Inside London

April 5, 2013 2:02 pm

Aviva has a laugh with its pay report

How to justify a bonus after nearly halving the dividend
Aviva outlines plans to boost share price

And a happy Easter week from Aviva. What do you mean you didn’t have much of one, after the dividend cut? You should have been keeping warm with the 2012 annual report. If reading it does not make you hot under the collar, then you are probably past claiming on your Norwich Union life policy.

The document is marginally shorter than the book About a Boy and about as comprehensible. Skip to page 104, where Scott Wheway, remuneration committee chairman, is pleased to present his report and admits that “we got it wrong” on pay. In future, he says, “underpin” metrics will more closely align rewards with “shareholder experience”. Well, that would be a first. Shareholder experience at Aviva has been horrible. The shares are the same price as they were four years ago and less than half what they cost in 2006.

You wouldn’t spot that from Mr Wheway’s report. Its best joke is the award to Patrick Regan, finance director, from his long-term incentive plan. Aviva may be a life assurance company, but the long term here is just three years. The shares have gone nowhere, but he is still worth 69.83 per cent of the 2010 LTIP award.

It’s going to be different from now on, Mr Wheway tells us, but his 14 pages of charts, acronyms and targets ensure that complexity is the enemy of comprehension. Normal mortals will continue to struggle to see why the executives are all so well paid, but don’t worry about Mr Regan. He earned £1.5m last year and should he meet his “stretch” target, he would get £3.6m under the next LTIP.

Aviva is having a good clear-out of the board, with nine departures and three arrivals (along with a plea for a couple of female non-execs) so we must hope that the newcomers make a better fist of things than the last lot. They could hardly do worse: the bull market that has seen insurance shares soar has passed Aviva by. For shareholders who can face reading these accounts, that will grate even more than the presumption that a very decent salary is not enough to get the executives to do more than turn up.

Short circuit

“Building the plane while flying it” makes a great headline for an analyst wanting to be heard in a noisy world. It is rather more attention-grabbing than “we’re worried about this company’s depreciation policy”, even if that is a better summary of Espirito Santo’s view of APR Energy.

APR brings power to the people, that’s portable electrical power, anywhere in the world. Renting out massive mobile generators is a great cash flow business, but real profits depend on how long the kit lasts. The accountants have tied themselves up in knots trying to work out the answer; Espirito does not claim to have found it, but it notes that APR has changed its policy – again.

In 2011, it was stretched from a maximum of 12 years to 15 and now the whizzy new dual-fuel turbines are expected to last even longer, depending on the intensity of use. Espirito interprets this to mean up to 22 years, which is pretty heroic for a relatively new technology. A long depreciation does wonders for short-term profits, but if the turbines don’t last, APR could suffer a nasty electrical fire.

Risky business

Nathan Bostock is, we are told, tough and competent. As head of risk at RBS for the past four years he has needed to be tough and in wangling a promise of preferment to resist being headhunted by his old mate at Lloyds, he proved he was competent. Now he is getting his reward, promotion to finance director.

Fair enough, you might think. Not so fast, suggests Anthony Fitzsimmons at risk specialists Reputability. Since Mr Bostock knows the weaknesses in the system, and has been the boss of everyone in the risk department, the move means “potentially lethal behavioural and organisational risks”.

It is pretty rough if a successful risk manager cannot advance any further because he knows too much and given the way risk was essentially ignored by the previous RBS management it is surely helpful to have a CFO who knows a bit about the subject. However, it would reassure us shareholder-taxpayers if Mr Bostock’s replacement were an outsider.

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