Bloomberg News

Aviva Avoids Pay Rebellion as CEO Pledges to Boost Returns (3)

May 09, 2013

Aviva Plc (AV/) avoided a repeat of last year’s pay rebellion after Chief Executive Officer Mark Wilson said he understands investors’ “frustration” and pledged to boost returns to shareholders.

About 88 percent of investors supported pay plans of the U.K.’s second-biggest insurer, according to a statement published after Aviva’s annual general meeting in London today. In 2012, 55 percent of shareholders rejected compensation plans, sparking the resignation of former CEO Andrew Moss.

“Speaking to some of you a few minutes ago, I know there is still a sense of impatience,” Wilson said, striding across the stage at the Barbican Centre in London’s financial district. “I don’t blame you. If patience is a virtue -- I think Aviva shareholders are on their way to becoming saints.”

Wilson, 46, who took the job in January, is seeking to appease investors by selling assets, eliminating jobs and cutting costs by 400 million pounds ($623 million) this year to rebuild capital that was depleted by the euro area’s debt crisis. The New Zealand-born CEO cut the firm’s dividend by 44 percent in March as the insurer posted a full-year loss following a 3.3 billion-pound writedown on the U.S. business it agreed to sell to Apollo Global Management LLC (APO:US) in December.

Wilson has since attempted to rebuild relations with investors by scrapping directors’ bonuses for 2012 and freezing pay for the firm’s top 400 managers.

‘Lavish Outcome’

The shares fell 0.3 percent to 322.90 pence in London trading, bringing declines to about 13 percent this year. The insurer’s share price dropped 60 percent during Moss’s tenure as the firm failed to boost capital reserves while investing in Europe just as the region’s fiscal crisis took hold in 2009.

“We’ve heard you on transparency, on simplicity and on pay,” said Wilson, whose firm manages 300 billion pounds of assets. “Above all, we have heard you on performance.”

Aviva faced shareholder criticism for paying former U.K. CEO Trevor Matthews 470,000 pounds in cash and 2 million pounds in shares after joining.

“What sort of LTIP produces this lavish outcome?,” said Philip Meadowcroft, a private shareholder, referring to the firm’s long-term incentive plan. “It’s absolutely outrageous. Bonuses ‘‘are for stellar achievement not just for turning up for work,’’ he said.

Executive Pay

Chairman John McFarlane told shareholders that he agreed that ‘‘executive pay in general is too high and is going up.’’ There is a ‘‘fundamental problem’’ with pay across British businesses, he said.

The company needs to attract top executives from across the world and is required to pay global rates, the chairman said. Wilson is not the best paid in the industry and could ‘‘get more than we pay him elsewhere,’’ McFarlane added.

Aviva currently converts about half of its profit into cash, which is used to pay dividends and reinvest in the business, according to Wilson. The company aims to increase that ratio to between 85 percent and 90 percent by reducing leverage, cutting costs and selling products that require less capital to be held in reserve, he said.

The company’s capital levels were ‘‘inadequate’’ before last year’s asset disposals and the previous dividend level was unsustainable, McFarlane said at the meeting.

Wilson pledged to increase cash flow from developed markets such as the U.K., Canada and France by cutting costs and making sure more is paid up to the parent firm to be distributed to shareholders as dividends. The firm will also focus on emerging markets such as Poland, Turkey and China.

‘‘The first part of our plan is a relentless focus on improving cash flow,’’ Wilson. ‘‘I see strong potential for growth in emerging markets where we have a competitive advantage and the ability to get scale quickly.’’

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net;


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