European investors are in revolt over executive pay, voting down insurer Aviva Plc (AV/)’s remuneration plans while staging protests at UBS AG (UBSN) and Inmarsat Plc (ISAT) for failing to keep compensation in line with stock performance.
Shareholders yesterday voted down Aviva’s compensation report with a 54 percent majority, while 37 percent of investors opposed UBS’s pay plan and 40 percent opposed Inmarsat’s executive pay plans. The average vote against U.K. compensation reports was 6 percent last year, according to Pension & Investment Research Consultants Ltd.
“The difference this time is that more people are becoming as engaged and as vociferous and as active on this issue as we have been,” Tim Breedon, chief executive officer of Legal & General Group Plc (LGEN), the biggest investor in the U.K. stock market, told reporters on a call yesterday. “The collective leverage is far greater. That’s got to be a good thing.”
Four years of stagnant or negative economic growth since the financial crash coupled with the European debt crisis have pushed companies’ compensation committees to award executives bonuses based on operating performance rather than total returns to shareholders. Aviva plans to amend the “dislocation” between stock price and executive pay in future, said Scott Wheway, head of the insurer’s compensation committee.
The investor rebellion at Aviva is the biggest since 2009, when 59 percent of Royal Dutch Shell Plc shareholders voted down the oil producer’s pay proposals and 90 percent of Royal Bank of Scotland Group Plc investors rejected the British lender’s remuneration proposals, according to PIRC.
“We’re living in a different environment,” said Tom Powdrill, a spokesman for PIRC, which advises clients with 1.5 trillion pounds ($2.6 trillion) of assets on corporate governance. “Companies need to recognize that fact and engage seriously with shareholders.”
About 54 percent of Aviva’s shareholders voted against its executive pay plan even after the London-based company pledged to consult more widely in future. The vote, at its annual general meeting in London yesterday, isn’t binding.
Almost 37 percent of UBS shareholders voted against the bank’s compensation report for 2011 at the annual meeting in Zurich, eight months after management announced a $2.3 billion loss from unauthorized trading. The loss led to the departure of CEO Oswald Gruebel, 68, and the appointment of Sergio Ermotti, 51, as his replacement at Switzerland’s biggest bank.
‘Should Have Done More’
Ermotti, who joined UBS on April 1, 2011, as the head of business in Europe, the Middle East and Africa, received 6.35 million francs ($6.9 million) in compensation for 2011, including a 4.6 million-franc bonus.
Inmarsat, a London-based satellite services company valued at 2 billion pounds, said 40 percent of shareholders voted against its pay plans. At Premier Foods Plc (PFD), owner of the Hovis bread and Bisto gravy brands, 26 percent of investors voted against the directors’ compensation report.
“We could and should have done more to engage with shareholders,” Aviva’s Wheway, former CEO of Best Buy Co.’s European unit, said before the insurer’s vote. “Aviva won’t be taking the same approach to recruitment awards again,” and will “actively consult” with shareholders, he said.
Aviva CEO Andrew Moss, 54, is under pressure from investors to improve returns after the stock dropped 58 percent since he took over in July 2007, making it the worst performer in the nine-member FTSE ASX Life Insurance Index (FALIFE) over that period. While U.K. competitor Prudential Plc (PRU) grew in Asia, Aviva focused its resources on Europe just as the sovereign debt crisis gathered pace in 2009.
‘Like to Apologize’
Moss last week waived a salary increase of 5 percent to 1 million pounds for 2012 after some shareholders said the company’s performance last year didn’t warrant the rise. Investors also requested a pay review of new executives following the firm’s decision to award U.K. head Trevor Matthews 470,000 pounds in cash and 2 million pounds in shares after joining from Friends Life last year.
A new pay plan will make sure “even if operational targets are hit we don’t have the dislocation with the share price described this morning,” said Wheway. “I would like to apologize to any shareholder that feels their views have not been adequately represented in the decisions we have made.”
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