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$337 Million Underwriting Loss, 137.7 Loss Ratio…State Fund Bonuses $6.8 Million

State Compensation Insurance Fund (SCIF) management is increasing by ten-fold its controversial executive bonus program.  The quasi-governmental workers' comp carrier is instituting a bonus program that is open to all rank-and-file employees as well as managers, supervisors and special executive appointees. Only handful of the thousands of employees are civil service exempt meaning it is giving bonuses to State of California employees.

All of this is against a backdrop of a 334 Million dollar underwriting loss, and a combined loss ratio of 137.7%. These measurements are a failure in any book of insurance or by any standards.

State Fund General Counsel Carol Newman presented the resolution to the board creating the expanded bonus program. "The Board hereby finds that State Fund's enterprise performance for 2012 exceeded expectations and hereby approves a 2012 performance award pool not to exceed $6.8 million for State Fund staff, managers, supervisors, and [Career Executive Assignments or CEAs], program managers and executives."

All employees and executives earning a bonus should have their payout in hand within a couple weeks, say State Fund officials.

"This is an extremely important step that we've just taken. I think it’s the first time that I know that we've been able as State Fund to award performance awards to all the employees of all the classes," State Fund board chairman Larry Mulryan commented after the board's unanimous vote to approve the program. "What we're doing here today, what we just have done is an extraordinarily fine step I think and I'm proud that we're able to do it as a company. We're happy to be able to issue these performance awards in recognition of all the good work [by the employees]."

Reaction in the broker community was mixed to the news that State Fund was diverting funds to employee bonuses. There was some sentiment that the rank and file has been put in a difficult position with staff cuts and reorganizations and likely deserves some recognition for persevering, but the executive payouts were viewed as unwarranted, undeserved and untoward.  Losses like these would not even result in job retention in any private carrier said one broker.

Executive Payouts

Individually, State Fund President Tom Rowe again is earning the largest bonus award at $135,000, while the executive team as a whole pocketed just under $425,000 in performance awards for the year (see chart below). The board also extended Rowe's contract under the same terms for an additional five years effective Aug 2, 2013. Additionally, several members of the executive team will get a raise in 2013 and/or an increase in their retention incentives.


2012 Base Salary

2013 Base Salary

2013 Retention Bonus

2012 Performance Bonus

2011 Performance Bonus

CEO/President Tom Rowe






General Counsel Carol Newman






Chief Information Officer Marj Hutchings






CFO Dan Sevilla






Chief Risk Officer Ken Van Laar






Chief Investment Officer Peter Guastamachio






COO Beatriz Sanchez




$25,248 (paid in November)


SVP Human Resources Andreas Acker


Not Disclosed




EVP Field Operations Darlyn Regan


Not Disclosed




SVP Marketing and Communications Jennifer Vargen


Not Disclosed




SVP Government Affairs Brian Watson


Not Disclosed





In recognition of the appointment of Beatriz Sanchez as chief operating officer, the board approved a raise for 2013 of nearly $30,000. Sanchez had been senior vice president of claims. Sanchez' salary is climbing to $156,000 this year from a 2012 base of $126,240. She will also receive a retention bonus of $39,000 annually.

Others receiving a raise in 2013 include Chief Financial Officer Dan Sevilla and Chief Investment Officer Peter Guastamachio. Sevilla received an $8,900 raise to $305,540, while Guastamachio's salary is climbing $10,000 to $250,000 this year. Sevilla also is receiving a $10,224 increase in his annual retention incentive to $32,472 a year. State Fund's Chief Risk Officer Ken Van Laar and General Counsel Newman also are receiving increases in their retention bonuses. Van Laar's is climbing $6,384 to $28,632 this year, while Newman's is up $10,164 to $33,804.

Spreading the Wealth

The bulk of the expanded bonus pool will be distributed among State Fund's rank-and-file employees. Jennifer Vargen, State Fund's senior vice president of marketing and communications, tells Workers' Comp Executive that an expected $4.9 million will go to front-line workers. Approximately 87% of these employees will see a bonus check equal to 2% of their annual salary while 8% of the staff will receive a 5% bonus for superior performance. She notes that about 5% of the staff did not qualify due to time on the job or for failing to meet the performance standards. All told an estimated 3,686 front-line workers will get a bonus.

Up the line, 641 managers and supervisors will split approximately $1 million in bonus payouts equal to 2% or 5% of annual salary. She notes that about 9% of the managers and supervisors exhibited superior performance and will receive a 5% bonus, while 86% will receive a 2% boost. Again 5% will not qualify for a bonus.

And finally, an estimated 43 CEAs and program managers will share $300,000. Vargen notes that bonuses for this class of employee range between 4.7% and 15% of their annual salary. Overall, 4% of the employees in this class topped out at the 15% mark, while 77% will receive an award between 4.7% and 10% of annual salary. Overall, 19% of the employees in these classifications did not qualify and will not receive a bonus.


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