Aviva tries to head off pay revolt by big investors

Aviva attempted to head off a potentially embarrassing bust up with investors over executive pay today, admitting it has misjudged the mood in the City.

With anger over boardroom pay spreading from the general public to top institutional shareholders, Aviva said it would “review” its pay schemes, in particular how much it pays to poach executives from other firms.

On the surface that seems to be a reference to Trevor Matthews, the head of the developed markets arm, who got a £4.25 million welcome package after arriving from Friends Provident.

Aviva sources say the issue is wider than one man, claiming that trends about what is deemed reasonable are changing.

Aviva faces an argumentative annual meeting on Thursday at the Barbican in the City, with investors poised to vote against pay deals. Whether today’s move will be enough to quell that anger remains to be seen.

Pirc, the pensions consultants, and the Association of British Insurers have both suggested investors should vote against the company on this issue.

Andrew Moss, the group chief executive widely seen as under considerable pressure to improve performance, said today he would decline a 5% rise in his basic pay. He got £2.7 million in pay and perks last year.

Scott Wheway, head of Aviva’s remuneration committee, said in a statement: “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.”

The top three Aviva shareholders are Blackrock with 5%, Legal & General with 4% and Axa with 3.9%.

Aviva isn’t promising an overhaul of executive pay levels, merely saying it will “continue to engage” with investors. “Having listened to them, we have sought to address their concerns,” adds Wheway.

Since Moss became chief executive in July 2007 -- just as the financial crisis was beginning -- the shares have more than halved.

The performance of arch rival Prudential over the same period has been much more solid however. The Pru is now valued at £19 billion compared to Aviva’s £9 billion.

In 2006 Aviva proposed a merger with the Prudential. The Pru rejected the idea out of hand.

The company is facing criticism in the City for its recent performance. Some analysts note that it is setting lower targets for itself next year.