Of the nearly $50 million that top CareFirst BlueCross BlueShield executives could get if the company is sold, between $6.2 million and $13.8 million violates state law, a consultant to Insurance Commissioner Steven B. Larsen said in a report released yesterday.
The consultant, Jay Angoff, a former Missouri insurance commissioner, offered similar conclusions in testimony earlier this month, but yesterday's report offers specific numbers and responds to documents offered by CareFirst and the company that wants to buy it, WellPoint Health Networks Inc.
The bonuses are one issue Larsen will consider in deciding whether to approve nonprofit CareFirst's conversion to for-profit operation and its sale to WellPoint for $1.37 billion. His decision is expected next week.
In the latest report, Angoff takes issue primarily with "retention bonuses" offered by WellPoint.
CareFirst Chief Executive Officer William L. Jews would pocket three times his annual salary and bonus, a total projected at $4.8 million, if the deal goes through.
Seven executive vice presidents would collect twice their annual salary and bonus, for a total of $6.5 million, if they stay with WellPoint for two years, or if WellPoint fires them.
The state's "anti-bonus law," passed in 2001, would allow CareFirst executives to collect payments only for work performed for the acquirer.
Angoff said that the retention bonuses don't meet that test because the executive would collect if he were fired, and "because he is already receiving compensation for such employment in the form of his salary, bonus, stock options and benefits."
In addition, Jews and some of the other CareFirst executives would be paid above WellPoint's normal compensation level, Angoff said in the report. The reason, according to a WellPoint compensation consultant, was to "maintain morale and engagement with WellPoint, to secure agreements from executives to terminate their rights under their existing employment agreements, and to secure their continued service."
Based on documents from the compensation consultant, Angoff estimated that the salary, bonus and stock options for Jews, who would head WellPoint's mid-Atlantic region, would be worth a little less than $4 million a year.
Ken Ferber, a WellPoint spokesman, said of the latest report from Angoff, "We respectfully disagree with his analysis."
Jeffery W. Valentine, a CareFirst spokesman, said the company and its lawyers had just received the report, and needed time to study it before commenting.
The latest executive compensation plan was offered last month in a bid to salvage the heavily criticized deal.
In connection with the original sale agreement, concluded in November 2001, CareFirst had agreed to give $119.6 million in deal bonuses, severance and tax payments to top executives.
Legislators and other critics said the bonuses showed that CareFirst's executives weren't looking out for the public interest. Angoff said some $70 million of the payout was illegal, and Larsen strongly hinted he would block the deal if the bonuses weren't dropped.
WellPoint renegotiated a revised agreement that dropped the deal-related bonuses and the $70 million was added to the purchase price.
Of the remaining nearly $50 million in payments to Jews and seven other top executives, at least $34.9 million consists of money they've already earned - deferred bonuses and vested retirement benefits.
In some cases, payment of this money would be accelerated by a WellPoint deal, thus enabling the executives to benefit from the "time value" of the money, Angoff said.
However, he said, the greatest problem consisted of the retention payments the executives would collect only if there is a deal.
WellPoint argued that the payments, even if an executive was fired, were appropriate in exchange for the executives signing agreements not to compete with WellPoint if they left.
Angoff, however, pointed to previous CareFirst documents, some showing noncompete agreements worth only a third of the bonus amount, others showing none of the bonuses being related to noncompete agreements.