Herald: Equitable chief’s bonus cut after legal battle lost

KARL WEST, City Editor May 18 2006
http://www.theherald.co.uk/business/62207.html

Charles Thomson, the Scots-born chief executive of Equitable Life, is to receive a sharply reduced "performance bonus" this year as a result of the society losing its £3.7bn legal action against its former auditor and 15 former directors.
He is eligible to earn up to 50% of his salary each year in a discretionary bonus.
However, Thomson will this year be paid 65% of the maximum available as a result of the society's crushing defeat in the legal action against Ernst & Young and the former directors, which cost Equitable £45m, or £75 for each member.
The society claimed they failed to warn the insurer of the risks of over-generous policy guarantees, which brought the society to the brink of collapse in 2000.
According to its latest annual report, Thomson earned a performance bonus of £184,196 in 2004/2005, or 95% of the maximum available.

For 2005/2006, he will bank a discretionary bonus of £129,000, which will be paid in June. His total pay last year was £706,402, up from £659,813 a year earlier.
At Equitable's annual meeting yesterday, one policyholder observed that Thomson's "performance bonus" was falling from 95% of its maximum to just 65%.

"It looks as if his performance is failing," he quipped.
Another shouted from the floor: "It should be zero."

Jean Wood, a non-executive director and head of the society's remuneration committee, said the reason for reduced bonus was the "disappointment in the litigation". She added: "There were some areas where we had concern last year, which was why we reduced the bonus." Wood noted Thomson's was a "difficult job" and that it was not just he who attracted criticism, but also his family.
She added: "It's a job that not many people are lining up to do."
Thomson's personal life made newspaper headlines in 2003 when he left his wife of 33 years and two grown-up children to set up home with his 28-year-old former secretary, Verity Coutts, with whom he has since had a child.

Losing the legal battle was the main topic of policyholders' questions at yesterday's busy annual meeting in London.

Harold Gervitt, policyholder, accused the society of "timidity" in its pursuit of the claim.

"We should have fought it with more vigour and robustness," he said.

Vanni Treves, chairman of Equitable, said the mutual had "pushed it as hard as we could", adding: "I don't think we could be accused of timidity in pursuing the court case.

"For every one man who thought we were timid, there were five who thought we pushed too hard."

A proxy of policyholder Tony Fisk read a statement, which said his doctor had advised him not to attend the meeting after suffering from stress following a stroke a few years previously, and more recently finding he has Bell's Palsy.
Fisk's stated: "Of course, I blame my poor health on Equitable ... but I have found it has been quite therapeutic to express my anger, frustration and shame at the shambles surrounding Equitable."

Telegraph:
Equitable bosses told to quit over legal 'blunder'

By Caroline Muspratt
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/05/18/cnequit18.xml&menuId=242&sSheet=/money/2006/05/18/ixcity.html

The chairman and chief executive of troubled mutual Equitable Life faced calls to resign at a stormy annual meeting in London over their decision to abandon £4bn lawsuits against the society's former directors and auditors.

Equitable Life dropped legal action against its former directors and auditors Ernst & Young last year, at a cost of £45m, or £75 per policyholder. The society did not recoup any money for its members.

Charles Thomson, chief executive, and chairman Vanni Treves faced a series of questions from disgruntled policyholders yesterday. One said he was angry over the way the case had been handled: "The legal advisers we had should be fired, the chairman and chief executive should resign as I reckon they have cost the society £300m."

Another policyholder accused the board of having wasted members' money, suggesting the cost "should be borne by the board" and called its role in the litigation a "big blunder".

The board was also accused of "timidity" in its decision to end the case but Mr Thomson insisted "it was only when we realised that we would not succeed that we abandoned it".

Policyholders also expressed anger that Mr Thomson still received 60% of his maximum performance-related bonus last year.

One audience member shouted: "It should have been zero". Another policyholder suggested: "Surely with this reduction in performance, he should be paying the society to retain him." Yet another called to Mr Treves: "It's not a joke, get the smile off your face."

There were calls to reduce the number of non-executive directors and a suggestion that board members should accept the same level of salary and bonus they received in 2004, rather than the increased remuneration for 2005.

Jean Wood, a board member and chair of the remuneration committee, said: "There were some areas in which we had concern last year, therefore we reduced the bonus."

There was concern over Equitable's decision last week to transfer a £4.6bn book of non-profit annuities to insurer Canada Life.

