War on excessive executive pay

Shareholders are in open revolt after Aviva chief executive Andrew Moss resigned following a vote which failed to support his pay.

Moss will leave Aviva with a £1.7m payoff which is likely to further anger investors in the company. 59% of Aviva shareholders last week voted down a proposal to confirm his existing £5.2m pay package.

Executive pay at the top UK companies is a big issue.

The latest research shows that average pay for a FTSE 100 chief executive is £3.65m a year, up 11% compared to the previous year.

This is made up on average of a £840,000 basic salary, a £1.4m ‘long term incentive plan’, and £689,000 of cash bonus, as well as other financial incentives.

The investor action at Aviva follows similar sentiments expressed by shareholders of Astrazeneca, Barclays, Trinity Mirror and William Hill.

As things stand, these shareholder votes are not binding but they are starting to exert a lot of influence over top executives.

Pay in return for performance is fine and reasonable. When the chief executive of any listed company delivers capital and dividend growth for shareholders, it is only right he or she should be rewarded for that contribution.

What investors are right to complain about is excessive and growing levels of remuneration with no regard for company performance.

As the major shareholders in many of these FTSE 100 companies are pension and investment funds, our clients should have a particular interest in how this issue plays out. Whilst investors will want to see the most skilled and experienced chief executives in place at the top, their first priority will be the best returns on their investments.

These latest shareholder moves are likely to give confidence to the coalition government as they seek support to make shareholder votes on pay binding on executives.

Photo credit: Flickr/gordonr