Investor advisory group Pirc had called on shareholders to vote against insurer’s executive pay at annual meeting this Thursday
Aviva’s chief executive, Andrew Moss, has bowed to shareholder pressure and waived his 4.8% salary rise for this year in the latest victory for investor activism over boardroom pay.
After discussions with major investors – which include Legal & General, BlackRock and Axa – Moss, who is under growing pressure to improve the insurer’s performance, decided not to accept the increase granted to him in March, which would have taken his basic salary above the £1m mark from £960,000. His average annual pay rise since April 2008 has been 2.1%. His decision came just three days before Aviva’s annual meeting.
Shareholders of Barclays gave the bank a bloody nose last Friday with a huge protest vote against its pay policies.
Scott Wheway, chairman of Aviva’s remuneration committee, admitted the company had initially failed to take account of shareholder concerns over Moss’s remuneration package.
“We take the views of our shareholders very seriously,” said Wheway. “I am disappointed that we haven’t done that as well as we should have on this occasion. A number of shareholders have indicated that they would like to see a different approach to the way we compensate senior directors on recruitment and an even closer correlation between our pay packages and shareholder returns.”
The investor advisory group Pirc had called on shareholders to vote against Aviva’s executive pay at its annual meeting this Thursday, describing it as “excessive”. The Association of British Insurers, whose members control around 15% of the stock market, has slapped an “amber top” warning on the company, advising its members to consider voting against the remuneration report. Proxy votes need to be in by 11am on Tuesday, but Aviva’s announcement may have come too late to sway those investors who were planning to vote against.
Pirc has also urged shareholders in GlaxoSmithKline, which holds its annual meeting on the same day, to oppose the drugmaker’s pay policies on the grounds that its performance targets are not challenging enough. It warned of “excessive” future payouts, pointing to chief executive Andrew Witty’s package 2011 package – £2m as annual bonus plus £3.7m in share awards vested last year, which equates to nearly six times his base salary.
In response to shareholder criticism, Aviva’s remuneration committee agreed to review how the insurer would compensate future joining executives for the loss of entitlement from their previous role. However, it defended last year’s pay as “appropriate reward for Aviva’s operating performance and strategic progress” as well as for attracting key executives.
Moss received a total pay and perks package worth up to £5m last year dependent on certain targets being met. The insurer’s UK head, Trevor Matthews, the former Friends Provident chief executive who joined Aviva from Friends Life in November, collected a £2.2m welcome package, including a £45,000 bonus for one month’s work and a £470,000 cash payment as compensation for losing unvested shares and his 2011 bonus from his previous employer.
“Shareholders have reacted badly to the pay of executive directors which has been linked to operating profit rather than bottom line profit, which includes the impact of the turmoil in Europe,” said the Panmure Gordon analyst Barrie Cornes. “Whilst the company argues that it cannot control factors below the operating line, it is the bottom line that has impacted the share price, which has fallen 29% since July last year. Aviva will rightly come under fire for failing to address the winds of change impacting director remuneration over the least 12 months.”
Sweeping changes to flatten the insurer’s management structure recently claimed the heads of Aviva’s European chief, Igal Mayer, and the heads of North America and Aviva Investors, who are expected to leave with lucrative packages. Aviva will explain the changes in more detail on its investor day on 24 May. Mayer collected a pay and perks package worth up to £3.3m last year.
Shares in Aviva dropped 4.7p, or 1.5%, to 311.8p this afternoon.