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State Farm executive compensation erodes

Thu, 10 May 2012 14:47:50 CDT
By: Charlie Schlenker

State Farm executive compensation erodes Top executives at State Farm Insurance have seen their compensation fall to the lowest levels in seven years. This comes even during a time of apparently improving company performance. Documents from the Illinois Department of Insurance show CEO Ed Rust Jr. received $9.25 million in compensation in 2011. Only $1.8 million is salary, which has had relatively little movement over the years. The rest is what the company terms "at risk compensation," though on state forms it is referred to as a bonus. Rust's total compensation dropped 32% from his career high of $13.66 million in 2008. Others with compensation at seven year lows are Vice Chairman and COO Michael Tipsord, and Vice Chairman and Chief Agency and Marketing Officer Michael Davidson. At a five year low is Senior Vice President of Investments Paul Eckley. At a six year low is Executive Vice President Brian Boyden. The next tier of executives for whom compensation data are available mainly had flat to falling bonuses over the last few years. Back in 2005, State Farm restructured compensation of many of its top executives to come closer to peer companies. Many top officers received significant bumps at that time to forestall temptation for talent to jump ship.

The downward pay and bonus trend has happened, during a period State Farm regained most of the net worth destroyed in the financial crisis several years ago.

Year           State Farm net worth            CEO Compensation

2011          $60.8 b                                      $ 9.250 m
2010          $61.2 b                                      $10.177 m
2009          $58.1 b                                      $ 9.443 m
2008          $53.3 b                                      $13.656 m
2007          $63.7 b                                      $11.707 m

There has been nationwide protest of CEO compensation at some companies when pay and bonuses have shown little correlation with company performance. Tom Wilson, the Chairman of Allstate, received a 20% increase in compensation last year to $11.2 million even though the stock price of the Northbrook, IL based firm dropped significantly and home and auto market share eroded.

At State Farm, though, a spokesman says executive compensation is figured using measurements of corporate performance over the previous three years. Among the criteria weighed in the rolling average are overall financial results, growth, customer retention, and employee satisfaction. Company net worth has recovered faster than executive pay and bonuses at State Farm. See a list of company executives and their pay and bonus amounts here. Compensation

The financial crisis has hit subsidiary State Farm Bank FSB hard. The thrift turned a profit last year, but in three prior years, parent State Farm Mutual had to infuse the bank with a total of $700 million to maintain status as well-capitalized, according to analysis done for the National Association of State Farm Agents. The analyst also expressed concern over asset quality at the bank because of higher than peer group average charge offs of uncollectible loans. According to J.D. Power and Associates, State Farm is close to the industry leader in customer retention with rates above 90% in recent years. A company spokesperson declined to answer questions about employee satisfaction. But the company has reported it plans to reduce retiree health benefits. State Farm also turned down a request to discuss policy growth, combined ratio, operating ratios, and return on equity, which could be other measures to gauge executive effectiveness.

   


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