Pinnacol padding its pockets, audit finds

Eli Stokols Political Reporter
June 7, 2010
http://www.kdvr.com/news/politics/kdvr-pinnacol-audit-txt,0,4331492.story

DENVER - From a public relations standpoint, it's going from bad to worse for Ken Ross, the CEO of Pinnacol Assurance, the state-chartered workers' compensation insurer.

A few weeks after another television station followed Ross to Pebble Beach, Calif. to expose the company's lavish spending on a golf retreat, lawmakers Monday revealed the results of a year-long audit showing that Pinnacol is using its taxpayer-subsidized profits to pad its own pockets.

The audit questioned many of the company's policies, or seeming lack thereof, and recommended making changes in 14 areas.

"All the 14 recommendations, Pinnacol has agreed with and will implement," Ross said. "We see it as a way to improve our business processes."

But, public relations aside, Ross, and many of Pinnacol's other top executives, appear to be sitting pretty. Among the findings that most outraged some lawmakers are the golden parachutes that were approved by Pinnacol's board just last September. Under them, the company would be required to pay Ross and others up to $4.3 million just for terminating their contracts.

To date, Pinnacol executives already receive salaries and bonuses that far exceed those paid to the leaders of other state agencies, like the Regional Transportation District, the Colorado Housing Finance Authority and the Colorado Public Employees Retirement Association.

From 2007 to 2009, Pinnacol paid $1.9 million in bonuses.

Here's what the audit said: "While we found that Pinnacol's executive compensation generally was at the high end of the range among the entities we reviewed, we did not find evidence that Pinnacol's executive compensation was necessarily unreasonable in comparison to these other organizations. However, we did find that Pinnacol's executives and non-executive staff have repeatedly received bonuses at maximum levels for many years.

"As a result, we question whether Pinnacol's bonus programs promote superior or extraordinary performance as intended."

Auditors found that Pinnacol's board of directors regularly set bonus targets below prior years' actual results between 2002 and 2008, allowing Pinnacol executives to receive maximum bonuses nearly every year during the period in question.

"By deliberately aiming low, instead of being a true extraordinary performance bonus, it was a way to game the bonus system to guarantee you get the absolute maximum every year," said state Sen. Morgan Carroll, D-Aurora, who has been leading the push to rein in Pinnacol.

Almost a century ago, the state established what eventually became known as Pinnacol Assurance to provide workers compensation insurance to any company that needs it. It doesn't pay any state or federal taxes.

"Taxpayers are subsidizing them and we are directly paying into their PERA benefits," Carroll said. "So if you're an employee or a taxpayer, this affects you."

As the workers' compensation provider of last resort, Pinnacol covers 1.5 million workers in Colorado and writes premiums for more than 500,000 companies.

"We're proud of our record," said Ross. "Are we perfect? There's no company that's perfect, and we appreciate the opportunity to go through the findings and improve our business model. But Pinnacol's record stands for itself. We've reduced rates by 50 percent in five years, no other company can compare to that record. We've returned over 400 million in dividends to our Colorado employees, and in a bad economy."

Carroll is optimistic that Pinnacol will implement the recommended reforms, but said actions will speak more loudly than words. She pointed to the audit's findings that show Pinnacol has failed to file its rates with the state, as law requires them to do.

"There are reasons right now that Colorado employers right now are being over-charged for their premiums and some of those factors they were using to double- or triple-dip and they're charging against employers were never followed," Carroll. "And that violates Colorado law."

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