NAMIC GOVERNANCE SURVEY ANALYSIS 2015 AND 2016

Transcription

1 NAMIC GOVERNANCE SURVEY ANALYSIS 2015 AND 2016

2 OVERALL AVERAGE OF ALL RESPONSES SECTIONS At any NAMIC meeting where company executives gather, a frequent subject centers around Board of Director practices, compensation, and general Board governance. To add some level of organizational specificity to this discussion, in both calendar year 2015 and 2016, NAMIC conducted a Governance Practices and Board Compensation Survey. Designed to survey the membership on these frequently discussed issues, the report presents the results of those surveys comparing the two reporting years. There were 63 total responses to the survey in 2015, and this declined to 39 in Clearly, the ability to use and rely on the conclusions would be materially enhanced with more companies providing data. It is hoped that with this initial report that more participation will result on the next survey, thus enhancing the value of this report and its information to the NAMIC membership. The premium segmentation brackets shown below were selected to provide value and insight for all sizes of NAMIC members, and these brackets are consistent throughout the report. NUMBER OF COMPANIES RESPONDING Due to drop in responses in 2016, we need to be mindful of any conclusions comparing year to year $0M - $50M $50M - $100M $100M - $250M $250M - $500M $500M and Higher Total DWP SEGMENTS $0 - $50 M $50 M - $100 M $100 M - $250 M $250 M - $500 M $500 M and higher All Survey Responses 2

3 OVERALL AVERAGE OF ALL RESPONSES 3

4 TOP 5 ORGANIZATIONAL PRIORITIES 4

5 BOARD COMPOSITION

6 BOARD COMPOSITION The average number of directors in an average NAMIC company is 10, with 9.8 being the survey average in 2015, rising slightly to 10.3 in In reviewing the data below, the average number of directors is relatively consistent in all premium segments. There is a slight increase in the number of directors for the $250 million DWP and up segments. AVERAGE NUMBER OF DIRECTORS $0M - $50M $50M - $100M $100M - $250M $250M - $500M $500M and Higher Total Earlier, we saw that of the responding companies, on average, there were 10 total directors and of these 10, 1.5 are female, and 0.5 are minorities. In both of these areas, the 2015 result is quite close to that of AVG. NUMBER OF FEMALE DIRECTORS PER COMPANY Looking at independent verses inside directors, of the 10 average total, just under 8 of them are independent AVG. NUMBER OF MINORITY DIRECTORS PER COMPANY AVG. NUMBER OF INDEPENDENT DIRECTORS PER COMPANY $0M - $50M $50M - $100M $100M - $250M $250M - $500M $500M and Higher TOTAL 6

7 BOARD SKILL SETS

8 BOARD SKILL SETS 8

9 BOARD SKILL SETS

10 BOARD GOVERNANCE

11 BOARD GOVERNANCE AVERAGE NUMBER OF BOARD MEETINGS The average number of Board meetings held for a typical NAMIC member company is just under 5 meeting per year, with 4.8 meetings in 2015 and 4.7 meetings in Other than a few outliers (3.8 meetings in 2016 for the under $50 million size company), this is extremely consistent regardless of the size of the company. AVG. NUMBER OF BOARD MEETINGS PER YEAR $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total AVERAGE LENGTH OF BOARD MEETINGS The average length of a typical NAMIC member company board meeting moved from 4.4 hours in 2015 and to 5.0 hours in The chart to the right illustrates that meeting length seems to increase with DWP size. AVG. LENGTH OF BOARD MEETINGS IN HOURS $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total 11

12 BOARD GOVERNANCE AVG. NUMBER OF BOARD COMMITTEES The average number of Board committees for a typical NAMIC member company is between 4 and 5, with 4.3 in 2015 and 4.8. The number of committees is very consistent between $50 million and $500 million DWP, while there a fewer committees on average for companies under $50 million, and more committees for companies over $500 million. AVG. NUMBER OF BOARD COMMITTEES $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total COMMITTEE ASSIGNMENTS The average number of committee assignments per director is right at 2 assignments per director, with 2.2 in 2015 and 2.1 in This 2 assignment level is very consistent across all DWP levels. AVG. NUMBER OF COMMITTEE ASSIGNMENTS PER DIRECTOR $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total 12

13 BOARD GOVERNANCE COMMITTEES Just as there are a wide variety of companies in our NAMIC membership, there are a wide variety of different committees across the membership. The charts to the right list the committees and show the average number of committee meetings per year, and the average length of those meetings. At the bottom is a summary chart that captures the committees that meet the most frequently, led by the audit committee, the executive committee, and the investment committee. It is interesting to note that while the director and officer compensation committee is not the most frequent of committee meetings, when it does meet, it usually meets for the longest time. This is a sign that directors take seriously their responsibility in this area. Audit Building/Grounds Cyber Dir/Officer Comp Corporate Responsibility Executive Governance Investment Finance Nominating Reinsurance Risk Salary/Benefits Strategy Technology Audit Building/Grounds Cyber Dir/Officer Comp Corporate Responsibility Executive Governance Investment Finance Nominating Reinsurance Risk Salary/Benefits Strategy Technology 0 0 NUMBER OF MEETINGS PER YEAR AVERAGE MEETING HOURS Audit Dir/Officer Comp Executive Governance Investment Finance Salary/Benefits COMMITTEES THAT MEET MOST FREQUENTLY

