Prudential Becomes Fifth U.K. Firm to Suffer Pay Revolt

Prudential Becomes Fifth U.K. Firm to Suffer Pay Revolt
Prudential Plc headquarters in London. Photographer: Chris Ratcliffe/Bloomberg

Prudential Plc, the U.K.’s biggest insurer, became at least the fifth British firm to suffer a revolt on pay in the last three weeks as 30 percent of investors voted against its compensation report.

Shareholders raised “specific issues” over pay, Chairman Harvey McGrath said at the insurer’s annual meeting at London’s Queen Elizabeth II center in Westminster today. “We will, of course, engage with them to understand their concerns and to consult with them on how best to structure our remuneration.”

Prudential is the latest company to come under pressure in a surge of protest from investors who have rebelled against the pay reports of Barclays Plc, Aviva Plc, Trinity Mirror Plc, William Hill Plc and Pendragon Plc. The protest prompted the chief executive officers of both Aviva and Trinity Mirror to step down.

Institutional Shareholder Services Inc., a proxy voting agency owned by MSCI Inc., advised investors to reject Prudential’s pay report, highlighting changes to the company’s long-term incentive plan and double-digit salary increases for Chief Executive Officer Tidjane Thiam and Chief Financial Officer Nic Nicandrou for 2012.

‘Automatic Increase’

“Increased performance should not by itself lead to an automatic increase in the overall remuneration opportunity, but should rather work itself through existing bonus and LTIP plans, which should be established with sufficient headroom to provide for exceptional performance in their annual award,” ISS said in a report earlier this month.

ISS also criticized Prudential’s decision to “move the goalposts” for prior bonuses for Barry Stowe, CEO of the insurer’s Asian business. Prudential changed the metrics used to calculate Stowe’s long-term pay for performance in 2009, 2010 and 2011, ISS said.

Stowe earned 2.3 million pounds ($3.6 million) last year, and is expected to earn a further 2.34 million pounds from his LTIP awards for the period ending Dec. 31, 2011, according to Prudential’s annual report.

Pension & Investment Research Consultants Ltd., which advises investors with 1.5 trillion pounds of assets, also told shareholders to vote against Prudential’s pay report. The proxy voting agency cited “highly excessive” bonus and LTIP awards and said three unnamed executives, who don’t sit on the board, were paid 26 million pounds between them in 2011.

Prudential has been delivering “outstanding returns” in tough economic conditions, McGrath told shareholders at the meeting. “Rewards are aligned with demonstrably excellent performance,” he said. The shares have risen 64 percent since McGrath became chairman in March 2009.

Raised Dividend

The insurer’s profit rose 7 percent last year to 2.1 billion pounds and is set to double 2009 earnings from Asia by next year, it said. The company raised its dividend 20 percent in 2010 and a further 5.6 percent last year.

Thiam made 4.7 million pounds last year including expected long-term awards and Nicandrou earned 3.6 million pounds. Thiam will receive an 11 percent salary increase this year while Nicandrou will get a 15 percent rise.

The company’s highest paid executive director last year was Michael McLintock, head of fund management unit M&G, who received 7.6 million pounds including 6 million pounds in long-term incentive pay.

Prudential is rewarding McLintock after M&G grew to be the U.K.’s second-biggest retail fund manager, up from fifth-largest four years ago, as investors flocked to its bond funds in the aftermath of the financial crisis. M&G’s funds under management grew 2 percent to 201 billion pounds even as the MSCI World Index dropped 7.6 percent in the year.

Prudential shares fell 2.1 percent to 686 pence in London trading today.

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