Travelers

Meeting date:   May 20, 2015

Pay for Traveler’s CEO Jay Fishman increased by 13%, from $18 million to $20.4 million. That total works out to over $10,000 an hour. The increase came primarily in options and stock awards. The performance-based annual cash bonus was identical to last year: $7.5 million. A bonus that remains consistent and fixed suggests that it may not be influenced by performance.  Indeed the company has been criticized for the discretionary aspects of the short-term bonus. The company has also been criticized for an over-reliance on one metric for both short and long term incentives.

Also worth noting, Fishman is on the board of directors and compensation committee of one of the other overpaid CEOs on the list: Exxon. The practice of CEOs serving on boards of other companies was once fairly common, but the trend has reversed in the past several years. In 2012, according to Agenda, 54% of S&P 500 CEOs sat only on their own companies’ boards, compared with 48% in 2007. I believe the number has gone down since then. Shareholders have become increasingly concerned that service on other boards may be time consuming and distracting. At Exxon, Fishman serves as presiding director, with a list of duties that include chairing executive sessions of the independent directors, chairing board  meetings when the Chairman is absent, and working closely with the Chairman “in developing Board agendas, topics, schedules, and in reviewing materials provided to the directors.” It does Travelers’ shareholders no good to have Fishman reflecting on deep strategic issues facing another company.

What CEOs serving on each other’s boards is good for, however, is perpetuating and normalizing a system of overpay. As economist Dean Baker notes, “CEO pay. . .  is not a market relationship, it is a deal between friends.” In a recent article, “Corporate Cronyism: The Secret of Overpaid CEOs,” Baker writes, “The corporate directors who are supposed to be holding down CEO pay for the benefit of the shareholders are generally buddies of the CEOs.”

One aspect of the Overpaid CEOs report was to determine whether there were any individuals who served on more than one over-paying compensation committee. We identified 17 such individuals and one of them was Kenneth Duberstein, is also on the compensation committee of Boeing. Duberstein has served on the board of ConocoPhillips until April 2012.

Warren Buffet describes the sorts of directors CEO’s prefer: “They do not look for dobermans; they look for cocker spaniels. Then they make sure their tails are wagging.”

Shareholders of course may prefer directors of a different breed entirely.