CHICAGO — Years after losing key brokerage staff as the company faced charges over its sales practices, Marsh & McLennan Cos. is beginning to reattract some of those who left.
During the company's fourth-quarter earnings conference call Tuesday, Michael G. Cherkasky, the New York insurance broker's chairman and chief executive said that as the company began to gain some positive momentum towards growth in the third and fourth quarters, it was time to reward its employees financially for helping the company recover.
The payments, which included an additional performance-based contribution of $23 million to its 401(k) program and an additional 8% increase in its bonus payouts, came to a total of nearly $100 million in one-time compensation, Cherkasky said.
He said it was important to spread the company's success. "Everything over the last years, because of where we have been, has been viewed as takeaways," Cherkasky said of cost-cutting over the last two years since the company paid $850 million to settle charges of bid-rigging.
The company's fourth-quarter revenue growth of 9% indicates that Marsh & McLennan has turned the corner, he said.
The company posted net income of $226 million, or 40 cents a share, in its fourth quarter, compared with $35 million, or 6 cents a share, a year earlier.
Earnings per share from continuing operations rose to 39 cents in the fourth quarter from 3 cents last year.
Analysts surveyed by Thomson First Call had expected, on average, earnings of 35 cents a share.
Revenue for fourth quarter was $3.1 billion, up 9% from the fourth quarter of 2005, which the company said was its strongest revenue growth in three years.
During the company's earnings conference call Tuesday, analysts questioned the payments and their effect on the company's profits, but Cherkasky called them necessary.
During the company's cost-cutting phase over the last two years that included reducing its Manhattan headquarters office space, employees felt squeezed, sometimes literally, when they were asked to give up offices and other perks, Cherkasky said.
Cherkasky was among them. "I moved from my office on February 23rd," he said. "I am getting downsized too. Everyone is being downsized and there is a lot of feeling about that."
The bonuses and increased 401(k) contribution is a way of telling employees "this is a great place to work," he said. "You can have a larger space here, or you can have a larger space when you go home."
He said revenues in its brokerage unit had been declining for almost 18 months, but are now expected to rise 3% to 5% in 2007.
Marsh & McLennan's closely watched insurance brokerage unit, Marsh, had improved revenue trends for the quarter, the company said. Revenue from new business at the brokerage unit was the highest it has been since the first half of 2004.
For the full year, new business increased 10% at Marsh, with accelerating growth as the year progressed, including 9% growth in the Americas, the company said. Marsh's revenue declined 1% to $1.1 billion in the fourth quarter.
Analysts and investors closely watch new business or organic revenue growth, which excludes the effect of acquisitions, in the insurance brokerage business for signs of which of the largest brokers is winning the most new business in an increasingly competitive market.
For the fourth quarter, the second-largest broker, Aon Corp. (AOC), reported that its risk and insurance brokerage unit had fourth-quarter revenue of $1.5 billion, with organic revenue growth of 2%, with a pretax profit margin of 12.9%.
Willis Group Holdings Ltd. (WSH) said its fourth-quarter revenue was $621 million, with 7% organic revenue growth and an operating margin of 22.7%.
Shares of Marsh & McLennan dropped 20 cents, or 0.7%, to $29.63 in recent trading.
