
There’s something else, while we’re on the subject. Remember how Long told the Globe in April that only the chief executive of Liberty Mutual was allowed personal use of the company’s fleet of five luxury jets at Hanscom Field? That would mean that Kelly, as the retired CEO, would not qualify for this lofty privilege. But for the life of me, I couldn’t picture Kelly, who used to regularly soar to his Vero Beach vacation home aboard Bombardiers and Gulfstreams, reaching for his wallet at the JetBlue counter at Logan to pay the $40 fee for a second checked bag. So I pressed the point.
“Ted Kelly has use of planes,” Long said. “He does as long as he’s chairman of the board.” When I pointed out that this was a reversal of what he said last month, Long replied, “I went back and checked and realized that wasn’t the case.”
And who exactly is paying for all this — the roughly $3.3 million dollars a year, the free pass on Liberty’s air force, all that money already gone? You, dear Liberty Mutual policy holders, the owners of the company, the very people who struggle in a deeply damaged economy to pay rising auto and homeowner’s insurance, all without ever seeing the kind of dividend checks that some other mutual companies send out.
But that’s the negative. The rest of the news was not all disheartening. In spots and spurts, it was actually encouraging. I have previously pointed out in this space that nobody associated with Liberty Mutual’s leadership — not Kelly, not Long, not the obsequious board of directors — has uttered so much as a murmur of acknowledgment that maybe $50 million a year, maybe a fleet of planes, maybe a deeply conflicted board, is something they might want to change.
Long ended the silence, offering up the first murmur of concern. Maybe he believes it, or maybe he’s tired of the negative attention, but please read on....
As the clock ticked toward the end of our hour, I asked what, in my mind, has been among the most important questions all along: What good is it to have a profitable company if the owners don’t benefit from the profits?
In a successful privately held company, the owners make more money, which is justified. They took the risk in founding or buying the company, they deserve the rewards. In a publicly traded company, the stockholders benefit through higher stock values. In some mutual companies, policy holders benefit through dividends.
In Liberty Mutual’s case, it’s none of the above. The biggest beneficiaries are the executives themselves, the ones who cash in buckets of phantom stock and honestly believe they deserve every million, who fly on the fleet of luxury planes, who have staggering pension plans — all of it approved by the backslapping members of an incestuous board who are paid upwards of $200,000 a year to never make a wave.
Long talked about the company’s “$18 billion in capital.” He said, “The whole issue of dividends is tricky.”
“We are a much more financially secure company, to pay out our policy holders,” he said. “Policy holders have the ultimate say. If they don’t like what we’re doing, they can go somewhere else.”
I’m glad he said that rather than me. Policy holders, take notice.
But I’m not going to leave this on a negative note, and instead will conclude with this:
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Wasn't as funny.
Also see: Liberty Mutual renews Fourth of July role
Premiums well spent, I see.
UPDATE: Liberty Mutual will up charitable giving
I guess that makes all the lying and looting worth it.
