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Despite plunging stockmarkets, the with-profits crisis and anguish about the health of the industry, life office board directors are pocketing record amounts.

As life offices publish their annual reports, the extravagant amounts paid to directors in the last year have left many IFAs and trade unions aghast.

Standard Life paid chief executive Iain Lumsden £743,000, including a bonus of £136,000 and a long-term incentive of £124,00. He has accrued a further £402,000 long-term incentive which is not immediately cashable. Deputy chief executive Sandy Crombie gets £586,000, including a bonus of £122,000.

Aviva chief executive Richard Harvey&#39s total package was worth £1.4m, including a performance bonus of £258,000, benefits of £70,000, an integration incentive of £320,000 to reflect the merger between Norwich Union and CGNU and share package of £82,000.

Norwich Union executive chairman Philip Scott&#39s package of just under £1m included sundry benefits such as a London flat. Scott recently told Money Marketing that 2002 was the most difficult year on record for the insurance industry.

But it does not stop with pay. Along with other board members, Lumsden, Crombie, Harvey and Scott have generous pension entitlements as members of their comp-anies&#39 final-salary schemes. While companies have to disclose what board members would be entitled to if they retired now, neither Standard nor Aviva was able to say how much those pension benefits actually cost.

The Annuity Bureau says to fund an annual retirement income of £403,000 – which 52-year-old Richard Harvey would enjoy if he retired now – you would need a pension pot of £11.09m.

For an annuity to match the £301,000 that 56-year-old Lumsden would enjoy, £8.29m would be required. Both figures are based on an inflation-linked annuity bought at 60 with spouse benefits, although the Annuity Bureau adds that, due to the unusual size, the funds would have to be split between providers.

However, both Harvey and Lumsden are trumped by Legal & General chief executive David Prosser, who pocketed £1.55m last year, including a bonus of £700,000 and another incentive share plan worth £179,000. He has an annual pension entitlement of £395,000.

Lumsden recently complained, after photographs of his home and golf club featured in a national newspaper, that people wanted him to wear a hairshirt.

However, there have been a few examples of contrition among directors. For example, when Stan Wallis stepped down as AMP chairman last month as half the Australian insurer&#39s board departed following a disastrous year, Wallis issued a statement that he was not going to take a retirement allowance of £620,000.

Wallis said the decision was “personal and based on the belief that it was inappropriate to receive a large retirement benefit at such a difficult time for AMP” – but not before extensive criticism in the Australian press.

Ousted AMP chief executive Paul Batchelor has been sent a cheque equivalent to £800,000 and told to sue if he wants more.

FSA chairman Howard Davies had his performance-related bonus for 2000/01 trimmed by £13,900 in what he described as a “fine” in recognition of failures in the handling of the Equitable Life fiasco. He was still paid £341,000 and his salary jumped back up to £379,740 the following year.

Prudential found itself facing fat cat accusations last year and withdrew an ambitious incentive package which could have seen multi-million-pound awards, after a threatened shareholder rebellion. It has shelved the package again this year, saying it is not appropriate in this difficult climate for shareholders and policyholders.

Aviva is keen to point out that – ignoring the integration package – Harvey&#39s pay rose by only 4 per cent, less than the 5 per cent average increase in Aviva salaries. It also says his performance bonus was reduced to £258,000 from £287,000, which it says shows an alignment of bonus with shareholder interests. Aviva defends the salaries, saying it is its policy to pay competitively.

Standard claims its salaries are not excessive and, as a mutual, the packages it offers executive directors are more ethical than those of plcs. Actuarial director Bob King says: “If you think of some wheeze to rip off policyholders to benefit shareholders, you can improve your bonus. We do something to align bonuses with policyholders&#39 interests.”

He says Standard&#39s directors are subject to a double whammy – not only does with-profits performance form part of the criteria for the performance award but the whole award is treated as if invested in a with-profits fund for three years. Market value adjusters do not apply.

Despite the defences put up, the escalation in boardroom pay has attracted widespread criticism. Syndaxi principal Robert Reid says: “I think there has been a loss of the linkage between boardroom remuneration and actual profitability. We have to get back to that as opposed to spurious calculations.”

Amicus joint general secretary Roger Lyons agrees that boardroom pay has become severed from the performance of individual companies. He says his union members working in the financial services industry have had to accept redundancies, squeezes on pay, reduced pensions and slashed bonuses because they were told these were necessary for the companies to survive.

He says: “It is totally unacceptable that the very board members who have managed the decline in profits should receive massive rises in their pay and pensions. When times are hard, the pain must not stop before it enters the boardroom.”

Wentworth Rose chief executive Philip Rose says everyone accepts the need to attract the most talented people into financial services and retain them but he too is critical of the amounts being paid out.

Rose says: “They have to get the balance right. You cannot justify this when with-profits bonuses have been cut to the bone and people in retirement are being affected. No one needs to earn £1.4m – it just tarnishes the reputation of the whole industry.”

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