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 ٢٠١٨.
Other prominent names to make the top ١٠ 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 ٦ percent year-on-year, in line with a benchmark for the broader S&P ٥٠٠ published by the Wall Street Journal;
– The average remuneration for the top ٥٠ best-paid executives – including CFOs and other staff – rose by ٣.٦ percent to $٨.٦mn;
– Total compensation for the top ٥٠ was $٤٦٩mn, down ١٢.٥ percent year on year, but this headline figure was skewed by an $٨٢mn drop-off at AIG owing to the timing of the arrival of the new executive team.
The collective remuneration of the ٥٠ highest paid executives in the P&C (re)insurance industry stood at $٤٦٩mn in ٢٠١٨, up almost ٤ percent after taking the skewing influence of AIG into account.
Our annual survey includes all executives named in SEC filings (DEF ١٤A and ١٠-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 ٥٠ pay was down by ١٢.٥ percent in ٢٠١٨ but the fall mostly reflected the comparison against an unusually high base in ٢٠١٧ 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.
If AIG executives are excluded from our analysis, the year on year comparison of compensation for the top ٥٠ positions changes altogether, with a ٣.٦ percent increase in ٢٠١٨ relative to ٢٠١٧.
Including AIG, each member of the top ٥٠ earned $٩.٤mn in ٢٠١٨ on average compared with $١٠.٧mn in ٢٠١٧.
The ٥٠ highest paid executives stood at $٨.٦mn in ٢٠١٨ compared with an equivalent $٨.٣mn for ٢٠١٧.
The above figures include the firm’s CEO, CFO, and highest paid named executive officers.
Looking at CEOs in isolation, average compensation totalled $٧.٩mn 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 ٣٥.٨ percent but US nationwides’ slipping by just ٠.٧ percent.
For the large cap carriers, it was again a case of AIG distorting the comparison with ٢٠١٧, with that year’s panel featuring Duperreault’s one-off $٤٣.١mn initial pay packet as well as departing CEO Peter Hancock’s $٢٤.٢mn walk-away pay.
Average CEO compensation for this peer group, AIG aside, actually rose ٥.٩ percent in ٢٠١٨.
Indeed, it was a good year for CEOs across the P&C industry: average remuneration, excluding AIG, was up by ٩.٦ percent year on year to $٧.٥mn.
By way of comparison, median compensation for ١٣٢ CEOs of S&P ٥٠٠ companies was up ٦ percent reaching $١٢.٤ million in ٢٠١٨, according to Wall Street Journal analysts.
CEO compensation bounces back ahead of other C-suite executives
The better performance of CEO compensation in ٢٠١٨ relative to that of the overall top ٥٠ – with the former expanding by an average ٩.٦ percent as against a ٣.٦ percent average surge for the latter (excluding AIG) – is a mirror image of what happened in ٢٠١٧.
That year, CEO remuneration fell disproportionately more than that of the top ٥٠, with a reduction of ١٢.٤ percent for chief executives against a fall of ١٠.٨ 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 ٥٠.
In fact, one third of the boost to CEO average compensation over and above the overall top ٥٠ was due to changes to the pay league panel, which
saw six companies de-list during ٢٠١٨.
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 ٢٠١٨, bringing the total number of companies covered by the panel to ٣٢, down from ٣٦ the previous year.
In ٢٠١٧, 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 ٢٠١٧ overall average down.
A like-for-like comparison – that is, excluding those four companies from the ٢٠١٧ average (as well as AIG) – shows the change in average remuneration for CEOs standing at ٦ percent.
This was in line with the broader performance of CEOs at S&P ٥٠٠ companies.
Meanwhile, Aspen also de-listed during the course of ٢٠١٨, and Navigators will stop trading once its takeover by The Hartford completes.
However, summary compensation tables for these two were made available on their ١٠-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 ٢٠١٨, the top ٥٠ 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 ٥٠ in ٢٠١٧.
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 $٢٠.٤mn, ٦.٥ percent up on the previous year but still below his record $٢٤.٤mn in ٢٠١٦.
In ٢٠١٧, 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 ٠.٤ percent to $١٨.٧mn.
The personal lines carrier’s chief had received a $٤.٨mn boost in his non-equity incentive plan compensation in ٢٠١٧ 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 $٤mn in stock and option awards in ٢٠١٧ 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 ٣.٨ percent in ٢٠١٨, at $١٤.٦mn, 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 $١٧.٣mn in compensation, ١.٦ percent up from ٢٠١٧.
By contrast, rival Greg Case – the Aon CEO – enjoyed a ١٠.٦ percent increase in his take-home pay, the biggest increase among the top ١٠ earners in ٢٠١٨. This is likely to have reflected the extension of his contract in April last year to confirm him in post until ٢٠٢٣.
Case earned $١٦.٢mn and advanced two positions in the charts, to seventh place.
Meanwhile, The Hartford’s chairman and CEO, Christopher Swift, saw a ٥.٩ percent increase in his total compensation, allowing him to leapfrog four positions into ninth.
The board of the Connecticut-based company approved a $٤.٨mn annual incentive programme award representing ١٦٠ 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 ٣٠.١ percent increase in ٢٠١٧, which had allowed him to jump from ١٧th place to ١٣th that year.
Newcomers
A significant novelty of the ٢٠١٨ pay league panel, and the top ١٠ 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 ٨٨-year-old Warren Buffett, CEO of the company, and his ٩٥-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 ٢٠١٨.
With the same total compensation of just over $١٨mn 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 ١٠ came with the promotion of Marc Grandisson to the top job at Arch, taking over from Dinos Iordanou in March ٢٠١٨ as president and CEO
As part of the leadership succession plan, Grandisson was awarded options to buy ٦١٦,٢٨٤ shares worth $٤.٥mn.
As a result, the former COO’s compensation shot up from $٧.١mn in ٢٠١٧ to $١٢.٩mn, catapulting him ٢٧ positions up to ١٠th 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 $٤.٨mn having joined the company in June ٢٠١٨ and being appointed EVP and CFO on ٤ December.
This was ٣٤ percent more than the $٣.٦mn he had pocketed in ٢٠١٧, during his last full year as CFO of Arch.
The ٢٠١٩ target total direct compensation opportunity for Lyons approved by AIG’s committee stood at $٦mn.
Lyons replaced Siddhartha Sankaran, who was released in February ٢٠١٩ with a lump sum severance payment of $٤.٤mn.
Sankaran’s total remuneration for ٢٠١٨ stood at $٦.٦mn, down ٤٤.٩ percent from the $١٢mn he received in ٢٠١٧ 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 ٢٠١٧.
The outgoing CFO fell ١٧ positions on the chart.
But the most significant move of all was that of Argo’s boss Mark Watson III, who climbed ٧٢ positions in ٢٠١٨.
Watson earned total compensation of $٨.٣mn, up from $٣mn the prior year when he had fallen out of the top ٥٠ altogether.
The surge came as a result of performance awards approved by Argo’s board in November ٢٠١٨ acknowledging the “support our shareholders expressed for the ٢٠١٥ Performance Award and the performance achieved by our management team over the three-year period of the ٢٠١٥ Performance Awards”.
