Pay Protest At High-Yield Favourite

Published in Company Comment on 30 April 2012

Aviva boss turns down his pay rise after shareholder complaints.

When is an apology not an apology? When it lacks honest contrition. This is easily spotted, because bogus apologies usually begin, "I'm sorry you feel that way, but..."

Aviva backs down

For me, the only apology worth having is one that admits fault and includes a promise to do better. Hence, I carefully scanned today's announcement from insurance Goliath Aviva (LSE: AV) on its latest pay spat with its owners.

Following the publication of Aviva's remuneration report on 21 March, Aviva admitted that "a number of [shareholders] have voiced concerns about some elements of the report".

The UK's largest insurer then goes on to say: "These concerns have mainly centred on how we structure the compensation paid when we recruit executive directors and whether overall levels of remuneration, driven by the operating performance in 2011, appropriately reflect changes in shareholder value through the year."

In plain English, this translates as "We pay new directors too generously and, given the group's weak results in 2011, we've also overpaid other board members."

Of course, Aviva's remuneration committee "believe that the proposed levels of remuneration were appropriate reward for Aviva's operating performance and strategic progress in 2011, as well as for attracting and retaining key executive directors, and accordingly were in shareholders' long-term interests".

In other words: "We hear you, but we don't agree."

The committee then backs down somewhat by stating: "However, reflecting on shareholder feedback, the Remuneration Committee has agreed to review how Aviva will compensate future joining executives for the loss of entitlement from their previous role. In addition, the Committee has accepted Mr Moss's decision not to accept the salary increase granted to him in 2012. We will continue to consult with shareholders on executive remuneration."

Translation: "We admit the golden handshakes given to new board members have gotten way out of line. We'll review these, but we won't promise anything. Meanwhile, our chief executive, Andrew Moss, has diplomatically declined his 4.6% pay rise, so as to keep his basic pay under the headline-grabbing figure of £1 million."

Scott Wheway, chairman of Aviva's remuneration committee, ends by saying: "We take the views of our shareholders very seriously. I am disappointed that we haven't done that as well as we should have on this occasion. A number of shareholders have indicated that they would like to see a different approach to the way we compensate senior directors on recruitment and an even closer correlation between our pay packages and shareholder returns. Having listened to them, we have sought to address their concerns and will continue to engage with them on this matter."

That almost sounds like a genuine apology to me.

Aviva: pay versus payouts

With 43 million customers and over 36,000 workers worldwide, Aviva is a member of the FTSE 100, Britain's blue-chip elite. Hence, you'd expect its directors to be among the highest-paid people in British business.

Then again, these directors are nothing more than agents for shareholders, who are Aviva's ultimate owners. So, how does executive pay compare to shareholder payouts at the insurer? To find out, I dug through Aviva's annual reports going back to 2001.

Disappointing dividend history

Let's start with shareholder dividends, the cash returns paid out each year to Aviva's owners. Here they are:

YearDividend per share (p)Change (%)

As you can see, Aviva's dividend payouts have risen and fallen in line with stock markets as a whole. After peaking in the early Noughties, Aviva's dividend was slashed by nearly two-fifths (39%) in 2002, during the stock-market crash of 2000-03.

Aviva's cash payout then rose steadily until Mr Market's next heart attack. In the depths of the global financial crash of 2007-09, the FTSE 100 firm once again sliced its dividend, cutting it by more than a quarter (27%) in 2009.

As a result, Aviva's latest dividend is 26p a share, which is almost a third (32%) lower than it was a decade earlier. Frankly, that is a truly terrible performance, even given the stock market's zigzags of the past 10 years.

Pumping up pay

As dividend payouts have headed down, what has happen to executive pay at Aviva?

Rather than looking solely at the CEO's earnings or even the remuneration of the PLC board, I dug into Aviva's annual accounts for a broader figure: senior executives' remuneration.

Here's how "total compensation paid to key management personnel" has risen since 2007, when Andrew Moss was appointed Aviva's chief executive:

YearPay (£m)Change (%)

As you can see, leaders' pay at Aviva tumbled in 2008, dropping 12% to £53 million, from £60 million in 2007. It then rebounded by 15% to £61 million in 2009 and leapt a further 8% in 2010. However, in 2011, leaders' pay at Aviva actually fell by 2%. Broadly speaking, this figure has trended in the same direction as the stock market since 2007.

What's more, in 2009 and 2010, Aviva's executive directors froze their basic salaries for two years in a row. Then again, thanks to a whole host of different bonuses, incentive schemes, share awards and option grants, plus generous final-salary pensions, basic pay is a mere fraction of the generous remuneration packages handed out to Aviva's top managers.

Anyway, the upshot is that since the appointment of boss Andrew Moss, Aviva has lifted its payments to key staff from £60 million to £65 million -- a rise of 8% -- while chopping its dividend from 33p to 26p -- a cut of 21%.

That doesn't seem right to me.

Ultra-cheap shares

Based on the usual market measures, Aviva's shares look very cheap today, making them a favourite among value investors and dividend seekers.

As I write, Aviva shares trade at 311.8p, down 4.9p since Monday's open, and valuing the group at over £9 billion. At this price, they trade on a forward price-to-earnings ratio of just 5.6, while offering a prospective dividend yield of 8.5%, covered 2.1 times.

You could say these are Aviva's most important figures, not the finer points of its executive pay. But then again, perhaps the market is applying the cheap rating because the group's managers might be focused on their own pay and not the income of ordinary shareholders. 

As always with shares, there are pros and cons to weigh up -- and the decision to own Aviva remains entirely yours. 

Warren Buffett buys a British blue chip! Read this special report -- "The One UK Share That Warren Buffett Loves" -- while it's still free and available.

Further investment opportunities:

> Cliff does not own Aviva shares.

Share & subscribe


The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

rober00 30 Apr 2012 , 4:04pm

Very interesting Cliff, thanks!!!

tophernator 30 Apr 2012 , 4:48pm

Executive pay is deliberately obscure but I think you may have made a mistake in measuring "total compensation paid to key management personnel". Surely this total will vary depending on how many individuals are in this "key" group. That would mean the board could increase their own pay while reducing the total simply by sacking a bunch of slightly less "key" individuals.

Without checking I'd guess the drops you note in 2008 and 2011 have more to do with cleaning house than with genuine penitent salary cuts.

longpod 01 May 2012 , 5:45pm

Please don't use the word gotten!

CunningCliff 01 May 2012 , 10:44pm

'Gotten' is perfectly good English, Longpod. Some claim is is archaic, but I disagree. It has its place -- and I know PYAD (Stephen Bland) is very fond of it!

All the best,


CunningCliff 03 May 2012 , 4:08pm

News just in:

Aviva loses vote on executive pay at its AGM

"Insurance firm Aviva has lost the vote on executive pay at its annual meeting.Excluding abstentions, 54% voted against the remuneration report at its annual general meeting (AGM)."



RobinnBanks 06 May 2012 , 9:51pm

'Gotten' is perfectly good English, Longpod. Some claim is is archaic, but I disagree. It has its place -- and I know PYAD (Stephen Bland) is very fond of it!
Especially all the Aviva shares he has 'gotten'?

CunningCliff 08 May 2012 , 9:55am

News just in this morning: Andrew Moss steps down as CEO of Aviva:

The shareholders are revolting! ;0)


Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as as opposed to

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.