EMAG

The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

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Correspondence: 24/01/2002 - to Sir Philip Otton, Chairman of the remuneration committee, Equitable

24th January, 2002

Sir Philip Otton,
Chairman of the remuneration committee,
The Equitable Life,

Dear Sir Philip,

Why EMAG opposes ANY bonus for Charles Thomson for 2001:

I write further to my question at the GAR meeting on January 11th. First, let me thank you for your courteous and comprehensive reply from the podium. It was re-assuring that you were able to say that the matter is not part and parcel of the Compromise Scheme and that your committee will be reviewing CT's bonus against several pre-established criteria. To aid that process, we ask that you and your peers take this letter into account. We have absolutely no doubt that CT has worked extremely hard since joining the Society. However, CT's package, set at March 1st, must have been agreed mutually to be reasonable and fair for the responsibilities and he had joined a much-trouble, closed Society with his eyes open.

1. Since the Society's financial year is calendar, EMAG believes that any bonus should be to the same, and hence not to March 1st.

2. Policyholders have had another appalling year of personal losses and anxieties - probably the very worst in our history. There is a strong feeling amongst policyholders, also manifest at the January 11th meeting, that it is not appropriate to grant any bonus even if the compromise scheme succeeds.

3. On March 8th 2001 CT, as Appointed Actuary and Chief Executive, wrote to policyholders confirming the bonus for year 2000 and declaring an interim bonus of 8% for 2001. This rate was paid to all those who departed until July 16th, after which it was rescinded. It is now clear from the Independent Actuary's long report (Nov 21st) that ELAS's assets were 10% short of its liabilities at Dec 31st 2000 and that that shortfall grew steadily through 2001 to 16% by July. The interim bonus declaration was, therefore, certainly not appropriate.

4. As a consequence of CT's inaction in the first 6 months of 2001, EMAG estimates that more than £200m too much was distributed just to those departing the WP fund with no financial adjustment (MVA). This was a very, very expensive major mistake and it was CT''s responsibility.

5. For 10 months CT presided as our full time chief executive over unnecessary mayhem. The W.P. fund value fell by £8.5bn to circa £19bn - that's 30%! Member numbers fell by an estimated 100,000. It is EMAG's conjecture that this was in part the result of a panic, induced by an absence of information.

6. CT was repeatedly quoted in the press in the spring as saying that only £25m pw was leaving the fund - but the average departure for the first half was actually £75m pw. This, because CT did not communicate that he was only reporting departures incurring penalties. Again in August, the press reported CT as saying that departures were variously £50m per week or £11m per day. The actual rate for the 10 weeks after July 22nd was a breathtaking average of £150m per week. Miss-information such as this breeds journalist and policyholder mistrust.

7. CT's job included ensuring that the services provided by HECM met satisfactory target standards. But these fell below any acceptable levels on, seemingly, every single day of the year 2001. The chief executive should have ensured prompt, accurate management information. Action groups were told on Sept 18th that such rudimentary information as departures was simply was not collected. If this has subsequently improved, the benefit has not been communicated to policyholders.

8. CT's communications style appears to be no different from that of the old regime - secretive and patronising. The communication of the July 16th devaluation was a travesty. Reasonable requests for details of the Financial Review were met by CT with "policyholders have all the information they need" and a long series of lame, unsatisfactory excuses followed.

9. CT had a series of counter-productive rows through the letters column of the Financial Times with Bacon & Woodrow, Professors Roy Goode and David Blake. Professor Blake, in particular, was denigrated. CT suggested that Blake had ignored a letter to members containing much extra data. He hadn't and it didn't. At the GAR meeting CT claimed that Blake's first five paragraphs contained material errors but he wouldn't articulate them. Blake wrote to request CT to specify. No response received.

10.In radio broadcasts CT claimed that if members vote YES, then the problems of the Society would be solved, the threat of litigation would be removed and the fund would return to being a top performing smoothed W.P. fund. Bacon & Woodrow's report in July 2001 opines that that is not possible.

11.The legacy at year-end was thousands of unresolved carry-over cases pending. Additionally, there are tens of thousands of embittered ex-policyholders outside the possible Scheme who may sue the Society and create a further big drain on the W.P. fund, for which there has as yet been no accrued financial provision.

12.During 2001 there appears to have been no planning for how the Society will be run after the compromise votes. This was confirmed by Vanni Treves on January 11th. Forward planning is a fundamental core duty for a chief executive responsible for one million policyholders and £18bn plus of their retirement funds.

13.Thus far CT has, in EMAG's opinion, failed policyholders as chief executive. He has stonewalled every attempt by the owners to obtain reasonable information (the Financial Review, an up-to-date statement of affairs for the Compromise documentation, policyholder departure numbers). He promised: "??to run the Society in a more open and accountable manner." He hasn't.

14. A bonus to CT would only be warranted if, through his extraordinary industry and skill, he had made an exceptional contribution to preserving the Society's worth. EMAG believes that the evidence available to policyholders is ALL to the contrary.

Paul Braithwaite

Chairman of EMAG

Cc The board, EMAG's website


Disclaimer: If any of the numbers quoted above are materially inaccurate, this is not malicious - simply that the correct numbers have not been made available by the Society.