State Fund reformer was paid a salary of $450,000 a year, plus perks

Reporting from Sacramento —  After its president was ousted in a scandal, California’s government-run insurance company hired Janet Frank to clean up the mess, offering her a salary and benefits far beyond the reach of most state workers.

As the new president of California’s largest provider of workers’ compensation coverage, the insurance industry veteran received a $450,000 annual salary plus a signing bonus of nearly $140,000 to help her move from Colorado, employment records obtained by The Times show.

For her first 2 1/2 months on the job, starting in 2007, she was paid a $40,000 performance bonus by the insurer, a hybrid public-private company known as State Fund, which serves as a safety net for businesses. She was paid a $153,000 bonus for 2008. This month, she received last year’s bonus: $142,500. Citing confidentiality, company officials declined to say what performance goals Frank had met.

Overall, she earned more than $1.6 million, then quit after two years.

Frank’s compensation highlights the intrinsic conflict in an agency that is part government and part private business.

Pay for most of its 7,400 workers is limited by Civil Service rules, but top executives are exempt, receiving large salaries and perks that are more common in the private sector. Their pay packages are part of a recent effort to make the organization run more like a profit-making enterprise.

Frank never moved to California. She decided to commute weekly from her Denver-area home and to telecommute on Fridays. State Fund added a $99,000 annual stipend for her, partly to cover thousands of dollars in monthly commuting costs.

“We were happy to get her for whatever we could,” said Jay Hansen, a former State Fund board member and a union leader. “It was hard to get someone who is an insurance industry specialist.”

During her tenure, Frank, 58, helped stabilize State Fund by making it more efficient and improving customer service and computer technology, agency officials said. She also earned far more than other high-ranking state officials, even before many of their salaries were reduced because of the state’s budget crisis.

The California governor’s salary is $173,987 a year, although Arnold Schwarzenegger does not take it. The state prisons chief, Matt Cate, made about $201,000 last year overseeing 64,000 employees, nearly nine times more than at State Fund, and about 170,000 prisoners. State Insurance Commissioner Steve Poizner, State Fund’s regulator, earned $152,000.

Frank left State Fund in November, saying she needed to care for her mother. She cashed in 12 weeks of unused vacation, holidays and personal days worth $107,000. Within two months, she accepted a higher-paying job as president of a competitor, Woodland Hills-based Zenith National Insurance Co.

She had worked at several private insurance companies before joining State Fund, including six years at CNA Financial Corp., where she was an executive vice president. She declined to be interviewed for this article.

“It has nothing to do with me,” she said by phone. “I’m a private citizen.”

Poizner, after learning the details of Frank’s compensation from The Times, said he was “very disturbed” and would order an audit “to analyze whether there has been anything that’s been inappropriate or wrong with regards to the way they’ve compensated their senior team.”

“They’re not just another regular old insurance company,” said Poizner, a Republican running for his party’s nomination for the November gubernatorial race. “We need that operation there to be run efficiently and effectively . . . so that they can keep their rates affordable for their policyholders, which are inherently small businesses that really count on the State Fund.”

The agency, formally named State Compensation Insurance Fund, is the foundation of California’s workers’ comp system. State lawmakers created it in 1914 so businesses that private insurers deem too risky to cover can buy the policies they are required to have by law and provide injured employees with the care they need.

Investment income and premiums paid by the businesses, not tax dollars, finance State Fund. It’s “tough to justify . . . bonus on top of bonus on top of bonus” in the quasi-government agency, said Jon Coupal, president of the Howard Jarvis Taxpayers Assn.

State Fund competes on the open market, but its mission is not to make a profit. Board members are appointed by the governor and lawmakers. It sold 165,000 policies to California employers in 2008, the latest year for which figures are available; it also billed $1.7 billion in premiums and had 22% of the workers’ compensation market.

Although State Fund remains the biggest entity in the workers’ comp system, its income from premiums has declined from a high of $8 billion in 2004, when it had about two-thirds of that market. That is because of changes in state law that have increased competition.

Frank was brought in to run State Fund after problems emerged in 2006, when the State Fund board uncovered potential conflicts of interest and self-dealing by its members and executives, prompting investigations by Poizner, the California Highway Patrol and the San Francisco district attorney. Some of the alleged conflicts involved State Fund’s sale of policies through employee associations that had ties to former board members and earned millions of dollars in fees.

Frank was not the only executive hired to turn State Fund around, nor the only one paid highly and allowed to commute from another state.

Doug Stewart, the chief risk officer and current interim president, earns $488,000 a year, not including his performance bonus, and flies in from Washington state. Becky Wanta, the chief information officer who resigned last year, earned $430,000 and traveled from Nevada.

But State Fund most ardently tried to please its new president with perks that, though standard in many private corporations, can raise eyebrows when enjoyed by government officials.

Rich Shoemaker, a recruiter, told Frank that State Fund would buy any vehicle valued at up to $32,000 for her use. “The garage is staffed by an individual who will gas and wash the car at your request,” Shoemaker wrote in an e-mail. “As company cars go -- it is a sweet deal!”

Frank initially agreed to a hiring bonus of $123,250, from which taxes would be withheld. When she complained about the taxes, the board gave her an additional $16,500, according to records and interviews. Jeanne Cain, State Fund chairwoman, said there was “a miscommunication,” although the board, in its resolution to increase the bonus, attributed the move to “tax code changes.”

Frank had agreed to move to California. The offer letter she signed said her bonus could be used “for such items as real estate fees, closing costs, movement of household goods, temporary living and travel expenses prior to the move, and expenses in transit.”

Despite that language, Cain told The Times in an e-mail that Frank was allowed to use the money as she pleased. Cain said State Fund permitted Frank to commute because she didn’t want to sell her house in a poor real estate market.

While at State Fund, Frank worked 3 1/2 days in San Francisco some weeks, arriving Monday morning and departing midafternoon Thursday, her expense reports show. On business trips to Las Vegas, London and Bermuda, her hotel rooms cost up to $519 a night.

State policy on business expenses for most employees establishes allowable hotel rates at $84 to $140 a night plus taxes; exceptions may be approved in advance.

The effort to fix State Fund’s problems is still a work in progress, according to Poizner. And the investigations that led to Frank’s hiring continue.

michael.rothfeld @latimes.com

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