KY workers’ comp agency gives big executive bonuses while ending salary transparency
A year after a scathing state audit criticized its spending for insiders’ benefit, the governing board of Kentucky Employers’ Mutual Insurance is awarding “incentive payouts” of about $30,000 to $51,000 to several top executives while also voting to remove executive salary information from the state’s transparency website.
The KEMI board of directors unanimously took those actions Tuesday during an online meeting.
“All we are looking to do is protect our talent at the top level,” said KEMI president and chief executive Jon Stewart in an interview on Wednesday. “I understand the perception. But we’re trying to run a competitive insurance company here.”
Stewart said he will add about $51,000 in compensation to his $275,000 salary following the board’s vote. The money recognizes his achieving certain performance goals during the second half of 2019, Stewart said.
Likewise, smaller awards of about $30,000 will be given to other KEMI executives, including vice president and general counsel Tim Feld, who has a reported base salary of $185,000.
State Auditor Mike Harmon sounded a note of alarm on Wednesday.
“When we released our examination 16 months ago that resulted in 10 findings and provided what I believe were sound recommendations, my office was hopeful KEMI’s leadership would follow those in the spirit of accountability and transparency,” Harmon said.
“By taking these actions, it appears KEMI’s board is taking a step back from being transparent to the customers they serve as an insurer of last resort. It is our hope these actions don’t lead to negative results for businesses served by KEMI, who are already dealing with financial issues due to the current pandemic,” Harmon said.
Lexington-based KEMI is Kentucky’s largest issuer of workers’ compensation insurance, collecting money from 23,000 policyholders in all 120 counties, including most of the school districts.
The General Assembly created KEMI as an independent nonprofit in 1994 to serve as an insurer of last resort, staking it with a $7 million loan of public funds. Seven members of its 10-member board are appointed by the governor; the other three members are state cabinet secretaries.
Last year, Harmon issued an audit report that criticized KEMI’s spending, including no-bid contracts; business funds used for expensive meals, liquor, gifts and entertainment for the benefit of Stewart and other top executives; and University of Kentucky athletics tickets going to top executives for no clear business purpose.
Also last year, KEMI’s former chief financial officer sued the agency, alleging he was wrongfully fired for trying to blow the whistle on wasteful spending, mismanagement and sexually crude comments made about women by Stewart. That lawsuit was dismissed earlier this year by agreement between the parties.
The KEMI board — then controlled by appointees of Republican Gov. Matt Bevin — responded to the audit by cutting Stewart’s reported $445,438 salary and replacing his long-term job contract with year-to-year probation. It was a Bevin appointee, then the board chairman, who said he requested the audit after growing concerned about slipshod spending practices at the agency.
Following Democratic Gov. Andy Beshear’s election in November, the KEMI board is now controlled by new Beshear appointees.
Thomas Stephens, who spent four years on the KEMI board as Bevin’s state personnel secretary, said Wednesday that he fears the agency is returning to its previous culture of entitlement.
Stephens said he’s especially worried to see KEMI remove its salary data from Transparency.Ky.Gov, the state-run website that provides easy public access to financial information.
“The taxpayers of the commonwealth have a right to know how these resources are being managed,” Stephens said.
“The audit that was done spoke for itself about the concerns that were found,” Stephens said. “I don’t know why they would back-track on the changes we made, and so quickly. It’s not even like it’s been five years and so much time has passed that things must be entirely different now. It’s barely been a year.”
Stewart, the CEO, said KEMI is obligated by law to respond to the Kentucky Open Records Act, so members of the public can formally request to see salary information.
But the KEMI board did not think it appropriate for executive salaries to be posted on a website along with state employees, because KEMI does not consider itself a state agency, he said.
“We have been losing employees to our competitors,” Stewart said. “The prior board wanted our salaries on there. The problem is, we’re trying to be a competitive insurance company. And when you’re trying to recruit talent, putting our salaries out there puts us in a tough spot.”
This story was originally published August 12, 2020 at 12:42 PM.
