Is Moss’s £1.75m pay-off really ‘obscene’?

As if Aviva shareholders weren’t angry enough with Andrew Moss and the amount paid to Aviva directors already, they learned yesterday that Moss could net up to £1.75m from the company just by quitting.

On face value, you can see why they would be upset. £1.75m is a big golden parachute for anyone, let alone a man who has left his company under a cloud and who, in many shareholders’ eyes at least, wasn’t doing a particularly good job.

But is it really that bad? This money will not simply disappear from Aviva’s coffers in one swoop, and Moss may never see some of it.

Crunching the numbers

The £960,000 base salary, which Moss is being paid in lieu of his 12-month notice period, is payable in monthly instalments over the course of the next year. If there are mitigating factors, for example if Moss takes a paid job elsewhere in the next year, the payments stop.

Of course, it’s perfectly possible that Moss could take a year’s holiday at Aviva’s expense. He’s had a rough ride and might want a rest. But whatever shareholders may think of him, he is a talented financial services executive with experience of running a complex company in difficult conditions. He’s unlikely to remain on the shelf for long.

Then there’s the estimated £240,000 he gets from 75% of the shares he was awarded as part of his 2009 bonus. Moss was awarded about 105,000 shares in 2009, of which he is now entitled to only 75%, or 78,750 shares. Based on Aviva’s current share price of about £3, this would net him the roughly £240,000 that has been quoted. However, he can’t own or sell these shares until March next year, and Aviva’s share price may not be performing as well then as it is now. Equally, of course, it could be performing better and he may get more money for his shares – but this amount is by no means guaranteed.

Off limits

There were also plenty of things Moss did not get in his severance package that he possibly could have argued for. He will no longer get the deferred share portions of his bonuses from 2010 and 2011. In Aviva’s annual reports, the deferred share portion of Moss’s bonus was £687,429 in 2010 and £770,592 in 2011.

Also, he will no longer be entitled to the shares awarded him in 2010, 2011 and 2012 under Aviva’s long-term incentive plan (LTIP). According to the reports, Moss was awarded £1.6m in 2010, £2.5m in 2011, and was due to be awarded £2.6m in 2012.

It seems that Aviva has been trying to strike the balance between appeasing shareholder concerns about executive pay, and avoiding a lawsuit from Moss about not paying him what he felt he was entitled to.

Nevertheless, the number is still large at a time when sensitivity about executive pay, especially for those deemed to have underperformed, is running high. In short, not terrific news for shareholders, but it could have been worse. As such, ‘obscene’ is probably a little strong.