I read an article in The Atlanta Journal-Constitution last Friday by PÉRALTE C. PAUL who reported today that Aflac Chairman and CEO Daniel Amos had announced giving up his $13 million “golden parachute” representing the package he would have received had he left the company. An admirable act of leadership that sends a positive message to Aflac customers, employees and shareholders. Good show Mr. Amos.
This once again reminds me though of the amazing money the CEOs of insurance companies make. I know they work hard and deserve to make good money, in fact a lot of money if they lead their company to significant shareholder value over extended periods of time, treat their customers like kings and their employees with respect. But to compensate individuals obscenely at the expense of others based upon marginal or negative results at a company that they did not build; I find this insulting. Extraordinary results, when they can be directly attributed to leadership perhaps support extraordinary compensation, but simply the rising of the market tides shouldn’t get it in my book.
If you would like to know what your favorite executive’s pay looks like you can check out the AFL/CIO’s Executive PayWatch Databaseto get an idea. I’ve pulled a few samples of a few of the biggies in the healthcare biz and you can decide for your self if they are creating “extrordinary value.” These represent total compensation for 2007 from the Pay
Watch Database and may not be representative of changes in any of these companies’ pay policies for 2008 :
Miles White, CEO, Abbott Labs $33.3 million
Ronald Williams, CEO, Aetna $23 million
Daniel Amos, CEO, Aflac $14.8 million
E. Edward Hanway, CEO, Cigna $25.8 milion
Michael McCallister, CEO, Humana $10.3 million
William Weldon, CEO, Johnson & Johnson $31.9 million
David Snow, CEO, Medco Health Solutions $10.5 million
Richard Clark, CEO, Merck & Co. $19.8 million
John Hammergren, CEO, McKeeson Corp $39.9 million
Jeffry Kindler, CEO, Pfizer $ 9.5 million
Stephen Hemsley, CEO, UHC $13.1 million
Filed under: business, health, health insurance, healthcare, hsa education | Tagged: business, executive compensation, healthcare
Good stuff
Here is something from a book I am writing.
Caremark a mail order pharmacy recently merged with CVS. As a result Caremark’s CEO Edwin Crawford will now serve as chairman of the merged company’s. Crawford has been able to negotiate a golden parachute from Caremark by claiming he has departed from the merged Caremark. This parachute ranges from $36 million to $40 million. Crawford has agreed to limit his cash severance to $26 million; however, he will benefit from an accelerated vesting of his stock options. This amounts to $22 million. In total, it is estimated that Crawford will receive $56 million resulting from the merger. This estimate does not include the full value of an insurance policy that will transfer to Crawford’s ownership. The policy’s actual value is $17 million. Additionally, this estimate does not include the $248 million in stock options that Crawford owns that are exercisable. According to The Corporate Library, Crawford could walk away with a total of $287 million, not including the health and welfare benefits he will receive for the remaining eight years of his employment agreement. Crawford has maintained that no other Caremark employee will be allowed to benefit from its merger with CVS.
Jarrad and Kia (2007), explored how compensation CEO’s received following mergers affected their incentives to pursue a merger. They discovered that following the acquisition, company performance suffers; market to book value, return on assets and stock return all drop, and leverage increases. However, the acquiring CEO’s compensation and wealth increased substantially. Also, acquiring CEO’s are not penalized in the post-merger period for poor performance. A good example of this is CEO Dr. Ken Melani, when his insurance company Highmark merges with Independence Blue Cross, he would get a $1 million raise with incentives, bringing his total salary to $3.9 million (Pittsburgh Business Times, 2008). Other executives will benefit from the mergers; David O’Brien, executive vice president of government services, $1.55 million from $996,316; Dan Lebish, CEO of Highmark Life and Casualty, $1.08 million from $891,000; and Nanette DeTurk, executive vice president of finance and CFO, $1.7 million from $1.1 million.
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