Compensation Caps Can positions insurers to poach Bank execs

 

Friday, Mar 06,2009, 6:40:44 PM   Click:

Compensation Caps Can positions insurers to poach execs Bank Raymond J Lehmann
Although some insurers have deplored the Treasury Department's Capital Purchase Program has been blocked by new rules imposed this week on the compensation at bailed-out firms could be a windfall for insurers unwanted, which could begin poaching of some of the best banking talent.

4 February unveiled by President Barack Obama and Treasury Secretary Tim Geithner, the new requirements of $ 500,000 cap on the wages of firms receiving an exceptional "by the federal government could pay their top 20 executives. It also limits companies to pay premiums through the purchase price of shares which could not vest until the government loans are paid back.

The rules do not apply to existing agreements, and companies considered "healthy" may be exempted by the publicity of their plans to exceed the ceiling for shareholders. However, with the American International Group Inc as the only major insurer to receive funds from rescue to date, the rules could be considered as giving a leg in the recruitment industry.

"Very talented individuals are rare. There are many reasons why people choose careers in the private sector - one of which is very high compensation," said Donald Light, Celent senior analyst in the practice of insurance. "If the insurance industry can attract some of those people who can make a real contribution to a new industry, good for him."

Light's thoughts were echoed by Marc Hodak, a management consultant and founder of Hodak Value Advisors LLC, noted that the limits "will present opportunities for competitors not subject to these limits." Limit the amount of senior badly-paid to the competitiveness of enterprises, noted Hodak, then they may also suffer from the exploration of accounting, tax and legal loopholes to try to circumvent the rules of the intention .

"These two factors affect the competitiveness of the regulated / limited company, a little like playing poker where you must double the other player in each round ante," he said.

Although the restrictions do not apply to current AIG $ 150 billion rescue, it could be applied to all insurers that receive government funds in the future. Among those who confirmed the application to participate in the PRC Phoenix Cos., Hartford Financial Services Group, Lincoln National Corp., Genworth Financial Inc., Protective Life Corp., Prudential Financial Inc Principal Financial Group.

But others wondered if the transition from banking to insurance would be so easy, with Robert Detlefsen, Vice President of Public Policy of the National Association of Mutual Insurance Companies, wondering "how many leaders in northern $ 500,000 at banks and securities firms to receive federal aid are the types of skills and knowledge that would transfer easily to the insurance realm. "

"May there be more of a market for their services on the life side, where the investment management - to take an example of the kind of skills which would be offset to the insurer - is a bit more complicated than the P / C side, "said Detlefsen.

Martin F. Grace, associate director of the Georgia State University's Center for Risk Management and Insurance Research, offers cultural differences between insurance companies and banks - in particular, high levels of investment banks - are much larger than many could enjoy. Insurers, Grace noted, tend to be conservative, not only in their investment and decision-making, but in their hiring practices and overall philosophy of the company, which makes it a poor fit of Wall Street to take risks.

"I am sure that there was little or bleedthrough transfer between high-level industries," said Grace. "I think many people got their start in the banking sector only to travel insurance disease, but at the highest level, from one to another, I do not know of too many success stories. "

A greater degree of compatibility can be found at lower levels of organizations, according to the Insurance Information Institute President Robert Hartwig, who suggested that in areas such as accounting, marketing and regulatory compliance of functions, "even DNA is shared across the spectrum of financial services.

"The fact is that you've already seen in some of these areas, employees who seek to flee banks to insurance companies, if simply for fear of job security," said Hartwig. "On the other hand, the insurance industry has its own pipeline of talent, and basic functions of insurance companies are clearly unique from those of banks, that those who have experience in the industry continue to be fostered for jobs. "

Edward R. Rayner, a partner in the employee benefits and executive compensation practice at New York-based Katten Muchin Rosenman LLP, offers the greatest capacity could be seen rather to foreign companies, which could begin "very easily and relatively cheap to fly our best financial talent. "

"Once this talent is more, it will be extremely difficult to return, and I expect that would harm the U.S. financial industry," Rayner added: "Perhaps a better solution would have been to establish a ceiling, based on a percentage of the executive of the premium in 2007. This would have the same goal, while ensuring that U.S. institutions are still able to compete on the world market. "

(By RJ Lehmann, director of the Washington office: raymond.lehmann @ ambest.com)

Copyright © 2009 hours Best Company, Inc. Although some insurers have deplored the Treasury Department's Capital Purchase Program has been blocked by new rules imposed this week on the compensation at bailed-out firms could provide windfall for insurers unwanted, which could start poaching of the banks' top talent.