Blues Plan CEOs Saw Modest Salary Gains In '13 but LongTerm Incentives May Be Big (with Table: 2013 Annual
Compensation for Top Executives at Blue Cross Blue Shield
Plans and Parent Companies)
Reprinted from THE AIS REPORT ON BLUE CROSS AND BLUE SHIELD PLANS, a hard-hitting
independent monthly newsletter on new products, market share, strategies, conversions,
financing, profitability and strategic alliances of BC/BS plans. (Not affiliated with the Blue Cross
and Blue Shield Association or its member companies.)
September 5, 2014, Volume 13, Issue 9
Thirty-two Blues plan CEOs who served that role for part or all of 2013 collectively earned nearly
$25 million in salary and about $103 million in total compensation, which includes bonuses and
incentives, according to data supplied by state regulators in response to The AIS Report’s
Freedom of Information Act requests. While some top executives saw substantial compensation
increases, salary levels were relatively flat in 2013 compared with prior years (see table, p. 10).
Between 2011 and 2013, many Blues plans offered their top executives “very significant”
increases in the size of their long-term, performance-based financial incentives, but modest
increases to their target annual incentives, says Donald Gallo, a leader in Towers Watson’s
health insurance team in its executive compensation practice who works closely with Blues plans.
“It was a striking trend….Almost every Blues plan that uses long-term incentives had significantly
increased the target-award opportunities,” he says. “What we are seeing this year [2014] is very
little movement in the target-award opportunity for annual or long-term incentives. They had some
pretty big bumps between 2011 and 2013, and have settled into their new pay levels. Now the
boards are looking to see if those moves made sense.”
Gallo cautions that it can be misleading to compare year-over-year executive compensation
because of changes in the company or incumbents, or unique one-time events like special
bonuses or deferred compensation payouts. “The big takeaway on the pay changes is salary
increases are moving modestly and that is what’s driving [moderate] changes in total
compensation,” says Gallo.
CEO Compensation Is Flattening
“The Blues seem to be keeping their compensation heads down,” adds Paul Dorf, managing
director of Compensation Resources Inc., a consulting firm in Upper Saddle River, N.J. Dorf tells
The AIS Report that while some Blues plan CEOs brought home bigger paychecks in 2013, there
haven’t been the large jumps that were seen in past years.
A provision of the Affordable Care Act addresses executive compensation by changing the tax
code to single out health insurers and force them to pay more taxes on higher salaries by
restricting the deductibility of compensation paid by a health insurer to an individual to $500,000
per year.
“With ACA demands, it may be that [Blues plans] don’t want to rock the boat with big increases,”
Dorf adds.
Swedish Is Top-Paid Blues Exec
An analysis of spring 2014 Securities and Exchange Commission (SEC) proxy filing showed
WellPoint, Inc. CEO Joseph Swedish received nearly $17 million in salary and other perks during
his nine months in charge in 2013 (The AIS Report 4/14, p. 1). Swedish — the former CEO of
Michigan-based hospital system Trinity Health — replaced Angela Braly, who left the company
with more than $20 million in total compensation in 2012 (The AIS Report 2/13, p. 4).
Swedish’s salary for 2013 was just under $1 million at $913,461, but he also was awarded $7.9
million in company stock and $3.8 million to replace compensation he forfeited from his last
employer upon joining WellPoint, among other items.
Despite a $10 million bonus last year, Health Care Service Corp. (HCSC) CEO Patricia
Hemingway Hall’s total compensation plummeted 30% compared to 2012. That year, Hall’s
compensation topped $16 million. In 2013, however, she received $11.2 million in total
compensation. Like most Blues plan CEOs, her base salary of $1.1 million hasn’t changed much
over the years.
While some Blues plan CEOs receive eye-popping compensation, CEOs at a handful of publicly
traded health plans receive much more. Aetna Inc. CEO Mark Bertolini, for example, had more
than $30 million in salary and other compensation in 2013. That was up substantially from the
$13.3 million he received in 2012. The increase is due largely to company performance and a
generous retention agreement. However, executive pay among Blues plans is increasing slightly
faster than that in the broader private health insurance market, which includes BCBS
organizations, according to Towers Watson data.
Outside of health insurance, compensation levels in the health industry have pierced the
stratosphere. In 2013, Gilead Sciences CEO John Martin saw compensation valued at a
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whopping $180 million. Gilead is the biotech company responsible for the manufacturing and
marketing of hepatitis C wonder drug Sovaldi.
Boards Weigh Benchmarking Options
For at least the past 25 years, most large companies, including Blues plans, have benchmarked
against other companies to determine CEO compensation levels. But that strategy has caused a
real acceleration in compensation increases and “a separation of pay” from the rest of the
organization, says Charles Elson, director of the John L. Weinberg Center for Corporate
Governance at the University of Delaware.
Elson says that there is a growing opposition to such benchmarking strategies because they
accelerate executive pay without regard to internal pay dynamics and create problems for the
organization.
They separate the CEO’s pay from others in the organization. Particularly within the Blues, which
are not-for-profits, they can create issues, he explains.
