Aviva rocked by shareholder rebellion over executive pay

Insurer says proxy votes cast before stormy annual meeting show 54% of investors voted against remuneration report

More than half of shareholders in Aviva have voted against the insurance group’s executive pay policies, in the latest sign that City investors are taking a tougher stance towards under-performing companies.

The insurer said that proxy votes cast before Thursday’s stormy annual meeting showed that 54% of investors had voted against the remuneration report. The level of dissent rises close to 60% if deliberate abstentions are included. Only three FTSE 100 companies – including Royal Bank of Scotland, Shell and GlaxoSmithKline – have ever faced such sizeable shareholder rebellions.

Until this year, only 18 remuneration reports have had more than 50% of votes cast against them in the 10 years since the vote on pay was introduced by the Labour government. Last week a small company, Central Rand Gold, suffered a rebellion by 75% of its investors but the scale of the revolt against Aviva will be more embarrassing for the management, led by chief executive Andrew Moss, who has been under fire for the performance of the insurer in recent years.

Aviva, which faced questions about the continued tenure of Moss and its pay policies at the annual meeting, had attempted to head off a revolt with last-minute changes to its pay policies on Monday.

Moss waived a 4.8% pay rise that would have pushed his basic salary through £1m. The company also promised to change its policies on “golden hellos” for new directors following the £2.2m package it handed to Trevor Matthews, who joined to head the UK business from Friends Life in November.

The move by Aviva to alter its pay policies came barely a week after Barclays also tried – and failed – to stem a rebellion over its pay policies at its annual meeting. Some 31.5% of investors failed to back the Barclays pay report, which contained details of the £17m pay package for chief executive Bob Diamond and a further £5.7m payout to cover his tax bill.

Also on Thursday, some 40% of investors at satellite communications group Immarsat’s annual meeting failed to support the remuneration report, while 15% of investors at household products group Reckitt Benckiser voted against its pay policies. More than 30% of investors failed to support the remuneration report at Premier Foods and 20% of investors failed to back pay at support services company Carillion. In Switzerland, some 40% of investors failed to back the pay policies of Swiss bank UBS.

This week mining company Xstrata and hedge fund group Man have also faced protests against their pay policies, with a 45% protest at Xstrata and 15% disapproval at Man.

Scott Wheway, chairman of Aviva’s remuneration committee, conceded at the annual meeting that “we could and should have done more to engage with shareholders”.

Even though Moss was reelected as a director with 95% of the proxy votes, several private shareholders bluntly called for him to go along with the outgoing chairman Colin Sharman. One said: “We no longer have confidence in Mr Moss as our chief executive.”

Two major City investors are thought to have attended the meeting – usually dominated by private investors – in person although some institutions were reluctant to speak out as Aviva owns a large investment arm, Aviva Investors.

“This is only the fourth FTSE100 [company] to lose the vote on remuneration policy since it became mandatory ten years ago. The company needs to make good on its commitments to talk to shareholders and revise its approach in the future,” said Alan MacDougall, managing director of shareholder advisory body Pirc.

FairPensions, which this week launched a website aimed at encouraging pension savers to urge their City fund manager to take a stand on pay, said the Aviva vote showed the need for change.

Louise Rouse, director of engagement at FairPensions, said: “Given that there have been only 18 votes against remuneration reports since 2002, the defeat of Aviva’s remuneration report is hugely significant. This shows that investors are waking up to the problem of high pay. But defeats of this sort, as exposed by last week’s result at Barclays, remain all too rare. This result reinforces the need for the shareholder vote on pay to be binding, but there is still a long way to go if shareholders are to be an effective force in holding companies to account.”

A consultation by business secretary Vince Cable on proposals to make votes on some elements of pay packages binding – rather than advisory as is currently the case – closed last week.

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