Exec comp 2018: Duperreault, Greenberg and Jain all make industry top five

AIG CEO Brian Duperreault, Chubb CEO Evan Greenberg and Berkshire Hathaway vice chairman for insurance Ajit Jain all featured in the top five for industry compensation in 2018.

Other prominent names to make the top 10 included Marsh & McLennan Companies CEO Dan Glaser in sixth place, Aon CEO Greg Case in seventh and Travelers chairman and CEO Alan Schnitzer in eighth.

The Insurance Insider’s headline findings from its annual study of executive compensation included:

  • On a true like-for-like basis average CEO compensation rose 6 percent year-on-year, in line with a benchmark for the broader S&P 500 published by the Wall Street Journal;
  • The average remuneration for the top 50 best-paid executives – including CFOs and other staff – rose by 3.6 percent to $8.6mn;
  • Total compensation for the top 50 was $469mn, down 12.5 percent year on year, but this headline figure was skewed by an $82mn drop-off at AIG owing to the timing of the arrival of the new executive team.

The collective remuneration of the 50 highest paid executives in the P&C (re)insurance industry stood at $469mn in 2018, up almost 4 percent after taking the skewing influence of AIG into account.

Our annual survey includes all executives named in SEC filings (DEF 14A and 10-K) – or group annual reports in their absence – across publicly listed P&C (re)insurers.

It ranks them in order of total compensation for the year, which encompasses base salary, cash bonuses, stock and option awards and other benefits such as pensions.

Top 50 pay was down by 12.5 percent in 2018 but the fall mostly reflected the comparison against an unusually high base in 2017 as a result of AIG’s significant payouts to appoint Duperreault as its new CEO in May that year and the senior management changes that ensued.  

Management transitions typically involve inflated reported numbers due to the costs of recruiting and the somewhat artificial contribution of accounting conventions that force companies to recognise a significant portion of long-term compensation incentives when granted.

If AIG executives are excluded from our analysis, the year on year comparison of compensation for the top 50 positions changes altogether, with a 3.6 percent increase in 2018 relative to 2017.

Including AIG, each member of the top 50 earned $9.4mn in 2018 on average compared with $10.7mn in 2017.

But leaving AIG out of the picture, the average remuneration for the 50 highest paid executives stood at $8.6mn in 2018 compared with an equivalent $8.3mn for 2017.

The above figures include the firm’s CEO, CFO, and highest paid named executive officers.

Looking at CEOs in isolation, average compensation totalled $7.9mn last year, led by chief executives of US nationwides and US large cap carriers.

Average compensation for them rose across all peer groups except London, US large cap carriers and US nationwides.

However, the dynamics for each of these three groups was different, with London CEOs’ average compensation plummeting by 35.8 percent but US nationwides’ slipping by just 0.7 percent.

For the large cap carriers, it was again a case of AIG distorting the comparison with 2017, with that year’s panel featuring Duperreault’s one-off $43.1mn initial pay packet as well as departing CEO Peter Hancock’s $24.2mn walk-away pay.

Average CEO compensation for this peer group, AIG aside, actually rose 5.9 percent in 2018.

Indeed, it was a good year for CEOs across the P&C industry: average remuneration, excluding AIG, was up by 9.6 percent year on year to $7.5mn.

By way of comparison, median compensation for 132 CEOs of S&P 500 companies was up 6 percent reaching $12.4 million in 2018, according to Wall Street Journal analysts.

CEO compensation bounces back ahead of other C-suite executives

The better performance of CEO compensation in 2018 relative to that of the overall top 50 – with the former expanding by an average 9.6 percent as against a 3.6 percent average surge for the latter (excluding AIG) – is a mirror image of what happened in 2017.

That year, CEO remuneration fell disproportionately more than that of the top 50, with a reduction of 12.4 percent for chief executives against a fall of 10.8 percent for the overall panel (excluding AIG).

While this seems to indicate that CEO compensation packages in the industry were adequately calibrated to provide more alignment with shareholder value creation (or destruction) than the rest of the C-suite, that was only part of the explanation behind the superior performance of CEOs against the overall top 50.

In fact, one third of the boost to CEO average compensation over and above the overall top 50 was due to changes to the pay league panel, which saw six companies de-list during 2018.

AmTrust was taken private following an MBO supported by Stone Point Capital. This was announced in January but not made effective until November last year.

Meanwhile, Validus, XL Group and JLT dropped out as a result of their acquisitions by AIG, Axa and Marsh & McLennan Companies (MMC) during 2018, bringing the total number of companies covered by the panel to 32, down from 36 the previous year.

In 2017, only XL Group’s Mike McGavick’s remuneration had exceeded the CEO compensation average for the year – with all three other CEOs below the average – so the presence of the four companies combined brought the 2017 overall average down.

A like-for-like comparison – that is, excluding those four companies from the 2017 average (as well as AIG) – shows the change in average remuneration for CEOs standing at 6 percent.

This was in line with the broader performance of CEOs at S&P 500 companies.

Meanwhile, Aspen also de-listed during the course of 2018, and Navigators will stop trading once its takeover by The Hartford completes. 

However, summary compensation tables for these two were made available on their 10-K filings, providing a last snapshot of the compensation of their top executives just before the curtain falls on their disclosure.

The usual suspects

Despite intense corporate activity and the resulting changes to our panel of CEOs in 2018, the top 50 pay league table remained relatively unaffected, as no executives from the six companies that were de-listed – except for XL Group – had made it to the top 50 in 2017.

