In 2020, Tipsord was paid just over $20 million in cash.
Over the past two years, State Farm has taken executive compensation to new levels. In 2019, Tipsord’s total compensation was around $10 million.
“For the third consecutive year, State Farm has experienced impressive growth,” the company said in a statement. “The company continues to maintain the strong financial performance necessary to deliver on our promises to our customers. Our executive compensation program is designed to reward customer retention and growth with profits, while maintaining State Farm’s financial strength.
State Farm is not publicly traded. It is a mutual insurer, technically owned by its policyholders. Therefore, unlike most companies of its size, it cannot award stock or stock options to executives as part of their compensation. That leaves money.
Also in recent years, given the lack of publicly traded stocks, State Farm paid its CEO cash totals that generally mirrored cash received by CEOs of similarly sized publicly traded companies. Something seems to have changed in terms of the insurer’s compensation program, but the statement did not answer this question posed by Crain’s.
Cash is generally considered more valuable than stocks because it is not subject to vesting periods. CEOs often raise shareholders’ eyebrows when selling shares, as this can be seen as a lack of confidence in a company’s prospects. This makes carried stocks something of a huge nest egg, to be redeemed when a CEO retires or changes jobs.
State Farm, based in Bloomington, has used the pandemic to reposition itself in the highly competitive auto insurance industry. With publicly traded competitors like Northbrook-based Allstate, as well as Progressive and Geico, struggling to balance the need to reimburse policyholders during the stay-at-home phase of COVID with the windfall profits they were seeing, State Farm provided a national rate cut averaging double digits in 2020.
Since driving levels have returned to near-normal levels and inflation has hit insurers’ profits, State Farm’s three main rivals have raised rates much more aggressively than it did. done, leading to gains in policyholders while others stagnated or retreated. State Farm is the nation’s largest auto and home insurer.
“At-risk incentive compensation is based on our financial results, growth, customer retention and employee engagement for the current and prior three years,” State Farm said in the release.
Tipsord runs a huge company that would easily rank among America’s 50 largest publicly traded companies if it weren’t private.
But his job is arguably simpler than his peers who run publicly traded companies. He doesn’t have to deal with quarterly reports, shareholder calls, decisions on regular dividend payments and the general need to keep stock prices rising. State Farm’s capital base is huge, so it can afford to lose money for even years at a time in order to gain market share if it wants to.
State Farm lost $3.4 billion in auto insurance last year but managed to post a $1.3 billion gain in net income as a hot stock market fueled gains in investment. If that had been its performance as a public company, its stock would likely have suffered.
“State Farm maintains a competitive, market-based compensation structure for all associates within the organization,” the company said in its statement. “State Farm executives receive no stock, stock options or other common forms of equity compensation. This structure links performance and compensation.
To put Tipsord’s view into perspective, on a cash basis, he easily passed JPMorgan Chase CEO Jamie Dimon for 2021. Dimon’s compensation was $84 million in 2021, but 6 $.5 million was in cash, with most of the rest in stocks and options. .
Allstate CEO Tom Wilson, who heads the nation’s fourth-largest auto insurer and second-largest home insurer, received more than $18 million in total compensation for 2021, according to a Securities & Exchange Commission filing. About $7.7 million of that was cash.
State Farm’s generosity was not limited to Tipsord. Senior managers at all levels have won significant salary increases. Chief operating officer Paul Smith received $8.6 million, down from $6.8 million in 2020 and $3.5 million in 2019, according to the filing. Randall Harbert, the agency’s director of sales and marketing, was paid $8.2 million, down from $6.8 million and $3.5 million in 2020 and 2019, respectively.