A Maryland automobile insurance fund rewarded employees with $1.4 million in bonuses despite losing $19.6 million in 2008, a legislative report found.
The board of the insurance fund altered its formula at midyear to allow the bonuses, even though the company was sliding deep into the red, according to the report.
The Maryland Automobile Insurance Fund’s board of trustees essentially lowered the fund’s financial targets in 2008 so that employees could receive a total of $750,000 in bonuses, the report said. The fund also waived an existing requirement that the fund be profitable before an additional $407,000 in bonuses would be paid to 30 managers.
If not for the changes by the fund’s board, employees would have only been entitled to $250,000 in bonuses based on “nonfinancial performance results,” the report said.
The fund is tasked with offering insurance to state residents who can’t get car insurance through private vendors. It’s also supposed to pay claims to victims of automobile accidents caused by uninsured drivers.
Founded in 1972, the fund is a quasi-governmental company that is supposed to operate without taxpayer money. But state law ensures that it “will not go out of business regardless of its financial results,” according to the report.
The report questioned the “timing and appropriateness” of the bonus payments in light of the fund’s losses and “the financial stress being experienced by the state as a whole.”
But the fund’s executive director, Kent Krabbe, said the board was trying to protect employees from suffering because of things outside of their control. He said the fund kept premiums as low as possible for its customers despite a sharp economic downturn, making the original financial targets for employee bonuses unattainable.
“Anybody can second-guess that but it was a considered decision,” Krabbe said.
Krabbe said did not immediately know the exact amounts employees were paid, but said the bonuses were small and nothing like some of the big payouts to Wall Street executives that have drawn the public’s ire recently.
He added that bonuses won’t be paid to employees in 2009.
The report also found that the fund didn’t have proper documentation to justify 51 expenditures, including two restaurant bills totaling $4,000. The fund has implemented a “refined set of controls” to prevent repeat episodes, Krabbe and board Chairman James Rowland said in a letter.
