Shocked that Liberty Mutual paid its former chief executive roughly $50 million a year, three Massachusetts senators have proposed budget amendments to discourage other mutual companies from awarding outsized pay packages in the future.
State Senator Brian A. Joyce, Democrat of Milton, would require mutual companies, both insurers and banks, to publicly disclose compensation for top executives, just as publicly traded companies are required to do. Senator Mark C. Montigny, a New Bedford Democrat, would give policyholders at mutual insurers a chance to vote on executive compensation, similar to the “say on pay” votes by stockholders of public companies, which was mandated by the Dodd-Frank financial overhaul bill.
Senator Patricia D. Jehlen, a Democrat from Somerville, would bar directors at mutual companies from serving on compensation committees — which set CEO pay — if they have a conflict of interest, such as working for the chief executive. The measure would also require most directors on the board of directors to be independent — meaning they do not work for the CEO or have other conflicts.
“I hope we can do something to protect policyholders, the supposed owners of mutual companies,” said Jehlen.
The proposals are expected to be voted on as early as Wednesday.
Mutual insurance companies and banks are collectively owned for the benefit of their policyholders and depositors. While the Securities and Exchange Commission is explicitly charged with protecting shareholders in publicly traded companies, there is no similar agency to protect the ownership interests of policyholders or depositors.
Concerns about oversight of mutual companies were spurred earlier this year when the Globe reported that former Liberty Mutual Holding Co. chief executive Edmund F. “Ted” Kelly collected roughly $200 million in his last four years as chief executive. Kelly stepped down as CEO in June 2011, but still serves as chairman of the board of directors.
The Boston mutual insurance giant said the pay was inflated because Kelly cashed in performance incentives that he collected over nearly two decades with the company.
“I was simply stunned by the pay received by Liberty Mutual’s chief executive,” said Joyce, the Milton Democrat. “By any objective measure it was obscene.”
Some mutuals are required by state insurance regulators to file basic information about executive compensation, but Joyce’s proposal would affect more companies, include more details, and require them to disclose the information directly to customers, in addition to regulators. Joyce said mutual companies exist for the benefit of their members and therefore, members have the right to know how profits are being distributed.
Liberty Mutual spokesman John Cusolito said the company was aware of the amendments and thought “there are some provisions that make sense.” The company has also said it plans to start publicly reporting executive pay in a format similar to that used by public companies starting early next year.
MassMutual Financial Group, a major mutual insurance company based in Springfield, said it “expects to work with the Legislature to better understand its perspective on this matter.”
It’s not clear whether the legislation will be adopted. Most budget amendments fail, though some later become law either as standalone bills or part of broader legislation. Governor Deval Patrick’s administration and Senate President Therese Murray declined to comment.