Life insurance to blame for CEO compensation?

It turns out some big companies are hiding CEO compensation under a mountain of life insurance providing the ultimate in estate planning

CEO compensation is out of hand – the average CEO of an S&P 500 company makes 373 times the wage of an average worker in the U.S. – but life insurance is increasingly doing its part to cover that up.

General Electric spent $314,511 on life insurance premiums in 2014, providing CEO Jeffrey Immelt with an additional $22 million payday for his family once he’s gone from this world. Immelt’s definitely entered estate planning nirvana. Since becoming CEO in 2001, GE has spent almost $1.5 million on life insurance for the executive. That’s on top of the more than $300 million he’s earned in performance- and non-performance-related compensation.

Immelt has one universal life policy that pays twice his annual salary and a second that will provide a $3 million death benefit.
“We provide our named executives with additional benefits that we believe are reasonable, competitive and consistent with the company’s overall executive compensation program,” Dominic McMullan, a spokesman for GE, said.

The top five companies in the S&P 500 in terms of premiums paid in 2014 include GE, 3M, AT&T, Verizon and Exxon Mobil. Together, shareholders ponied up more than $1.1 million to increase the already-significant estates their CEOs will leave their families.

The insurance has significant tax-saving benefits for the families of those CEOs, but, unbeknownst to shareholders, they come at a cost to the bottom line.

“Life insurance expenses are often lumped together with ‘an array of deferred compensation-related items, making it hard for investors to parse the details,’ said Michael Pryce-Jones, director of corporate governance at CtW Investment Group. “I don’t think it’s on the radar for shareholders in the way it should be.”

But not every S&P 500 company feels this perk is worthwhile.

Jamie Dimon, who’s CEO of JP Morgan and worth more than a billion dollars from his company shares alone. He gets a measly $100,000 policy.

“Our compensation philosophy is to have a transparent and fair compensation program for senior executives with no special insurance, health or medical benefits,” Joseph Evangelisti, a spokesman for the largest U.S. bank wrote in an e-mail. “The board thought this was the most fair way to do it.”

GE shareholders might want to ask why its board of directors doesn’t feel the same.