Exec pay at Blue Cross parent takes a dive

Executives at the parent company of Blue Cross and Blue Shield of Illinois had their pay cut in 2013, the same year the mammoth health insurer failed to top $1 billion in profits for the first time since 2009.

Health Care Service Corp. CEO Patricia Hemingway-Hall led all employees of the Chicago-based company in total compensation, with $11.2 million. That is 30% less than the $16 million she took home in 2012, according to an annual filing with the Illinois Department of Insurance. The difference was due to a drop in Ms. Hall's bonus, which plummeted nearly $5 million, to $10.1 million from $14.9 million.

By percentage, the CEO's pay cut wasn't the deepest. After receiving $8.7 million in 2012, Executive Vice President and President of Plan Operations Colleen Foley Reitan was paid $2.3 million last year, a 74% decrease. Her bonus fell to $1.5 million in 2013, down from $7.9 million the year before.

To varying degrees, the pattern held for most of the 10 highest-paid executives at Health Care Service, which operates Blues plans in Illinois, Texas, Oklahoma, New Mexico and Montana. The lone exception was Chief Diversity Officer Carolyn Clift, whose total compensation rose to $1.5 million from $1.3 million in 2012, though she left the company in the middle of the year.

The pay figures came in a year the company made $684.3 million in net profits, a nearly 33% drop despite an increase in revenue to $22.69 billion. Net profit had topped $1 billion for the prior three years, peaking at $1.20 billion in 2011. (The numbers include only the company's fully insured business and not its performance administering self-insured plans.)

Expenses in 2013 rose in part due to $260 million in charges the company booked in 2013 as it moved money into a premium deficiency reserve aimed at absorbing expected losses this year on plans offered through President Barack Obama's healthcare exchanges.

Company performance was one of “many factors” that could account for changes in any given employee's pay from one year to the next, a company spokesman said.

Still, the nearly across-the board downward trajectory is notable. On average, total pay for the top 10 Health Care Service executives fell by 34%. In addition to the 10 executives listed in the filing, another four company officials who were among the 10 highest-paid in 2012 fell off the list in 2013.

Chief Marketing Officer J. Darren Rodgers made $4.3 million in 2012, but his pay wasn't high enough to be on the list in 2013, when the 10th-highest compensation was $1.3 million. That position was held by Chief Strategy Officer Paula Steiner, whose pay for the year was 73% lower than what she received in 2012, $4.7 million.

For CEOs, pay increases from one year to the next are common, even if their companies don't perform as well as expected. Top executive pay at just eight of Illinois' top 25 largest public companies decreased in 2013.

To be sure, Health Care Service is a mutual company, meaning profits are redistributed to its policyholders rather than to shareholders, as they would be at a public company.

But large insurers, regardless of their corporate structure, draw from a common pool of C-suite executives. Indeed, Health Care Service last month announced it was hiring John Cannon for the newly created role of executive vice president and chief administrative officer. Mr. Cannon came from WellPoint, a publicly held insurer that operates Blues plans in 14 states, including California.

A Health Care Service spokesman cautioned against drawing conclusions from the compensation figures, noting that bonuses are based on many metrics, some individual—such as an employee's performance of her job responsibilities—and others collective, like the company's overall performance.

“Executive compensation at HCSC is determined by our board of directors with the guidance of expert outside advisers," spokesman Greg Thompson said in an email. “Our compensation program must attract and keep the top talent required to manage the complexities of the nation's fourth-largest health insurer operating in five states in addition to its large non-health insurance, information technology, and third-party administrator subsidiaries operating nationwide.”

"Exec pay at Blue Cross parent takes a dive" originally appeared in Crain's Chicago Business.