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NASFA
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What's In Your Wallet?
Executive compensation is a hot topic. FDIC Chairperson
Sheila Blair recently released comments stating CEO
compensation should be based on profit. No Profit – No
Bonus. At State Farm it translates into No Convention.
In early February, State
Farm agents were notified that the National Convention
was postponed out of respect for policyholders and the
economic downturn even though State Farm is not a
publicly traded company. Where is the accountability
that can only come with transparency in a Mutual
Company?
Follow the Money
Money being diverted from State Farm Mutual has reduced
the surplus and potential dividends. The Mutual Company
is for the sole benefit of the policyholders. Its
purpose is to return value by providing balanced rates
and services first, then executive, agents and employee
compensation second. There is also the fiduciary
responsibility to invest profits wisely. Noteworthy is
the consistent manner in which State Farm Mutual is
sharing benefits. The Mutual Company reserves are being
used to pay for lost capital in failed Financial Service
ventures.
State Farm Bank
Last year, State Farm Bank allegedly made money in the
first and second quarters, and with that capital
purchased mortgages with Countrywide. The bank lost
money the third quarter due to the mortgage debacle and
experienced fourth quarter losses due to overall
economic news.
The net operating loss for
2008 was $165,492,000 which included a $250 million
transfer from State Farm Mutual. It is speculated the
bailout was necessary to thwart possible seizure by the
Feds. In year 10, State Farm Bank is $266 million in the
hole. State Farm Bank only turned a profit once.
Phoenix
Phoenix suffered a fourth quarter stock loss closing at
48 cents a share. State Farm formed a Strategic Alliance
with Phoenix and holds at least five percent stock in
that company. State Farm management has subsequently
suspended marketing and placement of all Phoenix
products. It appears that none of the Financial Service
ventures implemented by State Farm have been successful.
Why is it acceptable to
allow failure of the Bank, Mutual Funds, Florida Fire,
and 30 percent TICA success rate? This just might be
sign that the Enterprise has/is being mismanaged.
Further Erosion of Trust
State Farm’s net worth dropped $10.4 billion last year
yet Ed Rust Jr. State Farm income increased to $13.66
million. While the companies’ value eroded by 16.3
percent, the CEO’s pay increased 18 percent. Rust’s
bonus was based on profitable company performance in
years 2005-07. Although disclosed to be Rust’s total
earnings, this amount translated to earnings from State
Farm Mutual. Rust Jr. sits as a director on numerous
corporate boards where his additional compensation is
significant. Maybe this compensation at State Farm can
be justified because the company only lost $10.4 billion
not $104 billion and the deficit was not as much as the
broader market. How many policyholders, agents or
employees saw an 18 percent improvement in their
situation in 2008?
Agents
Agents are “Exclusive” to State Farm; Rust Jr. is not.
This becomes a question of loyalty. Loyalty is the very
issue that troubles State Farm management when
scrutinizing an agent’s auxiliary employment activities.
Double standards abound in corporate America and are
alive and well at State Farm.
What about showing some
loyalty by extending a life line of help to assist our
own people, the employees and agents of Florida? You
be the judge. |
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