Blues official got $3.6 million retirement plan Senate probe moves board to reconsider its OK of benefit

October 23, 1992|By Patricia Meisol and Ann LoLordo | Patricia Meisol and Ann LoLordo,Staff Writers

The longtime general counsel to Blue Cross and Blue Shield of Maryland is slated to receive $3.6 million in retirement benefits, nearly twice as much as the company's president and so much that the board of directors that approved it is having second thoughts.

Days after Senate investigators subpoenaed salary and compensation records from Blue Cross in early July, the company's directors met to discuss the generous nest egg for Fred M. Gloth Jr. and agreed to change it, officials acknowledged this week.

"We did not look as closely as we should have," said Frank M. Gunther Jr., newly elected chair of the Blues. "So we are going to look again."

Blue Cross announced Mr. Gloth's retirement as general counsel last week but said he would continue to serve as corporate secretary to the board of directors, supervise his successor, John A. Picciotto, and retain the title of senior vice president. No date has been set for him to actually leave the company, and officials said he could remain on the payroll for up to 14 months.

Mr. Gloth, 67, has been the chief strategist, assistant and stand-in for the president of Blue Cross. He was the company official who courted state and local officials on the golf course, beat back regulators who wanted a closer look at the company's books and oversaw Blues organizations that have distributed thousands of dollars in charitable donations and campaign contributions. He handled the company's major legal matters, including the Blues' defense of an antitrust suit filed by the state.

The Blue Cross veteran stood to benefit generously from a special retirement plan already in place for him in 1989 beyond the regular company pension when a consultant recommended new ways to reward him for his long service. And in the past three years, under a revamped supplementary plan that some company directors who approved it now say surprises them, Mr. Gloth's retirement fund, and the salary on which it was based, grew astronomically.

Mr. Gloth's supplementary retirement benefit now amounts to $2.4 million as the result of changes by the board in the past few years. Even without this board-approved extra, Mr. Gloth's retirement benefits would be substantial because of his long years of service. After more than 40 years with Blue Cross, Mr. Gloth's company pension totals $1.2 million. The company plan plus the $2.4 million supplemental totals $3.6 million. The company plan's benefit is distributed annually, but the supplemental $2.4 million would be delivered to Mr. Gloth in a lump sum 30 days after his retirement.

Mr. Gunther said the package was improved in 1990 -- the year Mr. Gloth turned 65 -- at the request of Blues President Carl J. Sardegna because "he did not think it was in the best interest for Fred to retire."

Mr. Gunther is in charge of a board committee that will recommend changes in response to a U.S. Senate report highly critical of the company's management. In an interview, he said the amount of retirement payments both to Mr. Gloth and Mr. Sardegna, who would receive $2 million if he retired today, was "more than the directors thought," and that he expects the plans "will look entirely different when we are done."

Mr. Gunther said the Blues board has the authority to change Mr. Gloth's supplementary benefit.

"Mr. Gloth fully understands it is all up for grabs, and he will accept what we decide," Mr. Gunther said.

Mr. Gloth did not respond to a request for comment.

According to Mr. Gunther, the full board of directors approved a formula for Mr. Gloth's and Mr. Sardegna's retirement packages without seeing an estimate of the payments the formula would produce. He said the board relied on the judgment of its executive pay subcommittee.

One member of that panel, George L. Russell Jr., said Tuesday that members had wanted to reward Mr. Gloth because he is "a valued employee, has institutional memory and is backup CEO [chief executive officer]" for Mr. Sardegna. But when it met in July to look at the figures, Mr. Russell said, "the compensation committee felt the $2.4 million was too much."

Mr. Russell recalled reviewing a 1989 report on Mr. Gloth's retirement package by Towers Perrin, a benefits consulting firm.

That report concluded that financial incentives would not be necessary because Mr. Gloth stood to improve his retirement benefits substantially by staying around a few more years.

That was because his retirement already was based on an average of his two highest years' salary, and under a new bonus program approved by the board the previous month, Mr. Gloth's annual compensation would increase by 50 percent to 75 percent from bonuses alone.

"This plan has several very generous features . . . even for supplemental executive retirement plans," the report said.

"In light of Mr. Gloth's recent base salary increases and the adoption of the new incentive plan, this shorter base period could be most advantageous," the report said.

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