14 BOARD GOVERNANCE AVERAGE DIRECTOR TERM The average director for a NAMIC company has a term of 3 years, and while there is some variation from this result at the larger DWP companies, this is a relatively consistent response. $500M & UP $250 - $500M $100 - $250M $50 - $100M $0 - $50M Total AVERAGE YEARS IN DIRECTOR TERMS $500M & UP $250 - $500M $100 - $250M $50 - $100M $0 - $50M Total AVERAGE MANDATORY RETIREMENT AGE MANDATORY RETIREMENT AGE The average NAMIC company has a mandatory director retirement age of 73, but there is considerable variation in this based on DWP size. The smaller the company, the later the mandatory retirement age, while at the larger companies, it shrinks below

15 BOARD GOVERNANCE AUDIT COMMITTEE Roughly 85% of the audit committees for the companies responding have a financial expert as a member of the committee. This 85% number or higher is very consistent in the larger DWP companies, but even at the smaller DWP levels, there is not a great deal of variation from the average. AVG. % WITH FINANCIAL EXPERT ON AUDIT COMMITTEE $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total USE OF BOARD PORTAL About 75% of the companies responding use some sort of portal to communicate with their directors. At the larger companies, this percent often exceeds this group average, indicating they make greater use of this tool. For the companies under $100 million, there was a noticeable uptick in use from 2015 to AVG. % THAT USE BOARD PORTAL $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total 15

16 BOARD COMPENSATION

17 BOARD COMPENSATION When it comes to director compensation, there are many methods used by our members. Roughly 2/3 of them use only an annual retainer and offer no other method of compensation. About 1/5 of the membership use a combination of a retainer plus some other form of remuneration, and about 80% use a per meeting fee to compensate their directors. About 1 in 10 use an annual bonus or some other sort of cash award. Outside of the normal compensation for work done as a director, about 70% pay the chair of the board some additional compensation to recognize the extra work that comes along with this role. METHOD OF BOARD COMPENSATION 61.3% 60.5% 21.0% 23.7% 79.0% 76.3% 11.3% 10.5% 66.1% 71.1% ANNUAL RETAINER ONLY ANNUAL RETAINER PLUS OTHER RENUMERATION PER MEETING FEE OTHER ANNUAL OR CASH AWARD BOARD CHAIR ADDITIONAL ANNUAL COMP Numbers represent the percentage of respondents in the survey 17

18 2015 METHOD OF BOARD COMPENSATION SUMMARY This chart breaks down the data on the prior page into the DWP segments. This page page 18 shows 2015 results and it is followed on page 19 with 2016 results. It is clear that among the varieties of compensation, the use of an annul bonus or cash award is the one used the least frequently METHOD OF BOARD COMPENSATION SUMMARY 43.8% 100.0% 57.1% 50.0% 100.0% 61.3% 12.5% 0.0% 23.8% 50.0% 0.0% 21.0% 93.8% 100.0% 52.4% 83.3% 100.0% 79.0% 12.5% 0.0% 19.0% 8.3% 0.0% 11.3% 62.5% 71.4% 76.2% 41.7% 71.4% 66.1% ANNUAL RETAINER ONLY ANNUAL RETAINER PLUS OTHER RENUMERATION PER MEETING FEE OTHER ANNUAL OR CASH AWARD BOARD CHAIR ADDITIONAL ANNUAL COMP $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP TOTAL 18

19 2016 METHOD OF BOARD COMPENSATION SUMMARY 2016 METHOD OF BOARD COMPENSATION SUMMARY 37.5% 62.5% 40.0% 77.8% 75.0% 60.5% 0.0% 25.0% 60.0% 22.2% 25.0% 23.7% 100.0% 87.5% 40.0% 66.7% 75.0% 76.3% 0.0% 12.5% 0.0% 22.2% 12.5% 10.5% 62.5% 100.0% 100.0% 55.6% 50.0% 71.1% ANNUAL RETAINER ONLY ANNUAL RETAINER PLUS OTHER RENUMERATION PER MEETING FEE OTHER ANNUAL OR CASH AWARD BOARD CHAIR ADDITIONAL ANNUAL COMP $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP TOTAL 19