“The compensation really needs to be set on the basis of how the organization pays, while the
external factors are more of a guide or reality check. Most of the time, you grow up in a company
your whole career and become CEO, so the odds of you jumping to another really aren’t all that
great. As a result of benchmarking, CEOs get a pay increase based on how well someone is
doing at another organization, not on how well you do at your own. Boards have begun to reevaluate that. I think there will be change,” he tells The AIS Report.
Revenue and earnings volatility are making goal-setting for multiyear long-term incentive plans
extremely difficult, Gallo adds. He says most of his Blues plan clients have revamped their longterm incentive plans over the last two years, with some even moving away from goal-based plans
and toward peer-based plans or greater discretion, says Gallo.
The sometimes unpredictable impact of health reform is causing most boards to reconsider the
performance metrics as well as goals in their annual incentive plans. For example, unqualified
membership growth is no longer a guiding principle as Blues become more selective about their
book of business, says Gallo.
Blues plan boards typically receive compensation, but Dorf says questions are being raised
nationally about whether paying board members should continue, particularly among those board
members who represent hospitals.
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Proponents contend that compensation is necessary to recruit highly qualified talent to board
positions, particularly when competing with the private sector for the same people.
B2C Switch May Impact Compensation
As health insurance moves to become more consumer focused — and as the ACA makes
traditional underwriting and administrative services only business a less important component in
earnings — some Blues plans are beginning to hunt outside of health insurance for potential
executives.
When it comes to setting financial incentives for top executives, board compensation committees
are focused on getting the right comparisons for market reference for pay level. “As they are
starting to reshape their business models, it raises questions about whether they will need
different types of talent than they have had in the past,” says Gallo.
A growing number of Blues plans are recognizing a need to focus on the consumer rather than
seeing the employer as the end customer. As a result, they are reimagining their business as
more of an overall health care company as opposed to a health benefit company, Gallo says.
“Boards are putting more focus on where to find talent. They are thinking more broadly about the
sources of talent and organizations against which they benchmark themselves,” Gallo says.
Sweden, who came from an integrated delivery system, could be the first of future Blues plan
executives with health system backgrounds.
2013 Annual Compensation for Top Executives at Blue Cross Blue Shield Plans and Parent Companies (Ranked
by Total 2013 Compensation)
Increase
Company
2013
2013
2013 Other
2013 Total
Salary
Bonus
Compensation
Compensation
President/CEO
(Decrease)
From 2012
Publicly Traded, ForProfit Blues Plans
Joseph R.
WellPoint, Inc.
$913,461
$0
$16,066,4662
$16,979,927
N/A
Swedish1
www.wellpoint.com
John Cannon1*
Triple-S Management
Ramón M.
Corp.
Ruiz-Comas
$810,097
$820,615
$0
$0
$5,667,7663
$2,220,0044
$6,477,863
$820,615
0.1%
-4.5%
4
www.ssspr.com
Multistate Not-forProfit or Mutual Blues
Plans
Health Care Service
Patricia A.
Corp.
Hemingway
www.hcsc.com
Hall
$1,117,583
$10,090,409
$9,477
$11,217,469
-29.9%
$1,227,086
$2,814,621
$217,849
$4,259,556
127.9%
William
Winkenwerder,
Highmark Inc.
Jr., M.D.5*
www.highmark.com
David Lynn
$524,881
$1,020,254
$68,245
$1,613,380
1.0%
Holmberg5*
Premera Blue Cross
H.R. Brereton
www.premera.com
Barlow
$813,291
$2,551,439
$172,794
$3,537,524
17.3%
Chester Burrell
$909,647
$1,605,625
N/A
$2,515,272
9.5%
Mark B. Ganz6
$808,263
$1,442,787
$119,903
$2,370,953
38.7%
$919,154
$60,426
$108,632
$1,088,212
-58.5%
$996,154
$2,580,000
$4,401,294
$7,977,448
16.8%
CareFirst, Inc.
www.carefirst.com
Cambia Health
Solutions, Inc. (operates
Regence companies in
Idaho, Oregon, Utah and
Washington state)
www.cambiahealth.com
Wellmark, Inc.
John D.
www.wellmark.com
Forsyth
Single-State Not-forProfit or Mutual Blues
Plans
Blue Cross Blue Shield
Patrick J.
of Florida
Geraghty
www.floridablue.com
5
Blue Cross Blue Shield
of Michigan
Daniel Loepp
$1,464,439
$4,376,255
$827,773
$6,668,467
75.5%
$999,559
$3,580,651
$257,227
$4,837,437
12.6%
$837,182
$3,246,478
$374,334
$4,457,994
0.5%
$1,068,308
N/A
$3,289,166
$4,357,474
27.9%
$949,808
$2,597,667
$19,866
$3,567,341
8.8%
$897,427
$2,034,138
$28,217
$2,959,782
19.4%
$787,950
$1,387,310
$5,175
$2,180,435
-47.0%
$802,929
$0
$1,121,835
$1,924,764
16.1%
$713,445
$920,053
$142,034
$1,775,532
8.2%
$753,846
$650,000
$340,596
$1,744,442
N/A
www.bcbsm.com
Blue Cross and Blue
Terry D.
