Shareholders in global insurer QBE Insurance (ASX: QBE) have reason to be less than impressed with the QBE remuneration committee.
Long-term CEO, Mr Frank O'Halloran, who is credited with building QBE into the sprawling global business it is today, retired last year after 14 years. At the Annual General Meeting (AGM) roughly 33% of shareholders voted against the resolutions regarding O'Halloran's final remuneration and retirement benefit, which was a decent protest vote but at the end of the day, while shareholders watch their shares languish at near decade lows, the ex-CEO will be counting another couple of million dollars into his pile.
With the share price down around 60% over the past six years, the pay-out would have rubbed salt into the wounds of long-term shareholders. At the same time, QBE's capital position, despite a dilutive capital raising is far from ideal. This has forced the board to lower the dividend to shore up the balance sheet O'Halloran left behind.
Looking to the future
Newly appointed CEO Mr John Neal has moved quickly to repair damage done by the recent USA acquisitions. He has reigned in costs and focussed on integrating and maximising efficiencies from previous acquisitions. The fact that Neal and his team are aiming to take $250 million of costs out of the business by 2015 shows how sloppy QBE had become. Particularly pleasing was commentary around the Group's outlook. Premium rates are expected to continue to firm and management stated it was targeting a combined operating ratio of 92% and an insurance margin of 11% in 2013.
The observation regarding premium rises is in line with commentary from fellow insurers Insurance Australia Group (ASX: IAG), Suncorp (ASX: SUN) and AMP (ASX: AMP), which stands the sector in good stead to report growth in earnings.
Foolish takeaway
Investing in companies where the board and management act like owners is a very important criteria for identifying high quality businesses. Managers that do not tightly control expenses, whether those expenses be salary, rent, travel or other, are wasting money that could go to growing the business or to shareholders. Likewise Boards who do not tie executive salary to performance are doing a disservice to shareholders.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in QBE Insurance.
