With property/casualty insurance and life and annuity companies having a great year in 2013, bonus funds were up above targeted amounts for 80 percent of them, Towers Watson reported yesterday.

In an item posted on Towers Watson’s Executive Pay Matters blog on Thursday, John Gayley, a director in the executive compensation practice in Chicago, and Bryan Ortwein, a Milwaukee-based director, reported broadly on the results of a survey of over 50 leading insurance companies last month.

According to the survey, not only did over 80 percent of the participating insurers estimate their bonus pools would fund above target for the 2013 year, but 70 percent also estimated funding levels at 125 percent of target or higher.

More than half of the companies surveyed reported improved bonus pool funding over 2012 levels, with half of those saying they would exceed the 2012 pool by 20 percent or more, the two directors reported, in the blog item titled, “The 2013 Bonus Year in the Insurance Industry: What Do We Do for an Encore?”

Noting the 2013 will be a “tough act to follow” in terms of overall financial results for many carriers, Gayley and Ortwein note that “this will undoubtedly raise questions about how best to position rewards to support the business for 2014 and beyond.”

The directors outline a series of questions that should be raised in discussions between company leaders and their boards in conjunction with bonus plan design and funding activities. Among the questions are:

• What level of incentive payouts will be acceptable for achievable levels of performance?
• Can insurance companies reasonably expect higher levels of performance without going outside their defined risk appetite?
• 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?

As companies struggle with questions of business mix and other strategic issues, stakeholder expectations for strong links between pay and performance will remain high, the blog item notes.

The item also refers to a recent Towers Watson survey confirming that corporate directors and institutional investors both see a need for more disciplined incentive plan target setting and greater emphasis on strategic, nonfinancial goals. (“Director/Investor Survey Reveals Executive Pay Issues Requiring Closer Attention From Boards and Management,” Executive Compensation Bulletin, January 29, 2014.)

Source: Towers Watson Executive Pay Matters blog