As most insurance companies turned in a good year in 2013, executives may receive their largest annual bonuses since the economic crisis, according to a survey from Towers Watson.

Results of the survey showed that executive bonus pools at more than 80 percent of the 50 respondents will be above target for 2013; and 70 percent of those estimated funding levels at 125 percent of target or higher. More than half the companies reported improved bonus pool funding over 2012 levels.

As for 2014 and 2015, it’s unclear whether the strong performance and payouts of 2013 can be repeated, given pricing trends, the weather and the continuing economic and capital markets uncertainty, according to the report.

As company leaders and their boards discuss bonus plan design and funding, Towers Watson suggests addressing the following questions:

Goal setting for 2014/15: Given the results for 2013, how challenging will it be to raise the bar for 2014 and 2015? If 2013 was a high-water mark, what level of incentive payouts will be acceptable for achievable levels of performance?

Balancing risk and reward: Can insurance companies reasonably expect higher levels of performance without going outside their defined risk appetite?

Performance measurement: Do the bonus metrics and results align with performance against company strategy? Are annual and long-term incentive plan goals coordinated (and/or redundant)? A recent Towers Watson survey confirms that both corporate directors and institutional investors see a need for more disciplined incentive plan target setting and greater emphasis on strategic, nonfinancial goals. (See “Director/Investor Survey Reveals Executive Pay Issues Requiring Closer Attention From Boards and Management.”)

Effective allocation of funds: Does our pay program reasonably ensure that the allocation of bonus pools below the corporate level reflects true unit performance?

Appropriate use of discretion: In both performance assessment and bonus funding, does the company have the right degree of “flex” in its processes to reflect changes throughout the year and events outside management’s control (e.g., macro factors that drove 2013 results, such as rising interest rates and equities markets, few major catastrophes, etc.)?

Meaningful differentiation: Do we have the mechanisms (or the flexibility) to ensure we’re awarding the right dollars to the highest performers?

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