Mr Treves said the process was "fiendishly complicated" so the final stage may not happen until late this year or early next year. However, he said the financial risk had already passed to Canada Life.

Mr Treves revealed that HBOS, which previously administered the assets now transferred to Canada Life, had "agreed to release us from our commitment to them". But in response to a policyholder's question, he admitted: "We do have to pay compensation but it is fair compensation. There is no net cost to policyholders because over the remainder of the contract we will be paying them less."

Reuters:
Equitable Life board defends failed lawsuits

Wed May 17, 2006 5:00 PM BST
http://today.reuters.co.uk/investing/financeArticle.aspx?type=allBreakingNews&storyID=2006-05-17T160001Z_01_L17738672_RTRIDST_0_FINANCIAL-EQUITABLE-CLAIMS.XML

LONDON, May 17 (Reuters) - British insurer Equitable Life defended on Wednesday its decision to pursue costly claims against former auditors and directors before dropping them last year, telling members it was putting its problems behind it.

Britain's oldest mutual insurer, which almost collapsed in 2000, abandoned a 2 billion pound ($3.80 billion) negligence suit against former auditor Ernst & Young last September and dropped a separate suit against former directors in December.

The cases left Equitable [EQL.UL] with a 45 million pound legal bill, equivalent to about 75 pounds per member.

"We had a duty to bring the claim," Chairman Vanni Treves told policyholders at its annual general meeting.

Treves, in the top job since 2001, was also quizzed over his remuneration package and faced renewed calls to step down.

Several members questioned Equitable's approach in the claims, which ended when it was forced to acknowledge it could not prove negligence.

"We were confident we could establish audit failure. The question was whether we could prove that audit failure was behind (Equitable's troubles)," said board member Fred Shedden, head of the Legal Audit Committee.

He added the board took responsibility for the decision and would not use Equitable's team of outside legal advisors as "scapegoats".

"I don't think that having changed the approach would have changed the outcome," he told policyholders.

Britain's oldest mutual insurer signed a deal last week to transfer a 4.6 billion pound book of non-profit annuities to Canada Life, the British unit of Great-West Lifeco allowing it to cut its risk profile.

The annuities deal -- described by Treves last week as a "major milestone" -- could make it easier for the board to sell its remaining stock of policies.

But Treves warned members that did not mean it was close to selling its key 10 billion pound with-profit fund, given the Canada Life deal must still be approved by several authorities.

"This may take us into next year, so inevitably we are some way off," Treves said. "There's nothing 'soon' about what's likely to happen."

Equitable closed its doors to new business in December 2000 after the country's highest court forced it to honour guarantees sold in the 1970s and 1980s.

GUARDIAN:
Angry policyholders attack Equitable board

Staff and agencies
Wednesday May 17, 2006
http://business.guardian.co.uk/story/0,,1776722,00.html

The chairman of Equitable Life was accused by policyholders of being timid for backing down in a £4.3bn legal battle against the troubled mutual's former directors and auditors.

Vanni Treves was questioned by angry policyholders at Equitable's AGM in London today over the decision to end the case against Ernst & Young and 15 former directors. He and chief executive Charles Thomson faced calls for their resignation.

The society abandoned the legal action last year at a cost of £45m, or £75 per policyholder, without recouping a penny for members.

Mr Treves said the board had been "extremely frustrated" to end the legal action, which it had done on the basis of legal advice.

He asserted that policyholders and pressure groups had supported the move, but was met with cries of "rubbish" from the audience.

Policyholders expressed anger that Mr Thomson had still received 60% of his performance-related bonus for last year despite abandoning the case, with one audience member shouting: "It should have been zero."

The insurer announced last week that it was transferring a £4.6bn book of non-profit annuities, which guarantee people an income for the rest of their life, to insurer Canada Life.

No money will change hands under the terms of the deal, which is the biggest of its kind in the UK.

Equitable will transfer 130,000 policies to Canada Life in return for the group accepting responsibility for future pension payments.

The transfer of one of the riskiest parts of the business could pave the way for the eventual sale of the society.

Selling the £10bn with-profits fund would be easier without the annuities' liability hanging over it.

Mr Treves said that following the transfer, the board would redouble its efforts to find a solution for the society's £10bn with-profits fund. Despite the stability of the fund, he added that the board still had little freedom to invest it as it wished.

The transfer may not be completed until next year, Mr Treves warned, and said any solution for the with-profits fund was still "quite some way off".

