Maryland Chief Slashes CareFirst CEO Severance to $9 Million

July 15, 2008

Maryland Insurance Commissioner Ralph S. Tyler has ruled that CareFirst can pay its terminated chief executive officer $9 million in severance, about half of what the nonprofit health insurer had proposed.

Tyler ruled that CareFirst’s proposal to pay former CEO William
L. Jews $18 million after it terminated his employment violated a 2003 state law that limits executive compensation at CareFirst to that which is “fair and reasonable . . . for work actually performed for the benefit of” CareFirst.

Tyler ruled that CareFirst could make a total payment to Jews of nearly $9 million ($8,985,081), one-half the amount that CareFirst proposed to pay, and that a payment at that level was warranted in light of all the facts.

Tyler explained his decision in a 65 page statement of reasons as to why CareFirst’s proposed payment of nearly $18 million was unlawful and why a payment half that amount was permissible. The reasons Tyler cited included:

the public purpose mission of CareFirst;

the inconsistency between the company’s statutory nonprofit mission and its proposal to pay its departing CEO $18 million;

the fact that, under Jews’ leadership, the company strayed significantly from its nonprofit mission;

the failure of the CareFirst board to act to restrain the CEO’s compensation;

the fact that $18 million is almost seven times Jews total annual gross compensation;

the substantial compensation Jews received while CEO (more than $16.5 million in his last six years as CEO, plus another $1.6 million in deferred payments);

the former CEO’s mixed record of achievement, prominently including the failed transaction which he championed to convert the company to a for-profit entity and have it acquired;

the fact that some of the compensation that CareFirst proposed to pay is contrary to the practice at entities similar to CareFirst;

the fact that CareFirst proposed to continue to pay Jews his base salary (approximately $1 million) for one year beyond the expiration of the non-compete provision in Jews’ employment contract;

the fact that Mr. Jews was CEO for 13 years; and

the fact that more than $2.4 million of the $9 million is for previously deferred payments.

Since his termination, Jews has continued to receive his base salary and other benefits (totaling in excess of $2.2 million). Tyler’s final order provides that Jews’ post-termination payment ($8,985,081) is to be reduced by all sums that Jews has received since his termination, plus interest.

The decision in this case followed a hearing that lasted four and a half days. Ten witnesses testified, and the transcript of the proceedings is almost 1,400 pages long. The record also includes more
than 200 exhibits.

Source: Maryland Insurance Administration

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