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Categorized | Insurance

Aviva investors square up for fresh battle

Posted on April 30, 2012

Institutional investors are still spoiling for a fight even after they succeeded in forcing Aviva’s remuneration committee to back down and put its pay structure under review.

Aviva’s efforts to avoid a showdown with its investors comes just days after 31.5 per cent of Barclays’ shareholders refused to back the bank’s pay plans. That was despite Barclays’ attempt the week before to head off its most irate investors. Also on Friday, nearly 43 per cent of NYSE Euronext’s shareholders refused to back its remuneration report in the latest sign of rising international shareholder discontent over company pay schemes. This followed soon after 55 per cent of Citigroup’s shareholders failed to back its pay plans.

    One UK investor objected to Barclays and Aviva attempts to slip big payments to executives into schemes without explanation or adequate performance hurdles. Barclays gave a £5.75m tax equalisation payment to chief executive Bob Diamond. Aviva, it emerges, is paying about £2.5m to Trevor Matthews, newly appointed head of its UK business, and all he has to do is stay put for three years.

    “Companies and remuneration committees need to raise their game. They need to alert, consult and explain to investors exactly what they are doing,” says one investor.

    Another says: “Both issues demonstrated how poorly some remuneration committees are working.”

    In most cases, investors say votes on the remuneration report should not be taken in isolation. The remuneration vote, still advisory in the US and UK – though British politicians are looking to change that – is used to deliver strong messages about poor performance, failing management and strategy.

    “The advisory vote is more useful and pragmatic than a binding vote. It is a much more sensitive safety valve than voting the chief executive out,” says a veteran from one of the UK’s biggest investment groups.

    And as economic gloom deepens, pressure to align pay to performance will increase, say shareholders.

    So which companies will hit the headlines next? “Keep an eye on how shares have been performing for a number of years. If performance is poor then there is trouble ahead,” says one UK shareholder.

    Trinity Mirror and the pay of Sly Bailey, its chief executive, are already in investors’ sights.