The Mercer study says that CEO pay levels for property/casualty insurers decreased by 15%, while pay levels for life and health insurers were flat in 2007. Bonuses were lower by 20% or more at more than 40% of the insurance companies studied, and the median bonus paid to property/casualty company CEOs was more than 40% lower than in 2006.
Mercer, which is a consulting and investment services division of Marsh & McLennan Cos. Inc., studied 17 property/casualty insurers and 13 life and health insurers.
Long-term incentive plans that have an emphasis on performance-based awards are expected to become more challenging to meet, said Melissa Burek, a principal with Mercer’s executive compensation division, largely due to external factors including catastrophe events, interest rates and the deepening credit crisis.
"Insurance companies have always faced issues such as catastrophes and how to appropriately link a pay program to performance, understanding that they may experience a catastrophe that will wipe out results," Ms. Burek said. "Now we have rising interest rates, which the insurance industry is very influenced by, as well as other factors such as legislation and the bailout, and it's becoming much more challenging for compensation committees and for companies to appropriately set credible goals for compensation purposes and to ensure shareholders that they are in fact paying for performance."
Ms. Burek added that insurers may have to pay closer attention to their bottom lines rather than just operating income, given the high losses on investments that some companies have experienced.
In respect to severance and payments on change of leadership, retirement or termination, Ms. Burek said companies will likely have to make a "change in practices," as this has become an area of much scrutiny as a result of the economic downturn.