Ignoring Berkshire Hathaway at MetLife…

December 20, 2010

Measuring up against the competition is always tough, especially when there’s someone in the field that never seems to slip up too badly. MetLife (MET) found a way around the problem recently: It just chose to ignore the star.

We found the bit of fancy footwork (worthy of its dancing mascot, Snoopy) in an 8-K that MetLife filed a little after 4 pm on Friday. In it, the big life-insurance and annuity company notes that it had been using a subset of the Standard & Poor’s Insurance Index to gauge its performance versus competitors when determining payouts from the Management Performance Share Agreement — specifically, the Fortune 500 insurers that also appeared in the index.

But, the filing notes somberly,

“Standard & Poor’s recently added Berkshire Hathaway Inc. (BHI) to its insurance index. … Given the size of BHI, and the diversity of its business outside of insurance and financial services, the Compensation Committee concluded it is appropriate to exclude BHI from the Insurance Index Comparators for future awards in order to yield an appropriate peer comparison.”

Specifically, the board’s comp committee noted that Berkshire Hathaway would account for 40% of the comparison group by market-cap. So the committee just chose to exclude Berkshire Hathaway altogether.

Now, on the one hand, this seems a little much. The filing describes the Management Performance Share Agreement as paying out “depending on specified MetLife performance relative to its competition over that time.” It can’t be much fun competing against Berkshire Hathaway, but there’s little doubt that the company is a giant in the insurance industry, and competes on some level with several of MetLife’s lines of business. Can MetLife honestly pretend that Berkshire Hathaway isn’t part of its competition?

At the same time, only a little over a third of Berkshire’s earnings come from its insurance group, according to the 10-Q Berkshire filed November 5. Revenues are even lower. Much of this is because of its recent acquisition of the railroad giant Burlington Northern; until that deal, insurance was a much bigger deal at Berkshire — about 62% of net income.

So, yes, figuring out how to deal with Berkshire is something of a headache for MetLife and its board, no doubt, on many levels. And it can’t be a pleasant prospect for any modern corporate executive to compare themselves to Warren Buffett when it comes to compensation, either: Berkshire’s proxy shows that Buffett took home $175,000 last year, all in — that includes $75,000 he got from The Washington Post (WPO) for serving as a director there, since Berkshire owns a big stake of the company. By contrast, MetLife Chairman and CEO C. Robert Henrikson racked up $11.6 million in total pay for 2009, including $3.5 million in cash and $81,669 in personal use of company aircraft unspecified amounts for using car services, financial planning services, a medical exam and the like.

Then there’s also the relative performance of the companies over time. All in all, we’re not enitrely surprised that the solution turned out to be overlooking overlook it entirely.

Image source: MetLife website

————

Don’t forget that voting is now open for the worst footnote of 2010. Which footnote will take top (well, actually bottom) prize this year? You can cast your vote here and read about the various contestants here.

Leave a Reply