At an individual level, the top of the chart was populated with veterans of this study, with many holding on to similar positions as in the past two years.

Chubb’s Evan Greenberg stood on the podium for the fourth consecutive year, this time just barely below top-earner Duperreault.

Greenberg received total compensation of $20.4mn, 6.5 percent up on the previous year but still below his record $24.4mn in 2016.

In 2017, he had seen his variable compensation significantly reduced as a result of the impact of HIM losses on the company’s earnings.

Meanwhile, Allstate chairman and CEO Thomas Wilson advanced one position into the third place, despite his total remuneration slipping 0.4 percent to $18.7mn.

The personal lines carrier’s chief had received a $4.8mn boost in his non-equity incentive plan compensation in 2017 when he was credited with the second-biggest improvement in net income of all companies covered that year.

Similarly, Travelers chairman and CEO Alan Schnitzer had benefited from an additional $4mn in stock and option awards in 2017 as the board of the Hartford-based company marked the completion of his first full year as CEO.

With the transition over, his total compensation was down 3.8 percent in 2018, at $14.6mn,  still allowing him to hold eighth place in the league table.

Also remaining in the same position as in the previous year was Dan Glaser, MMC president and CEO, who received $17.3mn in compensation, 1.6 percent up from 2017.

By contrast, rival Greg Case – the Aon CEO – enjoyed a 10.6 percent increase in his take-home pay, the biggest increase among the top 10 earners in 2018. This is likely to have reflected the extension of his contract in April last year to confirm him in post until 2023.

Case earned $16.2mn and advanced two positions in the charts, to seventh place.

Meanwhile, The Hartford’s chairman and CEO, Christopher Swift, saw a 5.9 percent increase in his total compensation, allowing him to leapfrog four positions into ninth.

The board of the Connecticut-based company approved a $4.8mn annual incentive programme award representing 160 percent of his target on the back of him delivering “strong underlying financial results across multiple business segments despite a second consecutive year of elevated catastrophes”, “successfully closing the divestiture of Talcott Resolution” and “entering into an agreement to acquire Navigators”.

His remuneration rise followed a 30.1 percent increase in 2017, which had allowed him to jump from  17th place to 13th that year.

Newcomers

A significant novelty of the 2018 pay league panel, and the top 10 in particular, was the inclusion of Ajit Jain and Gregory Abel from Berkshire Hathaway.

The appointments that saw them feature in the company’s summary compensation table for the first time were seen as a hint at a possible succession to 88-year-old Warren Buffett, CEO of the company, and his 95-year-old business partner and vice chairman of the board Charlie Munger.

With a biblical intonation, Jain and Abel were named vice chairman insurance operations and non-insurance operations, respectively, of the Nebraska-based company in January 2018.

With the same total compensation of just over $18mn each, Jain and Abel shared fourth spot in the league table.

Unlike almost all public companies, Berkshire Hathaway’s compensation committee has a policy that precludes consideration of profitability and stock market value when it comes to the compensation of  executive officers.

On the contrary, it relies on Buffett to subjectively determine the remuneration of executives, which is predominantly made up of base salary and does not include stock options.

Finally, another breadth of fresh air in the top 10 came with the promotion of Marc Grandisson to the top job at Arch, taking over from Dinos Iordanou in March 2018 as president and CEO

As part of the leadership succession plan, Grandisson was awarded options to buy 616,284 shares worth $4.5mn.

As a result, the former COO’s compensation shot up from $7.1mn in 2017 to $12.9mn, catapulting him 27 positions up to 10th place in the pay league.

Risers and fallers

The list of biggest movers was again dominated by the leadership shake-up at AIG, with one of the five most significant risers and three of the five biggest fallers belonging to the company. 

On the upside, Mark Lyons was awarded $4.8mn having joined the company in June 2018 and being appointed EVP and CFO on 4 December.

This was 34 percent more than the $3.6mn he had pocketed in 2017, during his last full year as CFO of Arch.

The 2019 target total direct compensation opportunity for Lyons approved by AIG’s committee stood at $6mn.

Lyons replaced Siddhartha Sankaran, who was released in February 2019 with a lump sum severance payment of $4.4mn.

Sankaran’s total remuneration for 2018 stood at $6.6mn, down 44.9 percent from the $12mn he received in 2017 when AIG’s board decided to grant one-off restricted stocks units to members of the executive leadership team to “promote stability” during the transition following the resignation of Hancock in March 2017.

The outgoing CFO fell 17 positions on the chart.

But the most significant move of all was that of Argo’s boss Mark Watson III, who climbed 72 positions in 2018.

Watson earned total compensation of $8.3mn, up from $3mn the prior year when he had fallen out of the top 50 altogether.

The surge came as a result of performance awards approved by Argo’s board in November 2018 acknowledging the “support our shareholders expressed for the 2015 Performance Award and the performance achieved by our management team over the three-year period of the 2015 Performance Awards”.

Argo Group has been making headlines since February when it came under attack from activist investor Voce Capital, which fiercely criticised the company’s corporate governance practices and accused Argo of having a “self-indulgent culture of entrenchment, commingling of personal and business activities and disregard for shareholder interests”.

With the controversy still ongoing, Voce has proposed a change in five members of Argo’s board and suggested it would vote against the company’s 2019 omnibus incentive plan, and the advisory vote on approving the compensation of named executives at the AGM.

Influential shareholder proxy firm ISS said yesterday (13 May) that shareholders should vote against the Voce slate of directors, but did encourage them to oppose Watson’s remuneration package.

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