Paying cash dividends they couldn’t afford helped land the likes of General Electric and General Motors and many big banks in desperate financial trouble. (N/A/Courtesy of Progressive)
Columnist

You wouldn’t normally think of a high-profile, highflying Wall Street favorite as providing an example of how to deal with the unequal ways that companies typically treat their shareholders, executives and employees.

But there’s a lot that self-styled capitalists, self-styled socialists and just regular people can learn from one such company — Progressive Insurance — about how to create a reasonably fair playing field for owners, executives and regular employees.

Yes, Progressive Insurance. You know, that auto-insurance outfit best known for its campy TV ads featuring Flo.

Progressive blazed a path about a dozen years ago that other firms in Corporate America would do well to follow. And that politicians would do well to study if they’re interested in finding practical ways of treating corporate owners, executives and employees based on the same metric — as opposed to posturing and denouncing the outrage du jour, be it highly compensated chief executives or companies spending tax-cut savings to buy back their stock rather than to hire additional workers or pay higher wages.

Here’s the deal. In 2006, virtually unnoticed, Progressive decided to live up to its name and do something to make sure that its owners — who include me, I’ve owned its stock for years — didn’t have an unfair advantage over employees.

Progressive’s then-CEO, Glenn Renwick, did this by deciding that rather than continue paying its small, traditional four-times-a-year cash dividend, Progressive would pay shareholders a once-a-year dividend based on a complicated formula called Gainshare.

That approach was a huge improvement, in fairness and financial rationality, over the normal corporate practice of paying shareholders a fixed cash dividend regardless of whether the company can really afford it.

Paying cash dividends they couldn’t afford helped land the likes of General Electric and General Motors and many big banks in desperate financial trouble, and that practice shortchanges the future to avoid hurting today’s stock price by cutting or killing the dividend.

Enter Progressive’s innovation. Rather than paying a fixed amount every three months, Renwick had Progressive pay the Gainshare-based dividend once a year.

That same Gainshare formula — which parses Progressive’s financial results in ways that I don’t understand and can’t begin to explain — is what Progressive uses to compensate top executives and regular employees. So shareholders, executives and employees were all feeding from the same trough, so to speak.

Because of that new policy, the cash payouts that Progressive shareholders got for a number of years beginning in 2007 varied widely. For 2007, shareholders got $1.51 billion. For 2008, zero. For 2009, $108 million. For 2018, $1.47 billion.

The policy took effect the same year that Flo became Progressive’s TV avatar. Unlike Flo, however, the new dividend policy attracted virtually no attention from the world at large.

I wrote at least three columns over the years about Progressive’s dividend policy, but I wouldn’t have known about it if I hadn’t been a Progressive shareholder.

As best I can tell, no other company adopted the innovative, perfectly reasonable idea of using the same formula to compensate owners, executives and regular employees. As a bonus, such a policy would keep a company from having to continue paying cash dividends it couldn’t afford.

Now, unfortunately, Progressive, which changed chief executives in 2016 by replacing Renwick with Tricia Griffith, gave up Renwick’s dividend policy shortly after he left the company’s board last year.

Progressive has resumed paying quarterly dividends — it recently declared a 10-cent quarterly dividend, which would total about $235 million a year — and says it might also pay an extra, non-Gainshare-based dividend.

I’ll spare you the explanations that the company gave me for the change, which I didn’t find terribly convincing. (Renwick, whom I’ve known — and quoted — for years, declined to say anything.) In any event, Progressive’s regression to standard corporate dividend-paying practice doesn’t affect the major point I’m trying to make. To wit, that Progressive came up with a formula that ought to be a corporate standard.

If you took the original Progressive idea and tweaked it a bit to limit stock buybacks, you would have a reasonable policy that would treat owners, executives and regular employees according to the same metric.

Companies, of course, would determine their own metrics, because Progressive’s Gainshare isn’t a one-size-fits-all kind of thing. Obviously, CEOs and other top officers would still get paid a lot more than regular employees. But there would be a rational, understandable and reasonably fair policy in place. If there’s anything that we need these days, it’s rationality, clarity and something resembling fairness.

Who knows? With luck — and with some bravery from middle-of-the-road types who would rather solve problems than shriek about them — Progressive’s original policy of aligning the interests of owners, executives and regular employees might help inspire solutions. And that would be the biggest and best dividend that Progressive could deliver to us.