Skin in the Game: How Insurance CEOs Fare and Why Buffett is a Bargain

By | March 12, 2008

Since the March 10 issue of Insurance Journal puts the spotlight on agency salaries (Who’s Worth What? Insurance Journal’s Annual Agency Salary Survey), it’s only fair that the compensation of corporate CEOs come in for some scrutiny as well.

No, we’re not going on a paycheck hunt, even though the information on who’s worth what among insurer CEOs is readily available from the Securities and Exchange Commission (

If we used the SEC executive disclosure finder, we could tell you that only $1 million of Travelers Insurance CEO Jay S. Fishman’s total $16 million package is salary.

We could also point out that J. Patrick Gallagher, Jr. has negotiated himself a deal worth $3.3 million, including a $925,00 salary, for showing up every day as chairman, president and CEO of Arthur J. Gallagher & Co.

Also, don’t tell anyone but Progressive CEO and President Glenn Renwick makes $750,000 in salary while his total compensation is $5.4 million. Or that Martin J. Sullivan, CEO of American International Group, the world’s largest insurer, also reports a salary of $1 million out of total compensation that tops $21 million.

Chubb Corp.’s John D. Finnegan takes in $16.7 million total, with $1.275 of that in salary.

But we’re not going to look at those numbers on the SEC site because if we did, we might feel compelled to advise one of the world’s richest and probably smartest men, Berkshire Hathaway CEO Warren Buffett, to look for a new job. He only pays himself $100,000 salary and a total package worth $214,000. Not sure if Buffet knows this but his CFO does better– he gets $662,500 in salary. (Maybe Buffett holds down a second job at his furniture mart to help make ends meet.)

We’re not even going to mention the Reuters report that Marsh & McLennan Cos. Inc. will pay Michael Cherkasky $7.15 million as part of a severance package reached after he was forced out earlier this year.

Instead of succumbing to the paycheck envy that haunts many journalists, we’re going to go in a completely different direction with this topic. We are going to simply cite The Conference Board report that found that the highest median total compensation ($3.9 million) for CEOs is recorded in utilities, food and tobacco, and — you guessed it – the insurance industry, with construction a close fourth.

By the way, total compensation in the executive world includes annualized salary, bonus, non-equity incentive compensation, the reported grant date present value of options, the value of stock awards, the change in pension value, and all other compensation.

The median CEO compensation in the insurance industry ranks third out of 22 industries, while the median CEO cash compensation (sum of annualized salary, bonus, and non-equity incentive compensation) is highest in the insurance industry ($1.6 million).

It was a relief to hear The Conference Board say that CEOs of the largest companies actually have a substantial amount of “skin in the game,” whereas smaller companies tend to reward their CEOs more with salary than with stock or other forms of compensation. Looking at CEOs of the smallest companies, the median chief executive is holding 11 times salary in stock and stock options. But his/her CEO counterpart among the largest 10 percent of companies is holding more than 80 times salary in company stock and stock options.

The authors suggest that small companies might be relying more heavily on salary because, in general, “the impact of CEO leadership (new products, marketing or processes) may be more immediate and thus effectively rewarded using shorter-term compensation.”

Of course, not all employers, and indeed very few insurance agencies or brokerages, are in a position to offer a lot of “skin in the game” beyond salary to CEOs, producers or other employees.

But the CEO world teaches us that linking employees’ compensation to the performance of the company as a whole in whatever ways a company can makes a whole lot of sense. Clearly, salary should not be the sole measure of how much “skin in the game” someone has.

Isn’t that right, Mr. Buffett?

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