Bonus payouts for insurance company chief executive officers continued to be above target and commensurate with good financial results and strong total shareholder return in 2019, according to a new report from Compensation Advisory Partners (CAP).
The P/C companies in CAP’s study experienced 7.9 percent median revenue growth in 2019 compared to 5.5 percent in 2018. Operating income increased for all the P/C companies in the sample, with a median increase of 23 percent in 2019 compared to 18 percent in 2018. Net investment income for those companies increased 11.2 percent at median compared to 2018 growth of 4.5 percent.
These performance results led to CEO bonuses as percent of target for 2019 that were consistent with prior years (132 percent in 2019 versus 135 percent in 2018), though payouts were down slightly as percent of salary (393 percent in 2019 versus 409 percent in 2018). However, CAP said that on a dollar-value basis, bonus payouts increased by 5 percent year-over-year, driven by small increases in salaries and target bonus opportunities.
CAP examined 2019 compensation and financial performance across the property/casualty and life/health insurance segments, focusing on financial performance, CEO pay trends and current industry dynamics, including the impact of the COVID-19 pandemic. The P/C insurers sampled in CAP’s pay-for-performance analysis were Allstate Corp., American International Group, Assurant, Chubb Limited, CNA Financial Corp., Hartford Financial Services Group, Progressive Corp. and Travelers Companies Inc.
Looking forward, CAP said it expects financial performance in 2020 to be lower and to impact compensation accordingly, thanks to the impact of the COVID-19 pandemic. Companies will likely pay below target incentives, with some falling below threshold and paying no incentives to executives and a few paying above target. However, CAP noted that performance and bonus payouts will vary significantly depending on the line of business.
CAP also expects the pandemic will lead many companies (across industries) to evaluate their incentive compensation plans to determine if any design changes are needed—for example, increased weighting on individual, strategic or ESG performance components; a greater degree of informed discretion used in approving final payouts; a shorter performance period for performance-based long-term incentive plans.
Source: Compensation Advisory Partners