David DAlessandro, chief executive officer of John Hancock Financial Services, Inc., Boston, has come under fire from two industry analysts for receiving a pay raise in 2002 that they maintain seems out of proportion to recent company performance.
DAlessandros total direct compensation last year was more than $21.7 million, up almost 164% over the year before, according to a recent analysis of executive compensation in the life insurance industry by Citigroup Smith Barney, New York.
Colin Devine, a life insurance industry analyst for Smith Barney, said in the report that Hancock had the highest-paid management team in the industry. All told, its top five executives were paid more than $42 million last year, 77% more than top executives at Prudential Financial Corp., Newark, N.J., which was the second highest-paid executive team. Prudentials top five earned a total of just under $24 million last year, Smith Barney reports.
“Making Hancocks executive compensation plan even more difficult to understand was reconciling its 121% increase with a 15.4% drop in net income as well as a 32.4% decline in JHFs share price,” Devine observed.
He noted that the stock prices of life insurance carriers tracked by Smith Barney declined an average of 22.4% last year.
Prudentials stock price fell only 4.4% last year, its first full year following its initial public offering, Devine points out in his report. Its net income rose more than 140%, while the pay of its top executive, Arthur Ryan, actually fell 3.4% in that time.
Another analyst, Vanessa Wilson, managing director of Deutsche Bank Securities Inc., New York, downgraded Hancock from a buy to a hold because of her unanswered questions about executive pay at the company.
“We cannot recommend investors add new money to this stock until the pay-for-performance issues are clarified,” commented Wilson.
A Hancock spokesman declined to comment on the controversy, while the chairman of the companys executive compensation committee was unavailable. The committee head, Richard Syron, chairman of Thermo Electron Corp., Waltham, Mass., was recovering from an unspecified medical procedure, a Thermo Electron spokesman said.
In an interview last week with the Wall Street Journal, Syron said his committee wanted to reward Hancocks top executives for the big increase in the companys stock price in the first year following its IPO in January 2000. Those executives did not qualify for stock options in that time period, he noted.
Between the IPO and the end of 2002, the companys share price climbed 64%.
In a telephone conference with analysts earlier in May, DAlessandro pointed out that considerations for executive pay increases are broader than year-to-year performance.