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    Boston Capital

    Ted Kelly’s pay shocking on several levels

    One brief question this morning for directors at insurance giant Liberty Mutual: What on Earth were you thinking?

    I’ve spent the last few days trying to imagine the Boston company’s board meetings, when those directors looked over Ted Kelly’s bulging pay package year after year and came to the conclusion that, yes, that was reasonable compensation for their recently retired chief executive. My imagination fails me.

    Kelly and his compensation - $40 million or more annually in each of the last five years - has been in the news this week for good reason. His total compensation peaked at about $53 million four years ago but has averaged more than $31 million annually over the past decade.


    Experts who track these kinds of numbers say Kelly is one of America’s highest paid chief executives.

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    Kelly has emerged as our new local poster-manager for executive compensation excess.

    I’m sure a handful of hedge fund managers and private equity investors sometimes rake in even more money. But I can’t think of anyone who has regularly made more for managing a Massachusetts company that he did not own.

    Consider two points of comparison. The executive who runs Allstate Inc., another insurer in Liberty Mutual’s weight class, made an average of about $10 million annually over the past three years. EMC Corp. chief Joe Tucci, who runs a very different business that happens to be the state’s most valuable public company, made about $13 million last year.

    Kelly has been featured in this space before, and I am generally a fan of his track record running Liberty Mutual. He grew the business, spreading out across the globe and buying other big property and casualty insurers such as Safeco at opportune moments.


    Liberty Mutual has been a good corporate citizen in Boston, and Kelly played a visible role in civic affairs, especially in the later years of his career.

    But none of that pencils out to $322 million, a fair estimate for what Kelly earned over the 13 years he led Liberty Mutual.

    Company officials point out that their retired chief cashed out lots of accumulated awards toward the end of his career. That can explain a big year or even two - not the staggering total over his tenure.

    Still, the dollars are only half the story. The other part: a striking lack of transparency or corporate accountability to the policyholders a mutual insurance company like Liberty exists to benefit.

    Mutuals aren’t required to report nearly as much compensation information as publicly owned companies must - and they don’t. Many details remain undisclosed.


    Liberty Mutual omitted Kelly’s pay in its 2011 executive compensation report because the chief executive retired last summer and was gone on Dec. 31. Globe reporter Todd Wallack bought an insurance policy just so he could get into Liberty Mutual’s annual meeting this week and ask Kelly directly how much he made in 2011.

    Liberty Mutual’s former CEO has done a lot for the company - and for the community. But how did the board justify an estimated $322 million over 13 years?

    The answer: About the same as other recent years, which would be $45 million or even more.

    Policyholders have few practical ways to learn how insurance executives are paid. Even if they did, those policyholders have no practical way to hold managers or directors accountable.

    Speaking of directors, I called Liberty Mutual yesterday to find out which ones sat on the board’s compensation committee but never got an answer. A spokesman pointed out that the entire board approved executive compensation.

    That’s surely part of the problem. Many Liberty Mutual directors sat on each other’s boards and share business interests. They included NStar Inc. chief Tom May, Liberty Mutual chairman emeritus Gary Countryman, and William Van Faasen, chairman of Blue Cross Blue Shield of Massachusetts, among others.

    They all said yes too often to Ted Kelly. No insurance policy ever pays off like that.

    Steven Syre is a Globe columnist. He can be reached at