Health Insurance CEO Pay Outpacing Revenue Growth, Survey Says

Health insurance CEO pay is outpacing the growth of revenue and growth of other top executives’ pay according to a report.

BDO USA surveys between 16 and 23 health insurance companies annually to obtain data on compensation, benefits, perquisites and contract agreements for executive and senior management positions in their organizations.

The most recent survey showed that total direct compensation (the sum of base salary plus annual incentives and long-term incentives) for health insurance CEOs increased 12% from 2018 to 2019, while the companies themselves experienced a 6% increase in total revenue during the same period. Total direct compensation for health insurance CEO is outpacing most other top executives as much 1.5 to 2.4 times faster.

The BDO USA survey revealed four trends for health insurance companies to consider when evaluating opportunities to reward their top executives and guide their executive compensation planning.

1. CEO pay outpaces growth of revenue and pay for other top executives.

2. Growth in premiums and other incentive plan financial metrics outpace membership enrollment.

The survey found  that net income and net premiums written increased at a five-year compounded average growth rate of 16% and 5%, respectively, whereas total health enrollment only increased at a 3% compounded average growth rate.

3. Variable pay continues to gain prominence for health insurance executives.

Survey results showed that all but one company reported having an annual incentive plan; and all but two companies reported having a long-term incentive plan.

4. Supplemental executive retirement plans and change of control agreements are common, but carry potential risks.

These plans are very common, offered by 67% of health insurance companies. They serve as important executive retention devices. However, upon a triggering event (two-thirds of surveyed companies require a double trigger), the size of the payouts can be newsworthy. Boards, management and other stakeholders are advised to be aware of the size of these potential payouts and ensure that the amounts are defensible.

Compensation is a critical tool for attracting and retaining executives as well as driving the right strategy, the study’s authors said.  It is important to know what other companies are doing; however, it is also important that each company ensures that its programs 1) align with the company’s market, mission, and strategy and 2) is sized correctly to balance the needs of all stakeholders.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].