Shares Up 4% As CEO Steps Down

Published in Company Comment on 8 May 2012

Insurer soars in FTSE 100 as another boss bites the dust.

The Aviva (LSE: AV) boss is the latest in the line of UK bosses to jump or get pushed over excessive pay.

Whether your view is "about time, too!" or you see it as the sign of a worrying trend over the departure of top talent for UK plc may depend where you're coming from. As a private investor, there's more of me in the former camp than the latter. But life isn't that simple.

Of course, Andrew Moss whose departure was announced on Tuesday wasn't worth around £600 every hour he worked to Aviva and its owners. And in reality, his remuneration is far higher due to stock awards. But as shareholders, we also want excellent performance to be well rewarded so that we have the right people in the right jobs.

So the big strategic decisions and the ability to see them through are what really count. And the market's perception seems to be that Moss wasn't the right man for the job. The shares are up by 4% at the time of writing, making Aviva the FTSE 100's biggest riser by some distance.

Performance over pay

As shareholders, our opinions should be, and are, based much more on performance than pay level. During Andrew Moss's near five years at the helm, the world has been through some turbulent economic times to say the least. The financial crisis hammered Aviva whose life insurance business is highly dependent on investment income. Consequently, the share price has declined by 60% during Moss's tenure. But this isn't the Premier League, it's real life and there's a lot more to it than the share price alone.

Aviva has done a lot of things right in recent years, deleveraging and reorganising its businesses, while increasing business in the markets where it sees the most potential. It still wasn't enough to see off last week's revolt by institutional shareholders when the majority refused to back the company's pay policies. This is a rare event. It's only the fourth such revolt at a FTSE 100 company. But they did back Moss personally, with 95% voting to re-elect him as CEO.

The revolts over remuneration are increasing as may be expected in difficult times. Just last month, 27% of Barclays (LSE: BARC) shareholders voted against its remuneration report.

In Aviva's case, it isn't fundamental to the value case. But if it helps CEOs get the message that it's all about performance for the company's owners, it has to be a good thing.

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> David owns shares in Aviva and Barclays.

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Comments

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DennisDenuto 08 May 2012 , 11:25am

I don't necessarily think that Moss got pushed over pay, it was about performance. Since 2007 Aviva has flip flopped around over strategy; the recent u-turn over the American business is a clear example, telling the market it was part of the core and then looking like they were going to sell it. I hold a decent chunk of AV and I'm pretty happy he is gone.

MagicalBeaker 08 May 2012 , 12:10pm

"The shares are up by 4% at the time of writing, making Aviva the FTSE 100's biggest riser by some distance." - taking them back to where they were on Thursday. What you're really pointing out is that there was a minor downward trend for a couple of trading days which has now corrected. Not really indicative of a major shift in shareholder sentiment, is it?

Olitom 08 May 2012 , 12:31pm

MagicalBeaker - "What you're really pointing out is that there was a minor downward trend for a couple of trading days which has now corra minor downward trend for a couple of trading days which has now corrected"

- are you seriously trying to suggest that Aviva's net 6% rise at one point today vs. the rest of the FTSE was nothing to do with Moss's departure?

MagicalBeaker 08 May 2012 , 12:40pm

Not at all, but considering that it dropped a similar amount in previous days trading as news of the rejection of pay by shareholders came out, I think it's a little bit of a stretch to point towards a major trend

richjfool 08 May 2012 , 1:44pm

As I understand it Aviva has a lot of exposure to Eurozone debt countries, which I doubt help sentiment towards the company.

snoekie 08 May 2012 , 5:46pm

All this cr** about loss of talent to abroad.

The fact remains is that these Johnny come latelies are well over paid, here and abroad. Maybe a movement is being started that execs are entitled to a decent whack, but not at the astronomical levels that appear to have become the nor. In the last 20 years or so the trend has been upwards, regardless of the performance, and no claw back/loss of bonuses (which in themselves are obscene) when things do not go right. Think of the execs as waiters, if they provide good service, they get a tip, if they don't serve you well they don't get a tip, and have to rely on their salary from the establishment. Time that that principle was firmly re-established, a basic (lean) pay structure and a bonus package, which does NOT exceed 10% of basic pay.

Maybe the overseas investors will copy what is happening over here and force down their executives pay packets. If that happens, the local "talent" will stay put, lest the more talented below them (and there must be plenty of that around, actually making happen the decisions handed down from on 'high', requiring some considerable skill) step in to do the same job, perhaps better, but for much less.

BigScaryHaynet 11 May 2012 , 12:33am

When you have been around as long as I have, you realise that it's all really just a gamble. I have seen lots of executives and higher managers see success in one job, only to make a complete hash of their next one. I witnessed one Managing Director get a Queen's Award for Industry, for Exports, for one of his companies, while another of his companies was going into Administration. I watched while a blazing star turned one very large company around, only to oversee the demise of his next. In general the so-called talent has a large element of external factors, and a large element of gambling, in any success.

RobinnBanks 11 May 2012 , 12:58am

From the Telegraph, May 8th 2012:
Mr Moss, then still chief executive of Aviva, took the day off work last Friday to get married to his partner and former employee, Deirdre Galvin, at the couple’s country home in Norfolk. In October 2009, Mr Moss, 54, admitted he was having an affair with Ms Galvin, a twice-married mother-of-four who was working for Aviva as an HR director. He left his wife of 25 years, and Ms Galvin, 48, split from her husband Andrew Moffat, who was Aviva’s head of human resources for Europe. The couple own an apartment in Capital Wharf, east London. It is understood Mr Moss’s four children did not attend Friday’s low-key celebration.

And he still left with about £1.5m! Any of the workers would have been sacked for misconduct and no dole for six weeks. Meanwhile, the shareprice has to recover from the devastation he oversaw: if he even noticed during his courting.

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