"The outlook for a stable run-off was more secure at the end of last year than at any time for the last five years," he said. "Since then, we have managed to remove the biggest remaining threat by transferring most of the risk from the annuity book at no net cost to the fund.

"Looking forward, we continue to explore options that might give with-profits policies better long-term prospects."

Mr Thomson said the society continued to consider a variety of strategic options, which are thought to include the sale of the with-profits fund or unitising it, which would make it easier to invest in shares.

Three directors were standing for re-election at the meeting, including Mr Thomson, and John Newman, vice-chairman of pressure group the Equitable Members' Action Group is standing against them.

Equitable Life

URL: http://boards.fool.co.uk/Message.asp?mid=9984265

Subject: Re: 2006 AGM Date: 17/5/06 17:35
Author: PaulBraithwaite Number: 61718
ELAS in La-La Land:

For the eighth year running, I attended the ELAS AGM. No-one on the ELAS board can say that. The society as described by the joined-at-the-hip duo is certainly not the one I know pretty comprehensively. You could not blame the audience hungry for good news for lapping up the upbeat view presented, but you think by now they'd have learned to be a bit more sceptical of the dreams peddled.

The last of the two dozen questions taken accused CT of being disingenuous, and that seemed fair comment.

The vast majority of questions were from worried-sick WP annuitants. They did not receive the reassurances they sought from CT. There was an electrifying speech on behalf of Tony Fisk, an annuitant with "Bells Palsy" who had been advised by his doctor not to deliver it himself. It echoed poor Arthur White's brave attempts last year.

Surprisingly, virtually no succour was offered by way of return to equities. The Can Life sale was merely accounted for as helpful risk reduction. Extraordinary that, five years on, this board is now getting around to considering strategic options but why not years ago? Clearly, there is NOTHING in train - much as the board would love to be rid of it all.

John Newman's BELTER of a speech (which will be on EMAG's website) pointed out that £600m has been injected into the not-for-profit fund in the past five years, £240m in last year - which could possibly have been as a fattening-up inducement. He must have hit home with VT with the reminder that a year ago John had suggested the VT should "consider his position" if the litigation were to fall apart.

VT was at his truly most uncomfortable when humiliated for shaming the late Arthur White. He said it was not his intention. Whatever else, one must admire VT's skill and patience in the face of some pretty rambing diatribes. It's not often I feel sorry for the ELAS board.

Voting was entirely predictable, with about 30,000 of 200,000 members voting by post and about 25% of those mandated votes being against the remerueration committee's report. No doubt John Newman will suffer from the same feudal mindset in the election of directors, which will not be known until later.

I cast a net 3,534 proxy votes FOR John Newman and the same number against Charles Thomson. I suspect, droit de signeur, VT will have exercised a multiple of that.

Perhaps the best fun was when Edward Doogan stepped back into the limelight. Many will not recall that Mr Doogan offered himself for election to the board in both 1999 and 2000. His questions today were incisive and applauded.

David Adams, speaking without much conviction (unlike John Newman) got on a high horse about being independent and being deeply imbued with a sense of duty. Mainly, he complained about accusations of being Vanni's cronies - not a comment I've seen raised in an age as all commentators have long ago stopped asking of the NEDs: "What are they for?" One questioner did ask why on earth we need to replace the two that are going (let'as hope they're CT and VT - dream on!).

The PR outfit Finsbury is, according to VT, absolutely necessary to communicate with the press. Pretty well the first the journos there that I talked to have heard of it!

It was utterly GALLING to hear Treves and Thomson claiming credit for the PO 2 and EU Inquiry. Have they no shame?

Finally, the set-up was the usual utterly obscene profligate conspicuous waste. I had been warned in advance that I may NOT record the event (I wonder if that had anything to do with the requirement of a grovelling apology to Court last year?). Yet there was a full TV set-up and recording, TV monitors in front of all the board, big screen TV, thirty staff on hand etc etc. And the ghostly presence of Neil Fagin of Lovells hovering about, no doubt with meter running. The money WASTED today should make those loyal annuitants' eyes water.

As I recall, in November and December last year when there was a LOT of egg on face, both CT and VT promised they'd be gone before 2007. Could today have been Mr Treves' last AGM? Somehow, I doubt it.

But could the next one be held in a church hall in Coventry with NO electronics/stewards etc? Sorry, I must have been dreaming......