Aviva pay vote embarrassment for board

The veto is only the fourth time in ten years that a FTSE 100 company’s shareholders have rejected the company’s remuneration report. Since legislation was passed compelling companies to put remuneration packes to shareholders a decade ago, only GlaxoSmithKline, RBS and Shell have suffered such revolts.

Normal practice is for such things to be passed without much protest. Pensions Investment Research Consultants (PIRC), a shareholder advisory company, told Channel 4 News that the average vote against remuneration reports in 2011 was 6 per cent, so a 54 per cent vote is highly embarrassing for Aviva.

At the end of April, Aviva’s Chief Executive Andrew Moss bowed to shareholder pressure and waived an almost five per cent pay rise. Mr Moss was awarded a 4.6 per cent rise in March on his £960,000 annual salary but decided not to accept the increase following talks with major investors.

Aviva chairman Lord Sharman apologised to shareholders at the AGM for ignoring their views when setting executive pay.

Lord Sharman said: “We recognise that a number of shareholders feel that we have not reflected their views, and overall shareholder value, in the judgments we made on remuneration and for this the Board and I apologise.”

PIRC dubbed Aviva’s executive pay awards “excessive”, while the ABI issued an “amber alert” warning over the remuneration report.

Unusual

Despite the protest, the vote is not binding. However, the deal would have been thrown out completely had new measures to give shareholders binding votes, as put forward by Business Secretary Vince Cable and backed by investor groups included the Association of British Insurers, been brought into effect.

Such anger is highly unusual for a FTSE 100 company. Executives are often employed on rolling year-long contracts and pay packages are often waved through.

It is feasible however that despite not being able to veto pay, shareholders could vote off board members. The level of protest also indicates that some institutional shareholders voted against the package.

Almost one third of Barclays shareholders recently voted against the pay package of executives including Bob Diamond. This was despite a compromise being reached ahead of its AGM which saw extra conditions imposed on his performance before he could be awarded the second half of his pay package.

Following a stinging rebuke to Shell’s bonus package in 2009, the chair of its remuneration committee, Peter Job, left his post after the AGM vote. In 2011 it was revealed that top directors’ pay had leaped by almost 50 percent in 12 months.