Insurers’ excessive pay must be curbed
Prudential Plc is one of the most respected names in financial services — trusted with billions of the people’s savings in ISAs, pension products and insurance.
So it came as a surprise when the company was fined up to £30 million last month for its failure to deal with the Financial Services Authority in “an open and co-operative manner”.
Banks had already demonstrated what could happen if traditional values were prioritised over risky behaviour. In response to the fine, critics said the Pru had been made a scapegoat while banks had been given an easy ride — but it is a weak argument.
The offence was serious. Pru representatives tried to take over the rival Asian AIA insurer in 2010 in a high-risk and secret £23.4 billion deal partly funded by a £14.5 billion rights issue.
The deal was doomed, leaked by the media and the Pru was heavily fined.
Instead of demotion, Pru chief executive Tidjane Thiam is expected to receive £7 million for 2012. It is an outrageous amount for someone running an insurer in tough times.
After the economic crash, it was widely accepted that extortionate monetary rewards in the City were too high-risk. Sadly, nothing has changed. Barclays chief executive Antony Jenkins promised to clean up the bank’s image after the Libor rate rigging scandal, but still paid 428 workers £1 million each and five workers at least £5 million. Last month, Barclays’ colourful Rich Ricci, the chief of investment banking, pocketed £17 million from selling shares. But Barclays is no worse that its cohorts.
Standard Chartered chief executive Peter Sands was paid up to £5.1 million while the bank was heavily fined by US regulatory authorities for busting sanctions with Iran. The bank farcically described the breach as a “clerical error”. Even the state-owned Royal Bank of Scotland paid out more than £600 million in bonuses despite making a colossal loss of £5.2 billion.
The recovery “claw back”, where senior executives would reduce excessive rewards because of past mistakes, is the least investors should expect when average pay is barely rising and welfare payments are being held to one per cent increases each year.
Despite the national economic uncertainty, the boardroom sense of entitlement is as rampant as ever. Insurers, like bankers, believe that they are entitled to take unjustified risks and demand rewards beyond the dreams of avarice.
Alex Brummer is City Editor of the Daily Mail