VHI chief pays price of failure to meet target

THE failure of the VHI to meet regulatory requirements cost its own chief executive at least €104,458 in salary and benefits last year.

Jim Tolan was hired in 2008 on a package worth €520,000-a-year, including a €148,512 bonus, €74,256 pension, but excluding a €25,000 car allowance.

His contract had a clause to allow this to be increased to €624,250 on the “strict condition” the state body met its target of becoming an authorised insurer with the Financial Regulator before January 1, 2009.

Fourteen months on, the VHI has still not been able to meet the Regulator’s requirements, and Health Minister Mary Harney has extended the deadline to March 31 this year.

Documents released under the Freedom of Information Act show the Department of Finance recognised the VHI’s status relied on circumstances outside its control. However, it said Mr Talon’s salary should still be linked to the company jumping this hurdle.

The documents also show the VHI had originally requested permission to pay its chief executive a total of €705,000 in salary, bonuses and pension. In 2007, then-finance minister Brian Cowen refused, offering a package worth €520,000. But Department of Health lobbying continued.

Ms Harney asked Mr Cowen to make a “personal-to-him” exception for Mr Tolan and sign off on the €705,000 package.

“I share the chairman’s [of the VHI] view that Mr Tolan is precisely the calibre of chief executive that the VHI urgently needs to lead the company through the difficult challenges it faces in transforming itself into a commercially viable player.

“I do of course acknowledge that it is a very generous package in relative terms, but I believe that it is fully justified in the particular circumstances,” she said.

This was a direct request to set aside the recommendations of the Hay Report on chief executive pay which set a maximum remuneration rate of €312,061 for the VHI boss.

Assistant secretary at the Department of Health Bernard Carey had earlier warned the Department of Finance it would not be able to recruit a suitable candidate without a beefed up remuneration package. The European Commission had asked his department to clear up the VHI’s position as an authorised insurer. And the Financial Regulator expected higher standards in corporate governance.

Mr Carey said Mr Tolan should be paid the €705,000 package to avoid a repeat of VHI’s hunt for his predecessor when it had three different chiefs in two years. But the Department of Finance held firm and also stipulated the maximum bonus of €148,512 should be paid as an exception rather than as a rule.

The VHI would not release details of its chief executive’s salary to the Irish Examiner, but this will be contained in its annual report.