Chief executives of US mutual insurers could have their pay set by independent directors if proposals agreed by the Massachusetts senate are adopted nationwide.
Mutually structured companies, which are member-owned and tend to be state-regulated, have until now escaped the “shareholder spring” that has focused attention on executive pay at public companies.
However, the revelation that Edmund Kelly, former chief executive of Boston-based Liberty Mutual, took home $200m in pay over four years has triggered a public backlash that has been seized on by politicians.
State senators backed an amendment to the Massachusetts budget that would require mutual insurers to establish compensation committees made up exclusively of independent directors and “determine and approve the chief executive’s compensation level”.
The amendment could become law as early as this week, when representatives of the upper and lower chambers of the legislature meet to reconcile budget proposals.
The pay issue was highlighted by Brian A Joyce, a Democratic state senator who worked for the insurer Boston Mutual before entering politics.
“The payments to the former chief executive of Liberty Mutual were truly outrageous but, under our state’s current requirements, one would have to be a forensic accountant to decipher the pay of top executives at mutual companies,” Mr Joyce told the Financial Times.
“Just as shareholders, who are in fact the owners of a stock company, have the right to information on the compensation paid to top executives, so mutual policyholders, as owners of a mutual company, have the right to clear disclosure.”
The pay awards to Mr Kelly came while state and city governments agreed almost $50m in tax breaks as an incentive for Liberty Mutual to keep its headquarters in Boston.
The company has said his pay was inflated in his last years in the chief’s post because he cashed in “phantom stock options”, used by mutually structured companies as a form of performance incentive, that he had accumulated over almost 20 years.
Mutual insurers, which manage $840bn in assets according to the University of Wisconsin Center for Co-operatives, are required to disclose the total salaries of top executives to state regulators. Individual state insurance commissions choose how to use such information.
The Massachusetts amendments would also require companies to “conspicuously publish disclosure in a format readily accessible to members”, rather than simply reporting pay awards to commissioners.
The National Association of Mutual Insurance Companies said it was monitoring the situation closely, while lobbyists have been seeking to persuade members of the Massachusetts lower house to block the senate proposals.
Mr Joyce said he was contacted by 13 different lobbyists last week before the senate vote.
Separately, Congressman Barney Frank introduced legislation in Congress on Wednesday that would prevent executives at financial companies taking out insurance policies that would protect them from a pay clawback or civil penalty when their actions harm their companies.