Rowe Took A Bit Too Much
March 7, 2003
Here we go again. A Hartford-based company on the
Fortune 100 list announces a big raise for its chief
executive after executing several thousand layoffs last
year.
Two weeks ago it was George David at United
Technologies. Now it's Dr. John W. Rowe at Aetna Inc.
This is it, though; after these two, we're fresh out of giant
companies with mass layoffs.
Rowe, like David, is chairman of the board that pays him,
although neither man votes on his own salary. A modest
boost to match the hard times in 2002, you might think?
Try a 160 percent increase, from $3.4 million in 2001 to
$8.9 million in 2002 - not including stock options.
Some Aetna people are shaking their heads, especially
since Rowe recently cut health benefits to future retirees
on top of carrying out the better part of 7,800 layoffs in the
last 18 months. That's 7,800 lives thrown upside-down,
most of them with folks at home counting on them. Think
of it this way: Rowe earned $1,000 for every layoff, in rough
terms, plus $1 million.
Sounds crazy, huh? This may sound crazier: Jack Rowe
deserved a big raise, though not the prodigious jackpot he
accepted.
The health insurer recruited Rowe in the summer of 2000
from his job running a not-for-profit New York City hospital
system. Aetna had just agreed to sell its financial services
and foreign units to ING Group for $8 billion. More
important to Aetna going forward, the company was
attempting to turn losses into profits by shrinking its core
business, from a late-1999 peak of 21 million people
covered.
The idea was to shed unprofitable business across the
country, mostly by raising prices.
As of the end of 2002, Aetna insured 13.7 million people.
It's no longer the nation's largest health insurer. Its payroll
has dropped from 40,000 in 2000 to 28,500 as it has
hired thousands of people, but not as many as it laid off
and lost in the ING sale.
And under Rowe, 58, Aetna moved from a $63 million loss
in operations in 2001 to a $450 million profit last year.
Shares in Aetna rose by 25 percent last year, a down year
for most issues.
Rowe, in short, walked into a situation in which the whole
point was to pare jobs, not just to boost profits, but also to
change the nature of the company. And he did that.
Moreover, Aetna employees - the ones that remain - have
not had their pay frozen. The average increase last year
was 3.7 percent, spokesman Fred Laberge said. Annual
bonuses increased for rank-and-file workers, and Aetna
also gave stock options to all regular staff members,
although the workweek was increased from 37½ hours to
40 hours.
In 2002, Aetna restored its matching grants for 401(k)
retirement plans to 100 percent, from 50 percent, for up to
6 percent of an employee's pay. And it maintains a
traditional pension plan, as well.
"The good fortune of the company was shared," Laberge
said.
Looking ahead, the company has no plans for more major
layoffs, Laberge said. That, of course, can change any
time at Aetna or any other company.
Rowe, to his credit, has also moved to ease back on
Aetna's highly restrictive "poison pill" takeover defense.
One year ago, some shareholders criticized Aetna's wall
of protection, which made a hostile takeover all but
impossible. That may be good for Connecticut, which
would lose if another company swallowed Aetna, but it's
bad for shareholders, and ultimately bad for business.
Shareholders next month will vote on a plan which would,
among other things, require a simple majority of shares
voting to approve a merger, rather than two-thirds of
shares voting.
Speaking of Connecticut, the local layoffs under Rowe
have been less than they might have been. Among 10,000
job cuts announced since December, 2001 - mostly
layoffs - 10 percent have been in Connecticut, where more
than a quarter of the Aetna staff works.
Rowe in 2002 received a salary of $1 million, the same as
in 2001, and other compensation totaling $228,000,
including use of the company jet. His bonus jumped from
$1 million to $2.5 million, and his "long-term incentive"
payout last year was $5.2 million, up from zero in 2001.
During 2001 he also received $1.4 million from his
signing bonus.
Separately, Rowe received options to buy 350,000 Aetna
shares in January 2002 that had a theoretical value of
$5.4 million at the time of the grant.
Ronald A. Williams, who was promoted to president from
executive vice president in 2002, was paid a total of $6.1
million in 2002.
Rowe's direct pay may be a record for Aetna, for ongoing
chief executives. But this is the company that paid William
Donaldson, now head of the U.S. Securities and
Exchange Commission, a $12 million parting gift in the
year when he stepped down as CEO in 2000.
Rowe, in the end, did deserve a nice raise last year.
Because of the layoffs, though, he should have signaled
his board's compensation committee that he wanted a
more modest bump.
Maybe next year he'll do that. And maybe Rowe, who still
has a residence in New York as well as in Greater
Hartford, will move to Connecticut outright and spend
more of that money here.
Dan Haar can be reached at haar@courant.com or by
calling 860-241-6536.
E-mail: haar@courant.com
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