KEMI Board Votes to Cut CEO’s Pay Following Critical Audit

April 22, 2019

LEXINGTON, Ky. — The governing board of Kentucky Employers’ Mutual Insurance has recommended that its chief executive take a pay cut and lose his long-term job contract in favor of year-to-year probation.

The Lexington Herald-Leader reports the action follows an audit that criticized spending practices at KEMI, including no-bid contracts and University of Kentucky athletics tickets going to top managers for no identifiable business purpose.

KEMI is Kentucky’s largest issuer of workers’ compensation insurance, collecting money from 23,000 policyholders in all 120 counties, including most school districts. The General Assembly created it as an independent nonprofit in 1994 to serve as an insurer of last resort, staking it with a $7 million loan of public funds.

KEMI held 31% of Kentucky’s workers’ compensation market in 2017, according to National Association of Insurance Commissioners data. The next-largest carriers, Liberty Mutual and Travelers groups, each held 7% of the market.

KEMI’s board of directors voted unanimously Friday to change the terms of CEO Jon Stewart’s employment after a three-and-half-hour closed-door meeting with representatives from the offices of the state auditor and the attorney general, the Lexington newspaper reported.

“The board has authorized the executive committee to work with Mr. Stewart to implement a probationary contract at a reduced salary for a one-year term, with opportunity for annual renewals,” the board said later in a statement. “As evidenced by the board’s audit request, we continually look for opportunities to make improvements for the benefit of Kentucky’s employers.”

Stewart, who has served in his position for seven years, had a contract that ran until May 2023. A state database lists his annual salary as $445,438. The board did not reveal Friday what his reduced salary will be.

Stewart declined to comment after Friday’s meeting.

On Tuesday, state Auditor Mike Harmon released an audit of KEMI that criticized the agency for a lack of competitive bidding and cost controls, inaccurate reporting of its contracts to the General Assembly in violation of state law, and business funds used for expensive meals, liquor, gifts and entertainment for the benefit of Stewart and other top managers.

The chairman of KEMI’s board, northern Kentucky attorney Brandon Voelker, said he requested the audit after growing concerned about spending practices at the agency. Gov. Matt Bevin named Voelker to the KEMI board in 2016.

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