RSA faces investor anger over bonuses

Shares fall and investors say insurer should axe top rewards

RSA, the FTSE 100 insurer, is facing the threat of a revolt over executive pay, after stoking investor anger with plans to cut its dividend by a third.

On Friday, one top 10 shareholder said that RSA executives should consider giving up their bonus payments in the wake of the dividend decision, which knocked 14 per cent off the insurance group’s share price.

“They’ve cut shareholder income by a third – how about cutting their own income by a third?” the investor said.

Before the dividend cut, RSA had avoided the shareholder anger over pay that had been directed at other companies including its rival Aviva – whose former chief executive, Andrew Moss, left last year after a revolt.

More than 93 per cent of votes at RSA’s annual meeting last year backed its remuneration report, which included a £500,000 so-called ‘golden goodbye’ for Andy Haste, who was replaced as chief executive by Simon Lee in November 2011.

But investors warned they would be closely scrutinising the company’s pay plans when they are disclosed in March, after this week’s dividend cut led to the biggest one-day fall in RSA shares since 2004.

Mr Lee blamed poor investment returns for the dividend decision and indicated that the payout, which was barely covered by earnings, had inhibited the UK company’s ability to expand in faster-growing regions.

However, several institutional shareholders have criticised the decision, saying the dividend income was the main reason many held the stock.

While they have stopped short of calling for Mr Lee to stand down, some warned that the cut – described by one shareholder as a “bolt from the blue” – raised questions about his future.

“We will be looking at the bonus very carefully,” another top 10 investor in RSA said on Friday. “If a company does not perform as well, or undermines shareholder value, then a bonus should be withdrawn or cut. But I think the jury is out on RSA.”

Mr Lee received a £489,000 annual bonus last year as part of a £1.15m package, excluding long-term incentive awards.

RSA has indicated that the 2012 annual bonus payments will be based on both on insurance premiums written and the group’s combined operating ratio – claims and expenses as a proportion of premiums. But it has not disclosed what the performance targets are.

In its annual report last year, RSA said it would conduct a review of its pay plans to “strengthen the alignment of managements’ interests with those of shareholders.”

One institutional shareholder said on Friday: “Cutting the dividend will not achieve the sort of alignment they’re talking about.”

Another top 10 investor was less concerned about RSA’s executive pay, noting that the long-term incentive plan was linked to return on equity. “We think RSA have the right structure,” the shareholder said.

RSA said: “The board and remuneration committee will take all factors into account when they set the pay and bonus awards.”

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