Median Change in Insurer CEO Overall Pay Down 1 Percent

Median change in the overall CEO compensation at nine life, annuity and health insurers declined by 1 percent in 2015 year over year, according to a new report.

Overall CEO compensation is made up of the base salary, long-term incentives and cash bonuses.

The base salary of life and health insurance company CEOs increased 1 percent and long-term incentive pay also rose 1 percent, the report by Compensation Advisory Partners said.

Cash bonuses, however, dropped 22 percent, resulting in the overall median change of negative 1 percent.

Life and annuity carriers faced a relatively high degree of volatility, which affects company results and the amount in compensation executives receive.

Life and annuity insurers have had to deal with low interest rates, a strong dollar affecting insurance sales in foreign currencies, volatile investment income and layers of regulation at the federal and state levels.

Some big health insurers, meanwhile, complain of struggling to make a profit amid legislative turmoil around and attempts to repeal health care reform.

“It’s difficult to set goals and performance but the industry has done a good job given the economic variability,” said Melissa Burek, partner with Compensation Advisory Partners and co-author of the study, in an interview with InsuranceNewsNet.

“In 2015, insurance companies were holding their own,” she said.

Compensation results were derived from studying data of nine life and health insurers: MetLife, Prudential Financial, Manulife Financial, Aflac, Unum Group, Genworth Financial, Lincoln National, Principal Financial and Torchmark.

CEO Pay For Performance

When linking 2015 CEO pay to the performance of their respective companies, the study found that bonuses were indeed aligned with corporate performance.

Using a “one-year pay for performance at median” measure, the study found that in 2015 revenue for the nine companies was off by 1.5 percent. Likewise, operating income growth was off by 2.3 percent, and total shareholder returns, or TSR, was down by 7.5 percent.

As a result, the annual bonus change dropped 22 percent, the study reported.

“When setting bonus plan goals, L/H companies may not have adequately planned for the degree to which lower interest rates could impact results,” wrote Burek and her colleagues, CAP Principal Shaun Bisman and CAP Associate Alex Stahl.

Low interest rates hurt life insurers because money the companies receive from maturing bonds can’t be reinvested at the same rate.

In general, though, “companies have done a good job aligning pay for performance over the past two years,” Burek said.

A rigid approach to compensating top executives is ineffective because it doesn’t take into account the interests of shareholders and ignores a company’s internal economic models, the CAP researchers also wrote.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].