Van Faasen still on salary at insurer
The Boston Globe
William C. Van Faasen, the long-time chairman and chief executive of Blue Cross and Blue Shield of Massachusetts, was paid $16.4 million in retirement benefits in January 2006, even though he didn’t leave the company.
The payment was triggered when Van Faasen, 58, stepped down as chief executive, retaining his position as chairman of the state’s largest health insurer with 3 million members. In addition to the retirement payout, he also earned nearly $3 million last year in salary and bonus as chairman.
Van Faasen is credited with engineering much of the insurer’s success over the last 15 years. But the size of his retirement benefit at a nonprofit, and the conditions under which it was awarded, raised questions and concerns yesterday.
“When you’re spending down the coffers by paying $19 million to reward a CEO for changing jobs, premiums are going to have to increase,” said Jerry Flanagan, healthcare policy director for the Foundation for Taxpayer and Consumer Rights, a nonprofit, nonpartisan consumer group in Los Angeles. “Double-digit premium increases that are fueled by insurance company excesses like this are uninsuring the insured.”
State Senator Mark C. Montigny, Democrat of New Bedford, said, “Bill Van Faasen is a good guy and he’s done a great job, but if he wants that kind of money, he should run a hedge fund.”
Van Faasen was recruited from Michigan Blue Cross in 1990, and was named chief executive in 1992. He was named chairman in 2002. In mid-2005, Cleve L. Killingsworth Jr. succeeded him as chief executive. Since then, Van Faasen has served only as chairman. In September, Blue Cross said he would retire and leave the company at year-end.
Blue Cross‘s 2006 executive pay was disclosed yesterday in filings to the attorney general. Van Faasen earned a salary of $500,000 and a performance-based bonus of $2.46 million. Killingsworth earned a salary of $903,000 and bonus of $1.36 million. Chris Murphy, a spokesman for Blue Cross Blue Shield of Massachusetts, said Van Faasen’s salary and retirement contributions were evaluated by external compensation consultants, who assured the company the payments “met industry standards.”
“The board meets annually and discusses CEO compensation,” said Murphy. “This is a large amount of compensation, and it reflects his extraordinary performance as chief executive of Blue Cross Blue Shield of Massachusetts.”
Senior executives of large companies often put aside some of their pay into a separate account, where it can grow before it is paid out. But none of the money paid to Van Faasen consisted of so-called deferred compensation.
“The $16.4 million is based on his tenure here and the performance of the company,” said Murphy.
Only $5.5 million of the retirement payment was previously reported in filings with the state. The balance wasn’t previously reported, Murphy said, because the money didn’t technically belong to Van Faasen until he received it, and state rules did not require that portion of the payment to be disclosed in annual reports. In addition, he said, the actual amount could not be determined until his retirement date was set.
Linda Crompton, chief executive of BoardSource, a Washington organization that advises nonprofits about board and corporate oversight issues, questioned the size of Van Faasen’s payment because Blue Cross is a nonprofit exempt from paying income taxes.
“Would this payment meet the standards of reasonable behavior?” she asked. “I don’t know. It seems like a large sum of money.”
In addition, Crompton criticized Blue Cross‘s succession planning, in which Van Faasen gave up the chief executive position, but retained his seat as chairman.
“That’s definitely a poor practice,” she said. “If someone is officially retired, good practice is they leave the organization. They shouldn’t move into another role where they continue to take money from the company. The positions are supposed to be independent.”
In May 2005, Van Faasen told the Globe he was stepping down as chief executive because he had achieved his goals. He said he came to the insurer to “turn around a company and restore its confidence and connection to the community.”
Other health insurers also disclosed executive compensation yesterday. In 2006, Harvard Pilgrim Health Care, the state’s second-largest health insurer, paid chief executive Charles D. Baker $1.5 million in salary and bonus. James Roosevelt Jr., chief executive of Tufts Health Plan, earned nearly $1.3 million including contributions to benefit plans.
The health plans also reported financial results for the third quarter of 2007. Blue Cross Blue Shield of Massachusetts earned $110 million, with strong increases in operating income and investment income compared to the same period a year ago. Harvard Pilgrim reported net income of $20.4 million, down slightly from $21.4 million in last year’s third quarter. Revenue was also down slightly, from $640 million to $631.9 million.
Tufts Health Plan reported net income of $41 million. Results were boosted by nearly $17.3 million in investment income. Membership reached 654,000 in September, an increase of about 50,000 since January.
Jeffrey Krasner can be reached at [email protected]