BREAKINGVIEWS-Aviva provokes subtly different shareholder spring

Mon Apr 30, 2012 1:09pm BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By George Hay

LONDON, April 30 (Reuters Breakingviews) - The “shareholder spring” has, to date, been squarely about pay. Barclays’ (BARC.L) shareholders who failed to support the bank’s remuneration report at its annual general meeting on April 27 were angry about the principles of pay more than people or long-term performance. The less audible revolt against Aviva’s (AV.L) remuneration report has subtly different origins and ramifications.

Yes, the UK insurer’s fractious investors are concerned about Aviva’s remuneration policies. They are especially worried that the incoming head of the UK operations Trevor Matthews is receiving a 2 million pound payment to compensate for his loss of long-term incentives from Friends Provident. Shareholders also seem perturbed that a significant yardstick in determining executive remuneration is Aviva’s operating profit, which held up between 2010 and 2011, whereas the share price is driven more by numbers further down the p&l that fell sharply over the same period. Aviva shares are down by a third over the last year.

But Aviva investors appear to have concerns that go further and deeper. Under chief executive Andrew Moss, Aviva’s performance has been mixed. In 2009 the firm cut the dividend after initial signs that it would not, while the strategy has veered from a broader push in many different countries to a more recent focus on core markets. Most of all, the Aviva share price trades on a multiple of six times likely 2012 earnings, compared to a sector average of 10.7, according to Panmure Gordon.

In the current climate, Aviva’s annual general meeting on May 3 could see Barclays-style protest votes against the remuneration report and individual directors, even though Moss has waived his proposed 4.8 percent salary increase. More likely, investors will wait to see what happens when Aviva unveils a strategic update on May 24. They may also wait to see what new chairman John McFarlane, who arrives soon, has to say and do.

Even so, it’s a sign that shareholders are finding a new willingness to exert pressure on boards. Even those companies not normally associated with egregious pay may find shareholders becoming more vocal about long-running gripes. Good.

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CONTEXT NEWS

- Aviva chief executive Andrew Moss is to waive a 4.8 percent pay rise that was due to come into effect from April 1. The move would have increased his basic salary from 960,000 pounds to just over 1 million pounds.

- The UK insurer’s remuneration committee is also to review how future executives that join the company are compensated for any loss of entitlement from a previous role. Trevor Matthews, the incoming chief executive of Aviva’s UK operations, was awarded shares with a value exceeding 2 million pounds to compensate for the loss of long-term incentives from his previous job.

- Aviva said in a statement on April 30 that the changes were prompted by investor concerns about whether overall levels of remuneration, driven by 2011 operating performance, appropriately reflected changes in shareholder value.

- Scott Wheway, chair of Aviva’s remuneration committee, said he was disappointed that the committee had not represented shareholder views as well as it should have.

- In 2010, Aviva’s operating profit was 2.6 billion pounds and net profit was 1.9 billion pounds. In 2011, thanks to changes in Aviva’s investment returns, operating profit was 2.5 billion pounds but net profit was only 60 million pounds.

- Reuters: Insurer Aviva's boss waives pay rise [ID:nL5E8FU1J6] - For previous columns by the author, Reuters customers can click on [HAY/]

(Editing by Robert Cole and David Evans)

((george.hay@thomsonreuters.com)) Keywords: BREAKINGVIEWS AVIVA/

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