Is the Phrase Mutual Company Still for the Policyholder

URDRWHO

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The sales talk against stock insurance companies has always been, "those companies have shareholders to satisfy, profit goes to shareholders but in a mutual the profit goes to policy holders." Truth but is it only in theory. Shareholders at stock companies can and do punish the stock price if a stock company is doing egregious stuff. History shows a lack of policyholder involvement in getting involved when they (policy holders) are sent something that requires a vote.

Is mutual profit compared to non-profits? Anyone in the know understands that non-profit doesn't mean that the non-profit isn't making some large sums of money. They just have IRS rules that demand no profits shown at the end of the year. (Wife once worked for one of the big 8 CPA firms). Still like the CPA joke, "what does 2 plus 2 equal" --- CPA answer "what do you want it to equal."

So without any regulations, without shareholder punishment, is a mutual still what it professes to be, for the benefit of policyholders?

"Lawmakers target big pay deals at mutual companies

Shocked that Liberty Mutual paid its former chief executive roughly $50 million a year, three Massachusetts senators have proposed budget amendments to discourage other mutual companies from awarding outsized pay packages in the future.

Senator Senator Brian A. Joyce, Democrat of Milton, would require mutual companies, both insurers and banks, to publicly disclose compensation for top executives, just as publicly traded companies are required to do. Senator Mark C. Montigny, a New Bedford Democrat, would give policyholders at mutual insurers a chance to vote on executive compensation, similar to the “say on pay” votes by stockholders of public companies, which was mandated by the Dodd-Frank financial overhaul bill.

Mutual insurance companies and banks are collectively owned for the benefit of their policyholders and depositors. While the Securities and Exchange Commission is explicitly charged with protecting shareholders in publicly traded companies, there is no similar agency to protect the ownership interests of policyholders or depositors.

Concerns about oversight of mutual companies were spurred earlier this year when the Globe reported that former Liberty Mutual Holding Co. chief executive Edmund F. “Ted” Kelly collected roughly $200 million in his last four years as chief executive. Kelly stepped down as CEO in June 2011, but still serves as chairman of the board of directors.

The Boston mutual insurance giant said the pay was inflated because Kelly cashed in performance incentives that he collected over nearly two decades with the company."

- See more at: Lawmakers target big pay deals at mutual companies - The Boston Globe
 
I do not believe it is the job of the United States government to dictate limits to executive compensation. If a mutual company spends too much money on salary and bonuses, as well as other expenses, that will affect its pricing. Consumers can always go to another company with better rates.
 
I do not believe it is the job of the United States government to dictate limits to executive compensation. If a mutual company spends too much money on salary and bonuses, as well as other expenses, that will affect its pricing. Consumers can always go to another company with better rates.

Companies and industries that fail to self-regulate are and always will be a target for government regulation.

That should not be a surprise. The surprise should be that business leaders refuse to learn that lesson.
 
I wonder if there's a similar article regarding credit unions and executive pay... because, like mutual companies, they are tax-exempt and redistribute their profits back to their members in the form of higher deposit rates and lower loan rates.

Mutual organization - Wikipedia, the free encyclopedia

However, everyone LOVES their credit union... so I doubt you'll see any kind of 'expose' article on their compensation practices.

Is there much difference between a bank and a credit union? To the average consumer, no. So why is one tax-exempt and one isn't? That's what banks want to have happen - change the tax-structure of credit unions for a "level paying field". In truth, the taxes will simply eliminate credit unions from being a viable alternative to traditional banks.

How about the difference between stock and mutual insurance companies? As long as mutual companies are operating within the limits of the law... I don't care who gets paid what.

Every company has regulators. Insurance companies are regulated by 50 state regulators and the NAIC. I'm sure there are other regulators, such as the FTC.

Every stock insurance company also answers to the SEC. Perhaps there is more transparency with a stock insurance company, but there are stockholders who are not policyholders to answer to as well.

In short - being "mutual" has nothing to do with it being "for the policyholder". It's simply a business entity. To be in compliance with the tax code, a mutual company has to distribute its net profits back to its shareholders in the form of a dividend.

