Investment View: Stick with steady Standard but vote against bosses' pay

Until small shareholders like you and me make our voices heard this sort of thing will continue
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The Independent Online

It's share-award time at Standard Life, at least for finance director Jackie Hunt. The company said in an announcement to the stock exchange that after being handed 95,000 of them, she sold nearly 45,000 at 340p to cover tax liabilities and kept the rest.

It would have looked pretty bad if she had sold the lot because that might send a signal suggesting she didn't have much confidence in her company to keep delivering, at least in the short to medium term.

Should you hold on too, though? Up to a point, yes. Standard Life, in which my family has a small post-demutualisation interest, is never going to set the world alight.

It's a stable, relatively low-risk insurer, which has positioned itself carefully to take advantage of changes to the way financial products are sold and the auto-enrolment of employees into company pension schemes.

Last year the shares took off, and the company delivered decent earnings. It is a steady ship at the moment, so it should continue to perform well enough.

Here's what is hugely disappointing about Standard Life, from the perspective of an investor. This is a company which stewards the investments of millions of small savers and has a huge retail shareholder base (retail meaning you and me as opposed to City institutions).

It should, therefore, be setting an example when it comes to executives' pay. It is not doing so. The company admits that it may indulge in "golden hellos" when it hires externally. It "benchmarks" pay against rivals, rather than assessing its own team against their own performance. Benchmarking has contributed a great deal to the relentless rise of boardroom salaries (because no one wants to pay below the benchmark).

Then there are this year's pay rises. Ms Hunt received a rise in her basic pay of 5 per cent taking it to £565,0000, chief executive David Nish was given 1.9 per cent to take his basic to £790,000 and Keith Skeoch, boss of Standard Life Investments, received 3 per cent to take his to £437,750. Those rises will have an important influence on other elements of their packages, notably bonuses. What's more, there is a new, long-term incentive plan is in the works. These things only ever seem to get more generous.

The total pay of the "big three" amounted to £12m compared to £6.7m a year previously. Standard had a good year, but not that good.This sort of thing can't make life any easier for the (pretty good) governance people at Standard Life who (justifiably) took a shot at BP over poor remuneration practice.

Standard will probably trot out all the usual arguments about there being an international market for top executive talent (not true, companies usually hire from home), the need to keep hold of the top team (even though it is rare for top bosses to be poached and on packages like that, why leave) and the need to "motivate" top talent (when the motivation should be to do their jobs well as is the case with everybody else).

My recommendation on Standard Life shares runs as follows. If you're a long-term investor, hold on. The company ought to provide a solid and steady return. If you're more inclined to trade in and out of stocks there is a case for taking some profits. It sits at a decent premium to book value, although yields nearly 5 per cent, and is not the most profitable of insurers.

The shares probably won't be increasing in value at the rate they did last year (more than two thirds) and there are more exciting opportunities out there.

Whatever you choose, use your votes at the annual meeting and vote against the remuneration report. Retail shareholders make up a big proportion of the shareholding at companies like Standard Life which have either demutualised or been privatised by the state. Until small shareholders like you and me do more to make our voices heard this sort of thing will continue to go on. And ultimately, if you are a shareholder in Standard Life, these people are being paid with your money.

I mentioned Aviva in my recent column on yield. However, if you are not a low-risk income investor there are grounds for taking a chance with this stock.

The company has undergone a shake-up at the top, with a new chief executive, the (relatively) youthful Kiwi Mark Wilson hired from AIA, the Asian insurer.

I have the impression that I've been flogging a dead horse with Aviva for some time. It is, in theory, criminally undervalued at something under 80 per cent of the "book" value of its in-force business, with a propsective yield of 6 per cent, although that is thanks largely to the sharp fall in shares after the recent dividend cut.

Things tend to be darkest before a new dawn, and the City always overdoes things, so it might now be worth getting into Aviva and taking a bet on the new management driving a bounce back in the shares. I make Aviva a speculative buy.