ANALYSIS: Shareholders raising ruckus about CEO pay

Introduction

One of my responsibilities when I was head of corporate communications at Cigna was to help ensure that the company’s annual meeting of shareholders ran smoothly and, if at all possible, attracted no negative publicity.

I always dreaded the annual meeting because you really never knew if one or more disgruntled shareholders might show up and ask rude questions of the CEO. But during all of my years of helping plan those meetings, we had an unblemished string of non-events. We considered the meetings marathons if they lasted more than 15 minutes. Most of them were over long before then. Over the course of 10 years, I only recall two reporters who felt compelled to attend, and one of them got stuck in traffic and missed the whole thing.

Some of my peers at other health insurers were not that lucky, but relatively few of the big-profit insurers have had to cope with contentious shareholder meetings.

It is clear those days are over.

Some investors are now beginning to question how those companies make the billions of dollars in profits they report every year, especially with the ranks of the uninsured continuing to swell, how they spend policyholders’ money to influence public policy and whether their CEOs are truly worth all they are being paid.

Of the five biggest for-profit insurers, Cigna will lead off the annual meeting season this coming Wednesday in Hartford and it will not likely be the sleeper previous meetings have been.

That’s because earlier this month, one big shareholder — the Change to Win (CtW) Investment Group — sent a letter to other shareholders urging them to “send our board a clear message: Cigna’s executive pay structure is broken and open engagement needs to begin with concerned shareholders, immediately.”

CtW, which works with pension funds sponsored by several unions, decided to send the letter after seeing that Cigna CEO David Cordani was given a pay raise of more than 25 percent last year, bringing his total compensation to more than $20 million. That was “chiefly on the back of a poorly-utilized performance metric that put cash in (Cordani’s) pocket only because our customers cannot afford to go to the doctor,” CtW said in its letter.

Sources within the company have told me that many employees were as upset as CtW to see Cordani get such a huge increase in compensation when most of the rank and file have been lucky to get raises of 2 percent or 3 percent in recent years.

CtW is also taking aim at the multimillion-dollar severance packages the company has given to executives who left the company to, as we used to say, “pursue other opportunities” or to “spend more time with their families.”

“Over the past three years,” CtW wrote, “(Cigna) has awarded four separate departure packages for executive officers, including several with short tenures.” The letter cited as an example an executive who left in December 2011 with a “departure” package worth almost $4 million, even though he had been in the job for only about 18 months.

CtW’s letter and an April 4 Hartford Courant story based on it have inspired health care reform advocates to stage a protest outside of the Bushnell Performing Arts Center during Cigna’s annual meeting, which will begin at 3:30 p.m. on Wednesday. Among the protestors likely will be Juan Figueroa, president of the Universal Health Care Foundation of Connecticut.

Figueroa noted that Cigna is also a member of America’s Health Insurance Plans (AHIP), which he said has testified before the Connecticut legislature on behalf of Cigna and other insurers against a bill that would allow small businesses in Connecticut to buy insurance through the state employee plan.

Figueroa and other advocates have also been critical of a huge tax incentive package the state recently awarded Cigna. That package could be worth as much as $71 million if the company increases its workforce in the state over the next 10 years.

CtW and Figueroa are also still outraged that Cigna and other insurers gave AHIP $86 million that AHIP in turn funneled to the U.S. Chamber of Commerce to finance the Chamber’s 2010 advertising and PR campaign against health care reform. The specific target of the campaign was a proposal that would have permitted the federal government to establish a public insurance option to compete with private insurers.

Consumer advocates have also cited the use of policyholders’ premiums being used to fund the Chamber’s campaign as a reason why they are trying to get another big insurer, WellPoint, to disclose all of its corporate political and lobbying expenditures. A coalition of activist investor groups is even demanding the resignation of two WellPoint board members, including Susan Bayh, the wife of former Sen. Evan Bayh, D-Ind., because of “high risk political spending.”

Another group of activist investors, led by Dr. Robert Stone, will once again be attending the WellPoint annual meeting next month to encourage other shareholders to support his call for WellPoint’s Blue Cross plans to revert to their nonprofit status.

Insurance company CEOs in the past would have dismissed these challenges as mere annoyances, but no longer. Certainly not after Citigroup’s shareholders made front page headlines last week when they voted against the bank’s $15 million pay package for its CEO.

If shareholders of Citigroup, which with a market cap of almost $100 billion is more than seven times as big as Cigna, were upset with a $15 million CEO pay package, Cigna’s shareholders just might agree with CtW and Juan Figueroa that David Cordani might not deserve that 25 percent pay hike.