Hartford's TARP Windfall May Hit New CEO In The Wallet
June 04 2009 - 4:37PM
Dow Jones News
When Hartford Financial Services Group Inc. (HIG) takes
possession of its $3.4 billion in funding from the U.S. Treasury in
the coming weeks, its hunt for a new chief executive may get a
little more complicated.
Along with the capital come a host of restrictions on executive
compensation that could put Hartford in a unique spot among its
competitors.
Typically, salaries for new executives are based on a
"comparative analysis" of what executives at competing companies
make, said Andrew Barile, a reinsurance consultant based in Rancho
Santa Fe, Calif., who has served on insurance company board
compensation committees. Hartford's unique status as an insurance
company in the Troubled Asset Relief Program, or TARP, puts it into
"new territory," he said.
On Thursday, Hartford announced that embattled Chairman and CEO
Ramani Ayer will retire by the end of this year, once an external
replacement is selected. In 2008, Ayer received a base salary of
$1.15 million, $1.1 million in stock awards, and $2.1 million in
option awards.
But proposed compensation guidelines issued by the Treasury in
February would limit senior executives at TARP-recipient companies
to $500,000 in total annual compensation plus restricted stock,
unless the company discloses the compensation and shareholders are
allowed to vote on the issue.
The proposed guidelines also impose clawback clauses on the top
20 senior executives, put bans on so-called golden parachutes, and
put restrictions on "luxury expenditures" that could affect how
executives are compensated.
A spokeswoman with the Treasury Department said she hadn't heard
that companies had difficulty recruiting under the compensation
restrictions and the issue hadn't come up frequently.
American International Group Inc. (AIG) is under perhaps even
more stringent restrictions on what it can pay its top executive,
given the more than $140 billion the government has invested in its
rescue. In May, Edward Liddy, AIG's chairman and CEO, said he would
resign once the company selected a successor.
The subject of executive bonuses at AIG's troubled
financial-products unit came under congressional scrutiny earlier
this year, and some lawmakers threatened to pass legislation
imposing a 100% tax on AIG employee bonuses of more than $250,000.
Many of the executives ended up returning the money and several
resigned in protest.
In an interview, Ayer said Hartford has received preliminary
terms and conditions of its Treasury investment, but the deal had
yet to be finalized.
As to who might take over his role, Ayer said the company will
be looking for "a strong, experienced leader to take the company
into its third century," and that the company's strong culture and
trusted brand made the company attractive to customers and
potential leaders.
Only external candidates are being considered, he said.
German insurer Allianz SA (AZ) made a $2.5 billion investment in
October, but isn't interested in running the company, Ayer said in
an interview Thursday.
A spokeswoman with Allianz declined to comment on Hartford's
search for a new leader.
Shares of Hartford closed Thursday at $14.93, up 5 cents.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750 4141;
lavonne.kuykendall@dowjones.com