It's easy to gripe about insurance companies and how much money their executives are making, especially when there are so many people without coverage and so many businesses struggling to pay premiums for their workers. Of course, it all depends on the benchmarks you use to judge. Whatever benchmark you use, it would be nice to earn $2.7 million a year, like Independence Blue Cross's Joe Frick did, in 2007, according to the Pennsylvania Insurance Department.
Today, the Pennsylvania Insurance Department released a report on the executive compensation of the state's two largest "Blue" plans, Independence Blue Cross here in Philly and Pittsburgh's Highmark Inc. Essentially the department found that Joe Frick from Independence and Ken Melani from Highmark are reasonably compensated within the milieu of other Blue plans nationally and in comparison with what is paid to top executives in nonprofit hospital systems.
That's essentially what my fellow Inquirer reporter Craig McCoy and I found when we analyzed their pay as part of our look at the then-proposed merger between the two health plans.
If you automatically assume that a nonprofit executive earns little to nothing working in a tiny storefront with battered file cabinets, then you aren't in the same league as these guys. If you think that no one working with sick people should be earning this kind of cash, you are also going to have a problem with the $3.6 million that Melani earned. And you are going to have an even bigger problem when you learn that Melani's compensation doubled in five years and Frick's tripled, from $916,406 to $2,781,275.
"Our focus was on comparability because that is the legal standard and also what drives competition for executive talent," Insurance Commissioner Joel Ario said in a statement announcing the report. The report uses material gathered during the merger process. That merger ended in January when the two companies withdrew.
"Whether the compensation scale is fair in a broader public policy sense, or whether new regulations are needed, are questions that are appropriately left to the legislative branch," Ario said.
Executive pay is a deeper discussion than this, obviously. When you have an organization, nonprofit or for-profit, with billions in assets and thousands of employees, the executives should be well-compensated. And certainly, Melani and Frick's for-profit CEO compadres are making a lot more than they are. Another certainty -- these men have a lot of responsibilities, responsibilities that never, ever go away. There is no such thing as a vacation, a night off, or a weekend off. They get their time off in several-hour stints, stints that can be and are interrupted at any time.
Even so, when executive compensation in total, with bonuses and salary and perks, moves close to $2 million -- that seems too high to me, especially in the case when the executives have no capital of their own at risk. I don't care what they are running and I also don't care what they "give back" to charity, although we are grateful for anyone's largesse. Heck, we'd all like to "give back" to our favorite charities.
Even if you don't include legitimate expenses, like a driver, home security systems, and a reasonable amount of wining and dining in nice places, a $2 million compensation package comes to $220 an hour, assuming that the executive works 24 hours a day, seven days a week. I'm willing to make that assumption, given their level of responsibility. I'm sure they spend many sleepless nights. But after a certain point, that exec money needs to go elsewhere -- into research and development to grow the company, into better pay for employees, into investment in new machinery and upkeep of old machines. That's how businesses sustain themselves and grow. It helps if the employees earn enough to afford the good or service they produce.
A growing business is an employing business, and that's what we need now. Frick and Melani's pay may be reasonable against benchmarks of other CEO pay, but there are other benchmarks -- benchmarks that can and should be applied to many other CEOs besides Frick and Melani.