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Klein tops tally of pay for insurers

Top local executives of MVP Health Care Preferred Care saw their pay drop substantially in 2007. The drop, however, did not represent a pay cut but a reflection of extra rewards they received in 2006, the company said.
In 2007, the HMO’s three highest-paid local officers-Lisa Brubaker, executive vice president; Thomas Combs, chief financial officer; and Carl Cameron M.D., medical director-saw drops in compensation of 21 percent, 24 percent and 14 percent respectively, documents filed April 1 with the state Department of Insurance show.
Brubaker, who is in charge of Preferred Care’s day-to-day operations, made $450,224 last year, down from $572,515. Combs’ 2007 compensation of $488,615 fell from $641,545 in 2006. Cameron’s 2007 pay of $405,854 was down from $474,182 a year earlier, the state filings show.
The trio’s five- or six-figure reductions in dollars last year reflected retention bonuses the HMO’s board voted to give top officers to keep them from jumping ship in Preferred Care’s 2006 acquisition by the Schenectady-based MVP, Preferred Care spokesman Michael Traphagan said. He declined to state the retention awards’ amounts. The bonuses accounted for most but not all of the difference between 2006 and 2007 compensation totals.
In dollars and the numbers of executives among the 25 highest-paid local health insurance officials, the larger Excellus Blue Cross Blue Shield, Rochester Region-this area’s largest health insurance carrier and the state’s second-largest-dominates Preferred Care. In 2007, its top officials saw healthy compensation upswings.
President and CEO David Klein’s $2.6 million 2007 compensation was up 43 percent from $1.8 million in 2006. CFO Emil Duda’s $1.8 million in compensation took a 23 percentage point leap over his $1.5 million 2006 compensation.
In addition to its Rochester home base, Excellus runs Blues plans in the Finger Lakes, Syracuse, Watertown, Utica and Rome and runs the Univera Health Care HMO in Western New York. The Rochester Blues decline to say how many of Excellus’ 2 million enrollees are in the nine-county Rochester region.
Preferred Care is the region’s second-largest private health insurance carrier. It writes policies for some 30 percent of the roughly 1 million covered lives in the nine-county Rochester region’s private health insurance market. Its 310,000 subscribers account for more than half of MVP Preferred Care’s 700,000 enrollees.
When announced several weeks ago, the jumps in the Excellus executives’ pay and Klein’s raise in particular raised local eyebrows and drew some criticism.
Determining the fairness of executive pay “is a really thorny question,” said Kent Gardner, president and chief economist of the Center for Governmental Research Inc. “There are two ways of looking at it, vertically and horizontally.”
In a horizontal analysis, Gardner said, one would give more weight to factors such as what executives’ peers at other organizations in their industry make. In a vertical analysis, one would give more weight to factors such as what value the executives produced for the organization and, in the case of non-profits such as Excellus and Preferred Care, how well they fulfilled or advanced their organizations’ missions.
Representatives of MVP Preferred Care and Excellus described similar processes for determining how they pay top managers: Pay ranges and specific compensation packages are set and reviewed by board compensation committees consisting of independent directors whose deliberations are kept at arm’s length from the officers whose rewards they are deciding.
MVP Preferred Care’s directors use a base and bonus methodology, said Gary Hughes, a company spokesman. The method sets a base portion of executives’ compensation at a predetermined amount and awards any bonus according to how well the executive met preset targets. Hughes declined to discuss specific goals or targets used, or how compensation was split between salary and bonus amounts. Targets the board might set could include reaching certain enrollment figures, increasing cash reserves by a given amount and meeting care and service quality goals, he said.
Asked to describe criteria Excellus’ board compensation committee used, officials supplied a prepared statement from Excellus chairman John Doyle and charts comparing Klein’s compensation to pay packages of Blues CEOs of other non-profit and for-profit health insurers.
Doyle, CEO of Doyle Security Systems Inc., describes a process dating to 2003 when the Excellus board compensation committee “acknowledged findings from consultants that total compensation for the CEO was below the market median among comparable sized health plans in the U.S.”
At that time, Doyle added, the committee created long-term performance incentives that would reward executives with above-average pay for above-average performance. If executives’ performance was below average, however, the committee would “likely (set their pay) at or below the median.” Klein’s and Duda’s 2007 compensation included long-term incentive for performance goals met or exceeded from 2004 to 2006.
A chart, supplied by James Redmond, Rochester Blues vice president of communications, comparing Klein’s 2006 compensation with compensation drawn by CEOs of non-profit Blues plans in other states shows Klein’s $1.6 million in total compensation to have fallen slightly under the $1.9 million average pay drawn by 19 non-profit Blues CEOs. Klein’s pay lagged several of his peers.
Blue Cross Blue Shield of Florida CEO Robert Lufrano M.D. drew $5.7 million. The Florida Blues at that time had 1.7 million members and premium revenues of $4.9 billion to Excellus’1.9 million members and $4.8 billion in revenues.
That chart shows Klein’s base pay in 2006 was $800,000, while his bonus came to $754,794. Other compensation of $64,312 paid for unstated reasons rounded out his pay package. Redmond said he was not able to supply a similar breakdown for 2007 and was not sure where the newsletter that compiled the chart, the AIS Report, got its figures.
Peer-to-peer comparisons such as those used by the Excellus compensation committee to set pay for Klein and other top executives are ostensibly fair but in some ways potentially troublesome, CGR’s Gardner said. Public company and non-profit compensation committees and the consultants they hire often cite the possibility of executives being wooed away by better-paying rivals as reasons for rewarding them with comparable or higher pay but do not give adequate consideration to how top managers’ pay levels line up with average workers’ rewards.
Public company and non-profit compensation committee members are often CEOs and high-level managers themselves, he added. Though they might scrupulously keep their compensation committee decisions at arm’s length, as potential beneficiaries of similar decisions made by their own company’s boards, they could be inadvertently influenced by a system that has come to over-reward top managers. A growing gap in wealth between a relatively tiny group of very high-income Americans and the mass of less wealthy citizens whose real incomes are falling is seen as a matter of increasing concern by a number of economists, Gardner said.
Still, he added, if that system is seriously out of whack, correcting it would be “a hard nut to crack.”
[email protected] / 585-546-8303

