Fed Scrutiny Won’t Aid The Hartford’s CEO Search

The Hartford Financial Services Group begins its search for a new chief executive while it prepares to receive $3.4 billion in government aid, creating a unique challenge for the company as it tries to attract candidates.

Once The Hartford receives its Troubled Asset Relief Program funds it will face tough restrictions on executive compensation and increased government scrutiny, which could make qualified applicants think twice about taking the job, experts said.

“Who wants to take over a company where the government is going to be looking over your shoulder?” asked Michael Paisan, an analyst at Stifel Nicolaus in New York. “No one wants the government messing in your business.”

“They are going to have a difficult time attracting someone who is going to rebuild the brand,” added Bob MacDonald, former CEO of Allianz Life of North America and ITT Life, a Minnesota-based insurance company once owned by The Hartford.

Current Hartford chairman and CEO Ramani Ayer said June 4 that he will retire from the troubled insurance company by the end of this year, and that the company will be doing an external search to find his replacement.

That announcement came just weeks after the Hartford received preliminary approval from the Treasury Department for $3.4 billion in bailout money, which Ayer has publicly indicated that the company will accept.

To receive those funds, however, The Hartford must adhere to strict executive compensation restrictions which still remain in limbo. Last week the Treasury announced it would limit executive bonuses to one-third of total compensation.

There are also clawback provisions on bonuses and bans on excessive retirement packages for outgoing executives.

The Obama administration also appointed an executive compensation czar, which could mean more restrictions in the future.

Such limitations have been the source of intense controversy around the country, as private-sector companies have complained that limits on executive pay would hurt their ability to attract and retain talent.

That was a key argument made by New York-based insurer American International Group, which paid out hundreds of millions of dollars in bonuses to its executives after receiving $182.5 billion in bailout money.

AIG chairman and CEO Edward Liddy has been publicly shamed by Congress for allowing the bonuses to be paid out, and in May he said he would resign from the company once it finds a replacement.

Paisan said The Hartford shouldn’t be compared to AIG, but a cap on pay will be a big problem for the company in its search for a new CEO.

“If they are going to hire someone that is high quality and has extensive knowledge of the business, that person is going to command a lot of money,” he said.

Patricia McCoy, the director of the Insurance Law Center at the University of Connecticut School of Law, said the talent pool for executives is already limited because there are very few people who have led a major financial services company with global operations. As a result, most qualified candidates “have many options where they can be paid.”

“In a bad economy, when companies are facing major financial challenges, the number of people willing to take a risk to their reputation and decreased pay is not very big,” McCoy said.

Debora Raymond, a spokeswoman for The Hartford, said the company “is working to finalize our agreement with Treasury and believe we will be able to appropriately compensate executives and compete for talent.”

MacDonald said The Hartford may end up with “a caretaker CEO or someone who can hold down the fort while things get sorted out.”

“The TARP issue is just one log on the fire,” MacDonald said. “The person coming in would know what has to be dealt with regarding TARP. The truly qualified candidate would be much more concerned with what is not known than with something that is known. With all the issues boiling in the Hartford pot, it is likely that the company will have to settle for someone who needs the job, rather than someone who does not.”

Thomas Mix, a partner at the McIntyre Group, a Shelton-based executive recruiting firm, said that although The Hartford “could have trouble recruiting the caliber of candidate they are looking for,” the position does create an opportunity for a CEO to come in and gain experience.