Prudential, Britain's biggest insurer, moved to clean up its image on executive pay yesterday as it confirmed the appointment of Peter Davis, former chairman of Reed Elsevier, as its new chief executive. He will be paid a basic salary of £400,000, with an initial two-year term followed by a one-year rolling contract.
Mick Newmarch, the previous chief executive, was widely criticised for his large pay packet - £834,068 in 1993. His basic salary was £543,856 and he had a three-year rolling contract. Sir Brian Corby, the Pru's chairman and acting chief executive, said it was likely the other executive directors would move on to contracts similar to Mr Davis's.
The Pru also softened its stance on the pensions mis-selling controversy yesterday as it announced its results for 1994. Sir Brian said provisions in reserves to compensate policy-holders who might have been mis-sold pensions had been increased, but he refused to say by how much, although it was "not material".
He added that the provision included the cost of contacting the 600,000 Pru customers who fell into the categories of policyholders to be contacted under the review of pension sales that all life companies are to undertake. He said the exercise might cost as much as £20m in administration costs.
The Pru had adopted a tough stance on the pensions controversy under Mr Newmarch's regime, insisting it had not been involved to any significant extent in the mis-selling of policies.
Sir Brian said yesterday: "We have been concerned to put our policyholders right. Now we're in a position to look in much greater detail at the issue and it is prudent to make a provision."
The Pru has about 10 per cent of the personal pensions market, but Sir Brian said he expected its compensation to be a smaller proportion of the industry total as the company did not encourage people to opt out of company schemes.
Prudential's results for 1994 were broadly in line with market expectations. Pre-tax profits rose from £598m to £603m. The dividend jumps 9 per cent to 14.4p, although earnings per share rose 2 per cent to 21.4p.
A strong performance from the general insurance business and from M&G, the reinsurance subsidiary, helped offset declining profits in the UK. Analysts said the decline in new business in Britain this year was a worrying trend.
In the first two months annual premium insurance sales fell 5 per cent, with overall regular contributions down 17 per cent due to lower personal equity plan sales. Single contribution sales fell 32 per cent, largely as a result of the drop-off in pension sales. But sales at the US subsidiary Jackson Life trebled, albeit from a low base.
Mr Davis, who takes up the reins on 1 May, said he took a deep breath when offered the job of chief executive. "I had been looking at a number of alternatives, including buying a business and I had been offered a number of other jobs, but none made the mouth water like the job of running the Pru.
"My first priority is to get to know and understand the business. Then with the very good team here, we must restore confidence in the reputation of the Prudential and the pensions and savings business as a whole." Comment, page 33
City Diary, page 34