State Farm CEO Rust: Effective But Not Greedy
In the realm of insurers, midwesterner Edward Rust Jr. could be Warren Buffett’s alter ego. No, his company is not as big as Buffett’s Berkshire Hathaway, which is ranked 13th on the Fortune 500, but State Farm, where Rust is longtime CEO, does occupy the 31st spot, up one from last year.
State Farm is the nation’s largest home insurer and possibly the U.S.’s biggest insurer since American International Group met its Waterloo in 2008. In keeping with Berkshire Hathaway, State Farm has weathered the recession in style. In 2008 State Farm wrote 1.7 million new policies and added 218 more agents.
And like the Oracle of Omaha, Rust has a reputation for frugality with his company’s money. While he doesn’t draw $50,000 a year in salary the way Buffett did for many years, Rust’s compensation is modest by insurance industry standards.
The newest AIG CEO Robert Benmosche has a yearly pay package valued at $10.5 million, and other insurers’ CEOs earn much more. Travelers‘ Jay Fishman and Prudential Insurance’s John Strangfeld both broke the $16 million a year mark, while Rob Henrikson of MetLife took home an estimated $25 million last year. In contrast Rust received $9.35 million.
According to people who work at State Farm, Rust was reluctant to take even that much during the recession. Executives who work alongside him begged him to take a raise; otherwise they wouldn’t get one.
“It’s tough to keep good executive talent in Bloomington, Illinois (where State Farm is based),” said one source close to the company. Rust’s reported response was that he had all the money and the big-tire trucks he needed.
The Midwestern cadre has a different attitude than the frenetic east coast crowd, where CEOs live fast, die young and leave a beautiful corpse, to quote from a 1949 movie starring Humphrey Bogart. Rust, who has been with State Farm since 1975, has been president and CEO since 1985.
But all of this could have something to do with the fact that State Farm is a mutual company owned by its policyholders rather than stockholders, who often tend to be hedge funds. The hedge fund/fast-money crowd like to reward short-term performance, which is why they pay those big executive salaries. By contrast, mutual companies seem to be more frugal with their money.
Much praise has been heaped on insurers’ CEOs who “successfully” take their firms from a mutual to a publicly traded company. Every now and then an analyst suggests that State Farm do the same. But that’s not a must for Ed Rust.
Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and is the author of The Woman Who Rode the Wind, a novel about early flight.
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