Shield of Alabama
Kellogg
www.bcbsal.org
Horizon Blue Cross Blue
Robert A.
Shield of New Jersey
Marino
www.horizonblue.com
Blue Cross Blue Shield
Richard L.
of Arizona
Boals
www.azblue.com
Independence Blue
Daniel J.
Cross
Hilferty
www.ibx.com
Blue Cross and Blue
James Bradley
Shield of North Carolina
Wilson
www.bcbsnc.com
Blue Cross and Blue
Steven S.
Shield of Nebraska
Martin
www.nebraskablue.com
BlueCross BlueShield of
William Morgan
Tennessee
Gracey
www.bcbst.com
Blue Cross Blue Shield
David R.
of Kansas City
Gentile
www.bcbskc.com
Blue Cross Blue Shield
Michael J.
of Minnesota
Guyette7
www.bcbsmn.com
6
BlueCross BlueShield of
David Stephen
South Carolina
$342,146
$1,163,046
$72,564
$1,577,756
22.3%
$872,308
$446,228
$46,238
$1,364,774
13.1%
$715,220
$565,282
$5,928
$1,286,430
18.6%
$742,451
$364,643
N/A
$1,107,094
-1.0%
$585,362
$175,540
$41,259
$802,161
0.6%
$592,459
$176,400
$6,335
$775,194
-27.4%
$344,871
$251,624
N/A
$596,495
-66.5%
Paul von Ebers
$371,375
$201,351
N/A
$572,726
3.5%
Don George10
$553,059
N/A
$16,406
$569,465
-3.0%
$313,906
$188,038
$15,682
$517,626
14.7%
Pankau
www.bcbssc.com
Blue Cross and Blue
Andrew
Shield of Massachusetts
Dreyfus
www.bluecrossma.com
Hawaii Medical Service
Michael A.
Association
Gold
www.hmsa.com
Blue Cross of
Northeastern
Denise
Pennsylvania
Cesare8
www.bcnepa.com
Arkansas Blue Cross
Paul Mark
and Blue Shield
White
www.arkbluecross.com
Blue Cross & Blue
Peter
Shield of Rhode Island
Andruszkiewicz
www.bcbsri.com
Capital BlueCross
Gary St.
www.capbluecross.com
Hilaire9
Noridian Mutual
Insurance Co. (parent of
Blue Cross Blue Shield
of North Dakota)
www.bcbsnd.com
Blue Cross and Blue
Shield of Vermont
www.bcbsvt.com
Blue Cross Blue Shield
Richard F.
of Wyoming
Schum, Jr.
7
www.bcbswy.com
Blue Cross Blue Shield
Michael
of Montana
Eugene
www.bcbsmt.com
Frank11
$197,538
$224
$30,060
$227,822
-64.1%
N/A = Not Available
* Indicates person is no longer CEO
1. John Cannon served as interim CEO until March 24, 2013. Joseph Swedish was named CEO, effective March 25, 2013.
2. Swedish's other compensation includes stock awards worth $7,900,056, option awards worth $1,600,019 and non-equity
incentive plan compensation worth $2,510,625.
3. Cannon's other compensation includes stock awards worth $3,900,049, option awards worth $599,988 and non-equity
incentive plan compensation worth $1,059,580.
4. Ramón Ruiz-Comas' other compensation includes stock awards worth $2,000,004 and change in pension value and
nonqualified deferred compensation earnings worth $190,000.
5. David Holmberg, president and CEO of Highmark Diversified Services, was named president and CEO of Highmark in
late May 2014, replacing William Winkenwerder.
6. Compensation data for Mark Ganz includes payments allocated to insurance operations in Oregon, Utah and
Washington state, but excludes payments allocated to those in Idaho.
7. Michael Guyette was appointed president and CEO of Blue Cross and Blue Shield of Minnesota in January 2013.
8. Denise Cesare's compensation is the total annual compensation received for her service for First Priority Life Insurance
Company, HMO of Northeastern Pennsylvania, Inc. and Hospital Service Association of Northeastern Pennsylvania.
Significa Insurance Group, Inc. did not file 2013 executive compensation.
9. Gary St. Hilaire's compensation is the total annual compensation received for his service for Capital Blue Cross, Capital
Advantage Insurance Company, Avalon Insurance Company and Keystone Health Plan Central, Inc.
10. Blue Cross and Blue Shield of Vermont's filing lists only total compensation for each of 10 unnamed officers, and does
not cite Don George by name.
11. Blue Cross and Blue Shield of Montana (BCBSMT) was acquired by Health Care Service Corporation (HCSC) in mid2013. Frank's salary is prorated and reflects the salary paid for the five-month period he served as president of HCSC's
BCBSMT division - August 1 through December 31, 2013.
NOTE: Delaware, Idaho, Kansas, Louisiana and Mississippi do not disclose compensation data for specific executives at
health insurance companies. California does not require health insurance companies to disclose compensation data.
SOURCES: Individual Blue Cross and Blue Shield plans, state insurance department documents and U.S. Securities and
Exchange Commission filings, compiled by Atlantic Information Services, Inc. September 2014.
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