One advantage of being a policy owner (versus stock holder) is the ability to have your dividends continue to compound and grow over time and be credited to your policy. Obviously dividends and the dividend scale is not guaranteed, but neither is insurance company stock performance.
 
I repeat my earlier statement, companies and industries that fail to self-regulate will find themselves subject to more government regulations.

Executive pay and income disparity are growing issues. Baring a sudden and sharp increase in the average wage, I believe companies will find themselves subject to more and more scrutiny and eventually regulations concerning this. They may backfire as many government regulations do, but I firmly believe they are coming.

Even with stock companies, the board effectively answers to no one. Most shares are held by some type of fund, mutual fund, pension or other retirement fund, hedge fund, private equity, etc. Not by individual large investors. The funds couldn't care less what the company does as long as the stock appreciates and it pumps out dividends if it is a dividend paying stock.
 
"Self-regulate" to whose business ethics and morality standards? Compensation should be based on results one helps the entity generate.

Jim Rohn once said this: "If you help a company earn a Billion dollars... would they pay you $52 million? Of course! It's chicken feed! It's not much money."

In short - profits are better than wages. It seems that "self-regulation" on compensation is seeking to justify someone's wages compared to someone else's wage scale. That's wrong.

Someone's compensation should be justified based on the profitability they brought to the company.

The more valuable you are to a company, the more you earn. That's called reality.

As long as they are operating a legal venture, I don't care how much (or how little) anyone makes.
 
If you lived in a vacuum or a completely logical world, that would work.

We don't. They have to live with society's standards and there is a growing belief in society that executives are overpaid at the expense of workers. Now, whether numbers back that or not is immaterial. What matters is what society thinks. Once society reaches a tipping point then something with happen.

Also, the fact it is currently legal doesn't matter either. Laws will be changed if needed.

I am reminded of my favorite quote. "Those who fail to learn from history are doomed to repeat it." You can find plenty of examples of this throughout history, even relatively recent history. Look at 162(m) of the IRC. In someways it backfired, so I would expect a board overreach the next time.
 
People with money, or who are in a position of power over an organization can and will ALWAYS find different ways around a law. How many ways can you think of to help a client to AVOID taxes? (Not evade paying taxes, but avoid incurring them in the first place?)

If I remember correctly, the CEO of Ford only takes a $1 salary per year. That's ONE dollar. I'm sure there are plenty of perks being paid (on a tax-deductible basis) on his behalf by the company... and plenty of stock options being awarded. That kind of compensation is completely legal and it is smart.

The facts are, that the public has no clue about compensation and financial literacy. They would do well to start out by reading the "Rich Dad, Poor Dad" series. They would learn about the compensation quadrants of E (employee), S (self-employed), B (business owner), & I (investor).

Bending compensation laws to favor the ignorant, jealous, and poor... is a bad idea.
 
The facts are, that the public has no clue about compensation and financial literacy. They would do well to start out by reading the "Rich Dad, Poor Dad" series. They would learn about the compensation quadrants of E (employee), S (self-employed), B (business owner), & I (investor).

Bending compensation laws to favor the ignorant, jealous, and poor... is a bad idea.

While I agree that we can't legislate executive compensation, I do think that compensation should be better regulated by the board of directors at mutual insurance companies. The board of directors are theoretically accountable to the "ignorant, jealous, and poor" as you would call them -- the policyholders of the mutual company.

As a policyholder, I want compensation to be set at a level that encourages long-term growth of the company. With a stock company, it is fairly easy to see this on a quarterly basis (and there is accountability on a quarterly basis). But at a mutual company, things are not as transparent. Its easy for a bad CEO to go unnoticed for years as he or she can ride on wave of previous successes.

Unfortunately, some boards at mutual companies are entirely beholden to the CEO rather than the policyholders. This dynamic needs to change. I would support legislation that could help this, such as requiring policyholder approval for CEO salaries above some level (for example, a weighted average of CEO salaries at comparable stock insurance companies).
 
Companies and industries that fail to self-regulate are and always will be a target for government regulation.

That should not be a surprise. The surprise should be that business leaders refuse to learn that lesson.

Unfortunately true. However, it is still not the role of government to legislate morality, even when that comes to marketplace conduct. But our country let that genie out of the bottle decades ago. :1mad:
 
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