STANDARD LIFE'S executives will reap financial benefits from a low flotation price for the mutual's shares, aligning their interests with big institutional investors rather than policyholders, the Times reports this morning.
The paper says because of a quirk in the mutual’s long-term incentive plan (Ltip), which has been altered in preparation for the demutualisation, Standard Life’s top five executives will be awarded more shares if the issue is priced cheaply.
In the lead-up to next month’s flotation, Standard Life has emphasised its commitment to “delivering maximum value for members”, who have seen their potential windfalls slashed by about 10% due to stock market turbulence.
Analysts argued yesterday Ltip put management’s interests alongside the institutions, which will be pressing for a low issue price, rather than retail investors that want to sell their shares immediately to get their windfalls.
The paper quotes Bruno Paulson, an insurance analyst at Sanford Bernstein, the stockbroker, as saying: “Keeping the big investors happy would have been the No 1 priority, anyway.”
Cantor Index, the spreadbetting firm, put the grey market spread for Standard Life at 216p-222p yesterday, well below the 240p-290p range suggested by the mutual in April and at the bottom of a revised 210p-270p range announced this month.
Under the Ltip for 2005, which will vest in 2008, Sandy Crombie, the mutual’s chief executive, was awarded a maximum incentive of £1.13m , and John Hylands, the executive in charge of demutualisation, £331,000. Keith Skeoch, the chief investment officer, was awarded £200,000, Alison Reed, the finance director, £383,000, and Trevor Matthews, the head of the UK business, £475,000.
The new company must make a 10.5% return on embedded value by the end of 2007 for the management to receive full payments. Last month Crombie said he would target a post-tax operating return on embedded value of between 9 and 10% in 2007.
The bonuses will be paid in shares, with the number of shares determined by the average share price over the 20 days after Standard Life is admitted to the stock exchange.
Standard Life has not revealed its bonuses for 2006, but has said in its prospectus, released this month, shares for the 2006 Ltip would be awarded in the same way.
MORE THAN 70% of UK firms offering final salary pension schemes are considering closing them to new members within three years because of the rising costs, a survey has revealed, the Telegraph reports.
The paper says research by Aon Consulting found only one third of final salary or defined benefit schemes remain open to new members. Of these, 71% of companies expect to close their scheme within three years because of difficult market conditions and increased longevity.
"Offering a DB scheme has simply become too expensive and unpredictable for the majority of employers," the paper qoutes Paul Belok, Aon's head of closed schemes as saying.
The National Association of Pension Funds does not expect there to be any defined benefit schemes still open to new members by 2010.
Over half the 115 companies surveyed by Aon expect the rising cost of funding their pensions deficit to have an impact on the prices they charge for goods and services in the future. A similar number said their deficit was already affecting their ability to compete. More than a third believe their pensions legacy is hurting their share price, and a further 38% expect this will happen in the future.
The majority of companies also fear the new pensions regulator could have a negative impact on their ability to do deals or restructure their businesses. The regulator has threatened to penalise companies which engage in corporate activity that puts their pension schemes at risk.
THE FINANCIAL Services Authority has dropped its "big four" auditor and switched to a smaller firm, setting an example to listed companies as regulators seek to break the stranglehold of the big audit firms, reports the Financial Times.
The paper says the City watchdog revealed in its annual report yesterday that it had ditched Deloitte and in its place in January appointed RSM Robson Rhodes, a mid-tier firm.
The move will be seen as a vote of confidence in the smaller firm. It comes as regulators led by the Financial Reporting Council, the accounting watchdog, are pushing companies to consider using a wider range of auditors.
The big four - a group completed by PwC, KPMG and Ernst & Young - audits all but one of the UK's 100 biggest companies and 98% of the FTSE 350.
Their dominance stems in part from a perception that smaller firms cannot match the rigour or technical expertise of their larger rivals. But the Association of British Insurers this month became the first investor group to debunk the idea that shareholders were wary of companies audited by non-big four firms.
The FSA's decision gives a further extra boost to a group known as the "following five": Grant Thornton, BDO Stoy Hayward, Baker Tilly, PKF and RSM Robson Rhodes.
The FSA said: "It was not our intention to send a message about firms outside the big four but the message will be received."
The City regulator said it had switched firms because it wanted to be able to call on the big four firms to provide specialist regulatory advice and secondments.
Conflict of interest concerns mean accountants' ability to provide non-audit services to audit clients is limited. The restrictions have left some large listed companies feeling they are unable to change firms.
Deloitte declined to comment. In the past, its executives, in common with counterparts at other big four firms, have questioned how smaller competitors can scale the barriers to entry around the blue chip audit market.
RSM Robson Rhodes also audits the Institute of Chartered Accountants in England and Wales. The FRC is audited by Horwath Clark Whitehill, a firm even smaller than the mid-tier groups. The Bank of England switched auditors this year but stuck with the big four, replacing PwC with KPMG.
The FSA's annual report also showed that Sir Callum McCarthy, FSA chairman, received total remuneration of £436,142 while John Tiner, chief executive, was paid £572,619.IFAonline
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till