Retirement pay, hold the taxes, at Validus Holdings

October 26, 2010

We all learned from Benjamin Franklin that a penny saved is a penny earned,* and it’s a lesson apparently well understood by George P. Reeth, deputy chairman and president of Bermuda reinsurer Validus Holdings (VR).

The company had previously disclosed, in a one-sentence 8-K on September 14, that Reeth would lay step down from those august titles as of November 15. On Friday, in a new 8-K, Validus revealed that he would in fact stay on the payroll for at least another year as a special advisor to the board of directors — or longer “by mutual agreement.”

Along the way, he can continue collecting his current salary, of some $664,350 according to the Retirement and Advisory Agreement that Reeth and Validus signed on October 20, as well as the usual medical, life and disability insurance. He also gets his bonus for 2010; last year, his cash bonus was nearly $1.1 million, the company’s latest proxy shows. Reeth’s stock awards continue to vest on the normal schedule, and the usual noncompete, non-solicitation provisions apply, although “Mr. Reeth may engage in any business for any (re)insurance brokerage company.”

All very routine, at the rarified heights of the corner office. But here’s how we know that Reeth is a frugal man: That salary of his, nearly two thirds of a million dollars, is to be paid

“free of all deductions, whether by way of Government Social Insurance or Payroll Tax, or any other payment of that nature, which the Company will fund at its sole expense…”

For good measure, Reeth is also contractually guaranteed to get public holidays paid, 15 days of paid sick leave, and as much as four weeks of paid vacation. Just in case, you know, there was any doubt about the matter. (It’s worth noting that, in his current position, Reeth and his family have been eligible for $30,000 in company-paid, non-business travel to and from Bermuda; a $240,000 annual housing allowance, an automobile allowance of $10,800 a year, annual membership fees for two clubs in Bermuda, and school tuition for his children of up to $30,000 a year.)

We suppose it’s only fitting that a man engaged in reinsurance is careful about the details. It seems Validus is also meticulous, as this clause in his retirement agreement suggests:

“The Executive is expected and required to dress in accordance with the Company’s current policy on Office Attire.”

That kind of attention to detail may well have helped propel Validus to better performance than other insurers and reinsurers over the last three years or so. Unfortunately, over the last year (and year-to-date), it hasn’t worked out quite as well for shareholders. Maybe the board and management should attend to those details as well.

* Franklin’s version, at least according to this footnote in the 1919 edition of Bartlett’s Familiar Quotations, was a little more poetic, and dated:

A penny saved is twopence dear;
A pin a day’s a groat a year.

Image source: www.newmoney.gov

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