The top five

Excellus officials dominate the list of the top 25 highest-paid local health insurance officials.

1. David Klein,
president and CEO $2,563,731

2. Emil Duda,
senior EVP and CFO $1,816,707

3. Morris Levene,
senior VP $1,492,796

4. Christopher Booth,
executive VP and corporate
general counsel $1,214,881

5. Paul Von Ebers,
executive VP and COO $808,321

What they earned in 2007

Excellus’ top executive enjoyed a 43 percent jump in pay last year. Preferred Care’s three highest local executives, meanwhile, saw their compensation drop-but only because they received “retention” bonuses in the HMO’s 2006 acquisition by the Schenectady-based MVP.
% change Executive 2007 pay since 2006
1. David Klein, president and CEO $2,563,731 43
2. Emil Duda, senior executive vice president
and chief financial officer $1,816,707 23
3. Morris Levene, senior VP, business development
and management consulting1 $1,492,796 217
4. Christopher Booth, executive VP, chief administrative
officer and corporate general counsel $1,214,881 7
5. Paul Von Ebers, executive VP and chief operating officer2 $808,321 95
6. Martin Hickey M.D., senior VP, health care affairs $570,873 4
7. Virginia Parysek, senior VP, human resources $570,515 6
8. Thomas Combs, Preferred Care/MVP Health Care CFO $488,615 -24
9. Stephen Sloan, senior VP and general counsel3 $470,339 62
10. William Simmons, senior VP, finance $461,188 8
11. Lisa Brubaker, Preferred Care/MVP executive VP,
Rochester and government affairs $450,224 -21
12. Karen Smith, senior VP, operations $449,127 5
13. Martin Lustik M.D., senior VP and
corporate medical director $437,009 27
14. David McDowell, senior VP, information technology
and chief information officer4 $427,854 24
15. David Mack, senior VP, corporate relations $421,164 4
16. Scott Ellsworth, Rochester region president $416,389 2
17. Carl Cameron M.D., Preferred Care/MVP medical director $405,854 -14
18. Mark Ruszczyk, senior VP, marketing and sales $370,909 37
19. Geoffrey Taylor, senior VP, corporate communications $337,633 6
20. Robert Toczynski, chief corporate actuary $319,764 6
21. Keith Volkmar, senior VP, corporate administration $303,005 5
22. Anthony Tardugno, senior VP, IT and CIO4 $286,366 27
23. Anne Ruflin, VP, Medicare strategy $278,480 21
24. Margaret Clark, VP, government program compliance $277,605 31
25. Joel Owerbach, chief pharmacy officer $276,026 14

1 Levene retired in 2007 and received a onetime payment of a long-term performance award earned as head of MedAmerica Inc, a for-profit subsidiary of Excellus’ parent company, Lifetime Health Care Cos. Inc., which he headed from 1996 to 1999.
2 In 2007, Von Ebers was promoted from senior VP, marketing and sales, to COO.
3 Sloan joined Excellus in 2006 and worked part of the year.
4 McDowell left Excellus in 2007; Tardugno was promoted to CIO in 2007.
Unless otherwise noted, all are Excellus executives.

04/11/08 (C) Rochester Business Journal

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