It is the rare individual who has the education, skills, and personality to lead a large corporation to long-term success. When their talents yield results, they deserve to be compensated just as star athletes are. However, many high level executives in publicly held corporations are over-compensated whether or not their companies do well.

How should we put the brakes on runaway executive compensation? Arbitrary caps will never work. Appointing a compensation czar to oversee compensation at all public companies also won't fly.

In my view, the most important step is to increase the number of truly independent directors on boards. They should develop systems that reward for long-term success (measured over years rather than quarters). Some other ideas include:

Bar exercise of options for a specific number of years or until the stock price exceeds a specific benchmark.
Charge the cost of option grants against corporate income when exercised.
Award stock that must be held for a number of years, so the executives win or lose right along with stockholders.
Require shareholders—not simply the board of directors—to vote on stock option grants.
Require boards to retain an ability to withhold or curb golden parachute payments.

What is your view? Are executives at publicly held companies overpaid? How should a reasonable compensation system be structured that would motivate and reward without a ludicrous payout for temporary short-term results or outright failure? [See reader responses].

While on the subject of directors and officers, IRMI is proud to introduce the new Management Liability Insurance Specialist (MLIS) continuing education and certification program. MLIS was designed with the goal of giving you the knowledge, confidence, and credentials to assure that the D&O, EPL, and fiduciary liability policies you sell or buy to properly protect directors, officers, managers, and companies. Insurance CE credit is available in most states.

Many thanks for subscribing to IRMI Update.

All the best,

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.

What's New in Your IRMI Library

New Professional Development Program

The Management Liability Insurance Specialist (MLIS™) continuing education program provides specialized expertise in professional liability insurance fundamentals and the more specific nuances of directors and officers, employment practices, and fiduciary liability exposures and insurance. With MLIS behind your name, you'll have the competence, confidence, and credibility to deal with these complex and intimidating lines of insurance.

MLIS is recommended by the Risk and Insurance Management Society, Inc.® (RIMS), and members enjoy a 10 percent discount off the course fees. Learn more.

Risk Tip

Covered or Excluded? Make Sure To Check the Definitions!

Despite experience and education, it seems there is always something to learn in the insurance business. Recently, while working with a prospective client, I noticed an attached endorsement in a competitor's non-Insurance Services Office, Inc. (ISO), general liability form that excluded loss of electronic data. This exclusion was problematic and (I thought at the time) would be an area that I could offer better coverage. After checking the exclusion section of the ISO coverage form that we were proposing and finding no exclusion for loss of data, and then confirming with our underwriter that the quote would not have the offending exclusion attached, I was ready to proclaim a coverage advantage for our program. Then I looked at the definitions section of the policy form and found that "property damage" was defined as including "tangible property" only. The definition went on further to specify that electronic data was NOT "tangible property." The lesson here is that policy forms (in this case ISO versus manuscript) can be different in their structure, and each must be examined closely—in all their sections and subsections—before a coverage determination is made.

By: Joseph L. Pilato, CPCU, Account Executive
Maran Corporate Risk Associates
Marlton, NJ

GET PUBLISHED IN IRMI UPDATE: Send us a practical tip (less than 300 words) for identifying and managing risks, buying insurance, managing claims, or filling gaps in insurance coverages. We'll acknowledge your contribution as we did for Joseph.
Submit an IRMI Update risk tip.

What's New in Your IRMI Library

Carefully Analyze D&O Coverage

With no standard D&O policy form widely adopted by the industry, there are very significant variations from one insurer's policy to another's. Analyzing the coverage provisions of a policy—or comparing the provisions of two policies—is a daunting and tedious task. That's why we do it for you in D&O MAPS. From ACE to Zurich, this reference includes painstakingly prepared analyses of virtually every D&O form used in the U.S. marketplace, and two to three new or updated analyses are included every month (this month features analyses of ACE and Hartford policies). Far more than a simple side-by-side display of policy provisions, D&O MAPS illuminates good (blue) and restrictive (red) features to quickly alert you to the positives and negatives of an insurer's form. If you subscribe to D&O MAPS, take a look at the D&O Policy Specimens and Analysis section in the platform to which you subscribe and remember to refer to it the next time you buy or sell a D&O policy.

For summaries of other new and updated information in your IRMI library, go to What's New on IRMI Online or What's New in SilverPlume Sage.

New Expert Commentary

There are over 1,100 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

Risk Management Services Report Card—Gary Bausom advises risk managers to prepare carefully for performance reviews.
Third-Party Guarantees of Reinsurance Obligations—Many ceding insurers are requiring performance security. Larry Schiffer explains.
Construction Risk Management in a Hard Economy—Economic downturns greatly affect construction. TJ Lyons says use it to your advantage.
Trouble in Mind for the Insurance Industry—The government has set its sights on the insurance industry, and Pete Polstein sees more blues ahead.

IRMI Featured Publication

Prepare for Your Next Claim Battle

Pollution Coverage Issues gives you a comprehensive analysis of the more than 800 cases from all 50 states on the ISO CGL pollution exclusion and related coverage questions. If you paid a coverage lawyer to reproduce even a fraction of this information, the cost would reach $50,000 or more in legal fees! See a detailed table of contents and list of benefits to you.

IRMI Update