With profits down and the share price hovering just above $5, 24% or so off its highs, the hard working board members of Insurance Australia Group have decided to reward themselves with a 37.5% pay rise, from $2 million a year to $2.75 million a year — if shareholders approve it at the annual meeting on November 13.

It was only two years ago, in 2005, that the company obtained shareholder approval for the maximum amount of directors fees to be increased by half a million, or 33%, to $2 million.

Now a 37% pay rise: is this what those in the insurance industry call ‘claims inflation’ (which refers to the way insurance claims increase, seemingly out of control).

With payouts under tort law now capped in most states, it is hard to see why the IAG board needs more, although the usual guff is advanced in the notice of meeting:

An increase to the maximum aggregate remuneration payable to Non-executive Directors in recognition of the increased workload and responsibility of the Board, which has, in part, been influenced by the Board’s desire to have appropriate corporate governance structures to support the Company’s overseas expansion.

The proposed increase to the maximum aggregate remuneration is based on an independent review and takes into consideration prevailing market rates. The Directors’ fees adopted for the 2008 financial year will utilise only a portion of the increase in the maximum aggregate remuneration. It is expected that the new limit of $2,750,000 should provide capacity, for some years into the future, to pay fees to attract and retain suitable candidates for the Board.

James Strong will be the big winner: his base salary (which is three times the base fee for a non executive director) rises to from $390,000 to $450,000, not including shares to be issued under a scheme by which non executive directors have to take some of their payment in shares.

James Strong will also receive $192,000 this year for chairing the 70%-owned Insurance Manufacturers of Australia.

All up, the 2007 annual report said Strong received $192,000 in cash, $160,000 in other fees, $50,000 in super, and $168,000 worth of shares for a total of $567,000.

His new base fee rises from $390,000 to $450,000, so his total pay will rise to around $645,000 or more.

The increase being sought will be backdated to July 1, so that the board will have a nice fat catch-up pay in November or December, just in time to do some Christmas spending (no doubt in those shops owned by Woolworths, the other company chaired by IAG chairman, James Strong).

But at Woolies, Strong is only paid a total of $493,518 to be chairman of the country’s biggest and most successful retailers, and one of the best performing companies on the entire ASX.

Shareholders in IAG would be entitled to look at their underperformance (even after the cost of the storms of June in NSW and England) and wonder about value for money from Strong.

Strong is also a director of Qantas and received $219,000 for his first year on the board in the year to June.

All up more than $1.27 million. He’s not in need of any more money.

The IAG board argued that:

In aggregate, these increased fees plus superannuation contributions and fees paid to Directors for their service on subsidiary company boards total $2,340,000. The current maximum annual aggregate remuneration of $2,000,000 would be insufficient to enable the Company to pay these increased fees to the Non-executive Directors for a full year.

Well $130,000 seems enough (plus fees for being on board committees). Non-executive Directors usually have a couple of boards at least. Strong has at least three: IAG, Qantas and Woolworths.

Another pay rise of 10% to 20% over the next couple of years will see that $750,000 chewed up and then it will be back on the gravy train.

When IAG was created out of the demutualised NRMA Insurance back in 1999-2000, then chairman (President actually) Nick Whitlam was paid $389,000 for all the fuss and bother that went with that, plus the aggravation of a split board.

The Fairfax media were very critical of him. So far they have been silent on the latest helpings on the IAG gravy train. Odd that!