At Liberty Mutual, accounting to no one
Before we get to the news today, and there is news today, I’d like to offer some unsolicited advice to Ted Kelly: Fire the advisers who coined the phrase “accounting issues’’ to justify your $50 million a year compensation package.
Seriously, off with their heads.
Accounting issues? Phantom stock? Make believe stock options? As Kelly explained this to the Globe’s Todd Wallack on Friday afternoon, he nonchalantly waved his hand around like he was trying to remember the name of his favorite new cheese at a gourmet shop in Osterville. What’s the big deal?
Here’s his problem, though: Phantom stock and phony options still add up to nearly $200 million in very real United States currency, all of which he took out of Liberty Mutual in his last four years as chief executive. Those “accounting issues’’ are also known as “bank deposits,’’ and nothing Kelly says, nothing he does, will change that.
The only phantom anything are the dividends that never got paid to the policyholders that actually own Liberty Mutual. What these owners got were rate hikes, while Boston and Massachusetts residents gave the company $46.5 million in tax breaks, all to help fund an utterly grotesque level of executive pay.
Which is why Kelly and the new chief executive, David Long, sounded a little north of ridiculous when they told Wallack (for the record, nobody over there calls me back) that Kelly’s absurd compensation payout was warranted by his performance. When exactly did we lose the concept that chief executives are expected to do well, and when they meet high expectations, they’re not supposed to be paid more in a day than 95 percent of their employees earn in a year?
Friday’s performance revealed that these guys are so out of touch that they truly, honestly believe they’re worth that million a week, or $192,000 a day, or $24,000 an hour - and can’t for the life of them imagine that you don’t. They actually believe the system is fair, the one they stacked with interlocking boards of directors of like-minded people paid a couple of hundred thousand dollars a year to approve each other’s pay.
Speaking of like-minded people, it was nice to hear Deval Patrick launch his postgovernment job search on Jim Braude’s and Margery Eagan’s radio show last week, when he described Kelly as a friend and offered no objections to his $50 million-a-year because the governor is not, in his words, the “pundit in chief’’ who goes “popping off.’’
You really need to be the pundit in chief to be concerned that pay inequity is playing havoc with the American economy, that a privileged few are accumulating obscene amounts of wealth while the desperate masses are stuck in place or worse? That’s not punditry, governor; it’s leadership.
So to the news: Long, the current Liberty Mutual chief executive, confirmed that the chief executive is allowed personal use of the company’s air force, its fleet of five long-range corporate jets housed in a state-of-the-art hangar at Hanscom Field. The reason, and I’ll warn everyone to immediately put down all carbonated beverages so you don’t risk snorting them through your nose, is the chief executive’s personal security.
That’s right, these guys actually believe an executive at an insurance mutual is a high value target for Al Qaeda - or maybe that’s Allstate, having no appreciation for the irony that the only reason anyone knows who they are is the ridiculous amount of money they make.
I heard from people telling me to probe deeper on the destinations of these company planes. We’d already reported that Liberty Mutual jets made some 22 trips over a four-year period to Vero Beach, Fla., where Kelly happens to own an elaborate ($7.75 million) vacation home.
The jets also made routine summertime trips from Bedford to Hyannis, not far from Kelly’s Osterville house, a route that’s less than 90 miles by car.
So I logged back into the Wall Street Journal’s Jet Tracker, which monitored all corporate flights over a four-year period, and found something I’m deeply embarrassed I didn’t catch before: three round trips from Hanscom to the Hawaiian Islands in 2010, all at an estimated cost of about $90,000 apiece.
There were another three trips back in 2007 and possibly more. For anyone without a calculator, that’s well over half a million dollars in Hawaiian travel. Liberty Mutual executives must slay their underlings with a synchronized hula routine at the company holiday party.
The deeper I got, the more the itineraries read like the table of contents of Travel + Leisure. There was a 2010 trip to Venice, Italy. There were multiple trips to Palm Springs, as well as to Santa Barbara, Monterey, and Napa Valley, Calif., none of which are bustling commercial centers.
There was a trip to Barbados in 2008, Barcelona in 2009, and Jamaica in 2010. There was a pair of flights to Augusta, Ga. I wonder what’s there. This is in addition to the multiple trips to West Palm Beach, Fort Myers, Nantucket, and Orlando.
Let’s hear from John Cusolito, Liberty Mutual’s spokesman. “The purpose for all these flights was business - sales force incentives, major customer meetings, pursuit of additional business opportunities, meetings with international and regional management teams and aircraft maintenance,’’ he wrote in an e-mail.
Thank you, John. And please allow me to add that policyholders across the nation undoubtedly feel deep gratitude to the Liberty Mutual executives who have spared nothing in “pursuit of additional business opportunities’’ in Hawaii.
At least Cusolito responds to questions. For the record, I still haven’t heard from any of the $200,000-a-year part-time Liberty Mutual directors who I rang up in the last two weeks, including some who wouldn’t even acknowledge the call: John Manning of Boston Capital; Michael Babcock, a private investor; William Van Faasen, chairman of Blue Cross Blue Shield of Massachusetts; and Marian Heard, former head of the United Way of Massachusetts Bay.
Maybe they made phantom return calls. Or maybe they’re busy helping with Kelly’s “accounting issues.’’ More likely, they feel no need whatsoever to address the absolute absurdity of what occurred at a mutual insurance company on their watch.
Which may be the worst part of a reprehensible situation. The game is rigged. The stakes are high. And the people on top are clueless, callous, or probably both as to what it all means for everyone else. Greed and arrogance are a toxic mix.