Shareholders force Prudential to scrap controversial pay scheme

Prudential has caved in to shareholder pressure over a controversial new pay scheme that could have netted its chief executive Jonathan Bloomer a £4.6m bonus if certain targets were met.

Prudential has decided not to put the scheme before shareholders at its annual meeting today after a last-minute intervention from some institutional investors. They had demanded further details on a plan that would have paid a bonus equal to one year's salary for finishing only halfway up a list of the group's life insurance peers in terms of total shareholder return. The rewards rose to £4.6m on top of Mr Bloomer's basic salary of £660,000 if Prudential finished top of the group. There was further concern over the power of the remuneration committee to lower the hurdle rates after the first year of operation.

The climbdown is a blow to Prudential where only last month Mr Bloomer was proudly declaring that being labelled a "fat cat" was part of the job. He also claimed the public outrage "would pass".

However, it emerged that a quarter of Prudential's largest shareholders had been expected to vote against the scheme or abstain. Those unhappy with the scheme are thought to have included Legal & General, Prudential's largest institutional shareholder.

Prudential said: "A number of institutions have, at an unusually late stage, sought further clarification and discussion on the proposals in the plan. This included a reopening of issues which the company had been led to believe were closed." The company said it was pulling the scheme in order to allow time "for further consultation with shareholders".

Prudential could barely disguise its anger at being forced to climb down at the 11th hour. "We have bent over backwards to explain this to shareholders and we are bitterly disappointed with the tardiness of the reaction from some of our major shareholders," a spokeswoman said. Prudential said one institution had sought (and got) a meeting on the issue only last Thursday.

There was little sympathy from Prudential's shareholder base. One senior fund manager said: "We're all well paid. People in this business are charged with looking after other people's money and corporate governance has to be paramount."

Another senior fund manager described the scheme as "another example of corporate greed being found out". The fund manager added that "Bloomer has really got to deliver now".

Stuart Bell, research director at Pirc, the corporate governance group, said: "The scheme was unusually structured and overly complex Potential awards and the required performance levels were unclear. It was also potentially excessive."

John Rogers, at the National Association of Pension Funds, said the remuneration committee's ability to lower the bonus scheme's hurdle rates had been a cause of concern. "It isn't unusual, but it's such a generous scheme that it has some investors concerned," he said.

Sir David Barnes, the head of Prudential's remuneration committee, said: "I think this has damaged the Pru because we felt it was important to put in place a coherent plan that would have incentivised managers in an international business, in the US, Asia and in Europe."

The dispute is a further blow to Prudential whose chairman, Sir Roger Hurn, stepped down two weeks ago ahead of a damning report into the performance of Marconi, the stricken telecoms company where he was also chairman. David Clementi, deputy governor of the Bank of England, has been linked with the job though he does not have the support of some institutions. Sir David Barnes ruled himself out of the race yesterday. "That's not my métier," he said. "I'm too old."

Prudential shares closed 4p higher at 704p. They stood at 887p last summer.