There are all kinds of tax, regulatory and other reasons that insurance companies like to operate off the coast of the U.S. But it’s also no coincidence that some of the most popular spots for their headquarters are island get-aways like the Caymans and Bermuda.
What’s more striking is the way these companies treat the headquarters-away-from-home like a hardship posting, showering extra perks and compensation on executives for their trouble. We were reminded of this with an amended 8-K that Axis Capital Holdings (AXS) filed yesterday, which also marked an about-face from the last couple times we wrote about the company — not in terms of the luxuries it offers its top brass, but in terms of who its top brass will be going forward.
The filing includes terms of employment for new Chief Executive Albert Benchimol, and the terms of separation for former Chairman Michael A. Butt, who is being replaced by Benchimol’s predecessor as CEO.
Benchimol’s offer letter is securing him a hefty $1.1-million salary, a target bonus of $1.9 million (and the potential to earn still more), 500,000 restricted shares — a $17.3-million value at current share prices, vesting over the course of the next three years (but mostly back-loaded), “up to 30 hours of personal use of the Company aircraft each calendar year,” and, of course, that quintessential perk of the Bermuda executive, a $25,000-a-month housing allowance. Yes, that’s $300,000 a year for island digs — or $822 a day, $34 an hour (counting sleep).
Meantime, Butt’s separation agreement is providing him a nice send-off as well. You may remember that Sonya footnoted Butt’s new employment agreement just over a year ago, noting that he was getting an employment agreement carrying him through December 31 this year. Instead, for being shown the door last week, he is getting $3.2 million in cash, pension benefits valued at $2.7 million as of the company’s March proxy and nearly $750,000 in deferred compensation benefits. Plus, he gets to keep the unvested equity he’s been awarded in recent years; the company doesn’t calculate the value from his perspective, but notes that it means recognizing $10 million in share-based compensation expense in the second quarter.
On top of that, Butt is getting a $950,000 consulting agreement that runs through December 31, 2013. In an uncharacteristic sign of restraint unusual in these kinds of agreements, however, the agreement says Butt must work at least 45 hours a month. In terms of perks, he gets to keep existing company-jet privileges for the rest of 2012 (spelled out as 12 personal trips a year, up to a maximum of $75,000), but in 2013 may only use it “subject to aircraft availability at the discretion of the Company” and at his own expense.
Finally, the board recently decided to end a special pension program that has benefitted Butt and CEO-turned-Chairman Michael Charman. The plan is to cash the men out of their benefit, measured as of June 30, but it isn’t yet clear how valuable that will prove to be for them. (At least part of the value is probably reflected in the pension benefit figure we cited above for Butt.)
It’s worth noting that shareholders seem to be just fine with all of this. Axis filed a separate 8-K yesterday reporting the results of its May 3 annual meeting, and fewer than 10% of voting shares were cast against the company’s executive pay arrangements; all the directors up for re-election were returned to their seats handily. (Even so, a substantial 44% of voted shares opposed a company proposal to expand a long-term incentive compensation plan by 6 million shares.)
We’re a little surprised, frankly, given the performance of Axis shares. It’s doing OK so far this year, roughly keeping up with the S&P 500 after lagging for a bit, but that’s sort of the problem. Axis shares rarely seem to do better than OK against the S&P, and it typically trails its own industry on a total-return basis: In 2011, Axis’ total return trailed the property-casualty insurance industry by 14 points. It’s also trailing the industry over the last 5 years (by 0.5 points), 3 years (4.3 points), 12 months (nearly 5 points) and year-to-date (1.8 points). Only in the last three months has it inched ahead — by 0.2 points.
Still, maybe shareholders are right to let the company’s executives, old and new, enjoy their island luxuries. After all, who’s to say how distracted they might become if they couldn’t?