Blues board revokes retirement supplements

February 26, 1993|By Suzanne Wooton | Suzanne Wooton,Staff Writer

The board of Blue Cross and Blue Shield of Maryland voted yesterday to revoke the supplemental retirement and severance packages under which two former Blues executives were to receive a total of $5.1 million.

The board's action followed a meeting with the attorneys it had retained to advise the board whether it could legally refuse to pay the amount dictated by the packages to former Chief Executive Carl J. Sardegna and former Senior Vice President Fred M. Gloth Jr.

"We concluded the two gentlemen are not entitled to the supplemental benefits," John A. Picciotto, the Blues general counsel, said following the three-and-a-half-hour board meeting.

The unanimous decision came despite the fact that most of the company's board members were among those who initially approved the unusually generous retirement packages for the two executives in 1990. At that time, Blue Cross' reserves were near their lowest level ever and the company's administrative expenses were among the highest for Blues' plans nationwide.

Under the supplemental executive retirement plan, Mr. Sardegna was to be paid $2 million 30 days after termination of his employment contract and Mr. Gloth was to receive about $3 million. They were the only Blue Cross officials designated for the plan, which was to be paid in addition to their other pension and severance benefits.

Mr. Sardegna resigned in December, three months after a U.S. Senate subcommittee's investigation highlighted repeated examples of poor management, extravagant spending and excessive executive perks. Mr. Gloth, who was the company's chief strategist and one-time general counsel,retired Feb. 14.

The existence of the $5.1 million payout came to light in the

aftermath of the Senate hearings last fall and prompted an outcry from many subscribers who have seen their premiums rise steadily in recent years.

The Blue's board began to reconsider the generous payments just days after U.S. Senate investigators subpoenaed salary and compensation records from Blue Cross in early July.

At that time, Frank A. Gunther Jr., the current chairman of the board, said that the full board had approved a formula for Mr. Gloth's and Mr. Sardegna's retirement packages in 1990 without seeing an estimate of the payments the formula would produce. He said the board relied on the judgment of its executive pay subcommittee.

Mr. Picciotto refused to comment further about yesterday's discussions, saying the matter "probably will wind up in litigation." As evidence of the company's intention to trim its expenses, Mr. Picciotto also said the board approved a $4.5 million reduction in administrative expenses for 1993.

He said both Mr. Gloth and Mr. Sardegna would be notified immediately along with state officials who had pressed the Blues to revoke the packages.

On Wednesday, Maryland Attorney General J. Joseph Curran Jr. sent Blue Cross a letter demanding that the board revoke the supplemental package which he called a "platinum parachute."

Mr. Curran said the payments would violate the state charter which states that Blue Cross must be operated so that subscribers can obtain health benefits at a minimum cost.

In January, Insurance Commissioner John A. Donaho temporarily blocked the payments, saying they could threaten the financial condition of the company.

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