An audit review of quasi-government entity Pinnacol Assurance Monday revealed that the state workers compensation firm’s board of directors had approved “golden parachutes” for its executive officers should Pinnacol be taken over and the executives laid off or replaced. Lawmakers expressed shock at the cushy packages and Colorado Ethics Watch decried the parachutes as part of pattern of decisions the government-appointed board approved that suggested the board members were too cozy and compliant with the Pinnacol executives it was meant to be watchdogging on the part of Colorado’s taxpayers and Pinnacol policy holders. Ethics Watch called for new rules to guide the relationship between Pinnacol and the board.
Auditors said that beginning in September of last year, Pinnacol’s board signed off on layoff packages that would provide each executive with their salary, benefits, and performance plan bonuses for up to two years in the event they were laid off. The parachutes amount to $4.3 million, which Pinnacol would be on the hook to pay out in the case of a change of ownership and a clearing of the executive ranks.
Pinnacol Board Chairman Gary Johnson said the agreements were put in place to guard against layoffs in order to create continuity of leadership for the company.
Ethics Watch Executive Director Luis Toro told the Colorado Independent thatthese kinds of swank parachute packages are often put in place as a way to protect management concerns, not those of the policy holders or customers. He said that the parachutes, the plush bonus structures, and travel and entertainment expenditure abuses all revealed by the auditors this week conjure an atmosphere where good ole boy relationships between the board and the execs lead to poor oversight and acquiescent decision-making.
“They are all symptoms of the same problem,” Toro said. “It looks like a board that is very cozy with the company that it is supposed to be supervising.”
The State Auditors report, presented to the Legislative Audit Committee, noted that Pinnacol had received executive bonuses 80 percent of the time even though national models were closer to 20 percent. In addition, it found that Pinnacol’s own travel and entertainment expenditure policies were grossly disregarded by executives 75 percent of the time.
Because the Pinnacol board is unpaid, it is exempt from amendment 41 laws that govern state decision makers and entities. Toro said that that that did not mean they should be able to accompany Pinnacol execs on swank expense-paid trips to Pebble Beach.
Question need to be asked, he said. “Is their judgment being affected by the fact that they are getting these nice perks by being on the board?”
Pinnacol is essentially a private company that receives no tax dollars. But the company pays no taxes and was created by the state to serve companies unable to provide workers compensation insurance through other means. Toro said that a board created by the state to watch over a “state function” such as Pinnacol should be responsible to citizens and made less susceptible to corruption.
Any kind of gift-giving by Pinnacol to the governor’s board, he said, “We think that should stop.”