20 BOARD COMPENSATION MEDIAN BOARD ANNUAL RETAINER This chart shows the median director retainer for those companies that make use of a retainer for their directors. It is logical that as the DWP of the company increases, so does its ability to pay and the retainer paid. Those companies under $100 million DWP range between $6,000 and $10,000 per year, and those from $100 to $500 million range between $18,000 and $25,000. Those over $500 million are around $49,000. For all compensation detail in this report, the median results are used due to (1) the small sample size, and (2) the often wide disparity in the actual dollar amounts paid materially distort the computation of an average $6,990 $0 - $50M $6,500 $6,000 $50 - $100M $10,000 $18,150 $100 - $250M $24,000 $21,500 $250 - $500M $25,000 $49,600 $500M & UP $49,000 $18,000 TOTAL $24,500 MEDIAN BOARD ANNUAL RETAINER MEDIAN PER MEETING FEE MEDIAN PER MEETING FEE This chart shows the median per meeting fee paid to director. Again, like the retainer, it is logical that as the DWP of the company increases, so does its ability to pay. Those companies under $100 million DWP are around $1000, while those over between $50 million are consistent in the range from just $1500 to $2500. $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP TOTAL $1,000 $825 $1,953 $2,000 $1,750 $1,500 $1,500 $2,000 $2,000 $1,825 $1,500 $1,575 20

21 BOARD COMPENSATION MEDIAN ADDITIONAL COMPENSATION FOR BOARD CHAIR The additional compensation paid to a board chair is quite consistent for companies under $500 million, ranging between $5,000 to $12,000. Those over $500 million pay at least double what the rest of the companies pay. $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP TOTAL MEDIAN ADDITIONAL COMP FOR BOARD CHAIR $5,000 $12,000 $6,750 $8,250 $11,500 $10,750 $9,000 $12,500 $25,000 $35,750 $10,000 $12,000 MEDIAN ANNUAL DIRECTOR COMPENSATION Bringing it all together shows again how comp for directors increases as company premium size increases. In each premium group, there is some variation from year to year, but this is possibly due to the drop off in survey responses in $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP TOTAL MEDIAN ANNUAL DIRECTOR COMP $10,982 $8,438 $11,150 $18,250 $25,000 $44,000 $37,000 $40,000 $52,000 $55,000 $25,000 $35,000 21

22 BOARD SUCCESSION

23 BOARD SUCCESSION BOARD SUCCESSION Overall, less than half of the responding companies indicated that they had a formal board succession plan in place. No DWP segment exceeded 50%. BOARD SUCCESSION PLAN IN PLACE 35% 20% 0% 50% 38% 40% 36% 22% 43% 50% 46% 35% $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total PERCENTAGE THAT REVIEWS THEIR PLAN For those that do have a plan, about 2/3 of them review it annually. AVG. % THAT REVIEW THEIR PLAN ANNUALLY 29% 60% 33% 75% 57% 20% 45% 56% 86% 63% 59% 59% $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total 23

24 BOARD SUCCESSION CEO SUCCESSION In contrast to the board succession plan, well over half of the responding companies indicated that they had a formal board succession plan in place. There is a drop off from 2015 to 2016, but that is again likely due to the drop off in overall survey responses in CEO SUCCESSION PLAN IN PLACE 53% 40% 50% 80% 67% 60% 64% 44% 85% 75% 70% 56% $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total PERCENTAGE THAT REVIEWS THEIR PLAN In contrast to the board succession plan, well over half of the responding companies indicated that they had a formal board succession plan in place. There is a drop off from 2015 to 2016, but that is again likely due to the drop off in overall survey responses in And, as with directors succession, about 2/3 of them review it annually. AVG. % THAT REVIEW THEIR PROCESS ANNUALLY 35% 40% 50% 75% 57% 40% 72% 67% 86% 75% 65% 65% $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP Total 24

25 GENERAL DATA POINTS

26 GENERAL DATA POINTS A COMMON DATA POINT USED TO MEASURE PRODUCTIVITY is DWP per employee, and that data is depicted here. There is real consistency in the results for the $100 million to $500 million companies in the $850,000 to $900,000 level. Those carriers under $50 million show at about 1/3 of the middle group, while those over $500 million are also under the middle group, but to a lesser level. Due to it s impact on overall expenses, many CEOs closely watch this result. DWP PER EMPLOYEE $340,882 $337,861 $851,222 $903,294 $867,292 $952,035 $869,680 $933,618 $747,881 $782,873 $0 - $50M $50 - $100M $100 - $250M $250 - $500M $500M & UP 26

27 GENERAL DATA POINTS IN BOTH YEARS FOR ALL SEGMENTS: Chief method of director recruitment is networking Reasons for board openings were (1) age and (2) term limit expiration In 2015, 82% printed board materials this increased to 92% in 2016 In 2015, 98% allowed directors to take notes during meetings this increased to 100% in 2016 All that said yes to these questions indicated they collected the printed material and notes at the conclusion of the meeting Little progress made in adding females or minorities to board Insurance experience (agent or company) is the leading skill set of a director # of board and committee meetings same # of committee assignments/director same 27

28 GENERAL DATA POINTS Audit, governance, and finance committees met more times and for longer time periods # of board terms flat Mandatory retirement age unchanged 73 % of financial experts on boards went down in companies $100,000 and under % of companies with written board and CEO succession plans went down Corporate performance was a clear #1 priority for almost all premium segments in 2015, but was replaced by long-term planning in 2016 ERM was a solid #2 priority in 2015, but fell to #4 in 2016 Executive succession got some mention in 2015, but received increased priority in 2016, especially in the $100,000 - $250,000 group 28