Mutual insurance carriers have not been totally immune from pressures to clearly disclose details of their executive programs, but those who haven’t started down the disclosure path already may need to get up to speed soon, experts say.
John Collins, a senior executive compensation consultant in Towers Watson’s New York office and John Gayley, a director in the executive compensation practice in Chicago, gave the warning in a post on the firm’s Executive Pay blog in June, pointing to pay disclosure proposals contained in a document on corporate governance principles published by the National Association of Insurance Commissioners in April.
The exposure draft, Proposed Responses to a Comparative Analysis of Existing U.S. Corporate Governance Requirements, from the NAIC’s Corporate Governance Working Group “focused on increasing transparency and disclosure on a wide range of issues related to the governance and viability of insurance companies—including how they manage executive compensation,” the consultants say.
They note that outside boards at many large mutual insurers have already asked management to develop pro-forma versions of both the Compensation Discussion and Analysis (CD&A) and the compensation tables routinely required of public companies by the SEC.
Those that aren’t already doing this, however, “may need to pay special attention to the NAIC proposals as they contemplate requirements for pay disclosure that are directionally similar to those required for public companies,” Collins and Gayley write.
According to the blog item, if the proposals are approved, the NAIC will recommend to state insurance departments that they implement two types of enhancements:
“The supplemental compensation exhibit (so-called Exhibit B) bears a strong resemblance to the Summary Compensation Table (SCT) required for public companies (although the NAIC is suggesting disclosure of this information for twice as many executives as the SEC rules require),” the blog item says.
The authors note that the NAIC is proposing enhanced information on compensation management, policies and practices “under the auspices of disclosures on the company’s corporate governance framework,” but that specific topics bear some resemblance to questions that the SEC suggests companies answer in their CD&As.
The blog item sets forth some of the language of the NAIC document describing the types of issues the NAIC believes carriers should address. Among them are:
“Public companies will see much here that’s familiar,” but mutual insurers that have not previously developed a pro-forma proxy disclosure will face challenges under the NAIC proposals, the blog item notes, suggesting, however, that the experience of public company counterparts provide workable examples from which they can learn.
While company management plays a “central role” in preparing disclosure, the bloggers also recommend using the board’s compensation committee “as a key partner” for disclosure preparation.
“The committee will provide an invaluable external litmus test of whether your new disclosure language on program governance is understandable, accurate and responsive to the NAIC’s intentions,” they write.