ANNAPOLIS – An expert for the Maryland Insurance Administration has determined that more than $33 million in compensation for executives of CareFirst BlueCross BlueShield were made improperly and violate Maryland law.
The report, prepared by the Missouri law firm Roger G. Brown & Associates, questions whether CareFirst knowingly followed bad advice from financial consultants, violated Maryland law and failed in its CareFirst fiduciary duties when making the decision to reward its top executives.
The report, written by former Missouri insurance commissioner Jay Angoff, is part of the information the state will use in determining whether CareFirst can convert to for-profit status and then be sold to a California company.
“The report is misleading . . . and its unsparing condemnation of the board and compensation committee is unnecessary, unwarranted and inflammatory,” said CareFirst attorneys in a statement released Wednesday.
“Mr. Angoff came into this process convinced that the compensation was not distributed fairly and he set out to prove that in his report,” said Dave Funk, regulatory council to CareFirst.
“Mr. Angoff has no experience in executive compensation, in a courtroom he would not qualify as an expert,” he said.
A detailed response addressing each point made by the report is expected before December hearings regarding the CareFirst merger with Wellpoint Health Network.
CareFirst’s executive bonuses are unreasonable and violate provisions of state law, Angoff found. The compensation committee that determined the amounts also based them on factors that are not comparable, according to the report.
The compensation, the expert said, also violate an edict from the General Assembly that prohibits bonuses that are not paid for continued employment with the company and are not necessary to further any legitimate corporate purpose.
CareFirst has said that these conclusions were drawn from reports that were taken out of context.
“The record amply demonstrates that the board and compensation committee exercised due diligence and appropriately used expert assistance in developing these compensation arrangements,” Funk said in a statement.
William Jews, CareFirst president and chief executive officer, makes about $1 million a year, and could receive as much as $18 million in bonuses and other compensation if the merger is approved.
There is documentary evidence that shows Jews was significantly involved with the development and the approval of the bonuses, according to the report.
“You can disagree on whether you think the compensations are appropriate, but not about how the decision was made,” said Funk. “It’s a shame that Mr. Angoff is attacking our board.”
The CareFirst board of directors hired the law firms Piper Rudnick and Whiteford, Taylor & Preston, and two compensation consultants, Hay Group Inc. and Fredric W. Cook & Co. Inc., said Funk.
The report concludes that these groups considered the compensation issue as though CareFirst was a for-profit company instead of a non-profit one.
“Compensating the CareFirst executives at or above the level of the executives of large national for-profit corporations is particularly troubling because Hay evaluates the performance of CareFirst executives only against other BlueCross plans, most of which are non-profit,” the report said.
Neither Angoff nor Maryland Insurance Administration officials would talk about the report in depth until the December hearings held by the Maryland Insurance Commission.
CareFirst also declined to discuss the report in depth.
“Ultimately the commissioner will have to decide and I have faith in him,” said Funk. “This report is only one piece of the whole,” said spokeswoman for the Insurance Administration Debbie McKerrow. – 30 – CNS-11-14-02