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Equitable Members Action Group

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

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Media Stories: 18/03/2007 - Thomson's pay must be cut to be equitable

19 March '07 - Thomson's pay must be cut to be equitable

Jeff Prestridge, Mail on Sunday, 18 March 2007

The salvaging of the wrecked ship Equitable Life took another giant step towards completion last week when it was announced that the mighty Prudential had agreed to take the distressed mutual's with-profits annuity business off its hands - as forecast in Financial Mail and This is Money.

It means that when, and if, the deal is completed, what will be left at Equitable Life is a 7bn with-profits fund closed to new business - a fund in which more than 230,000 investors have a financial interest, whether through a pension or an endowment.

Everything else, including its non-profits annuity book and a range of other subsidiaries, has already gone. Indeed, with all administration and investment management carried out by HBoS, Equitable Life is now no more than a financial shell, employing a couple of dozen staff and an expensive executive team.

Provided the transfer of the with-profits annuity business goes smoothly, a process that will require approval from Equitable policyholders, the courts and the Financial Services Authority, it is likely that chief executive Charles Thomson will be in a position early next year to pull down the curtain on Equitable Life.

A sale of the closed with-profits fund to a rival is most likely and will complete the final chapter in the history of the 245-year-old mutual. Equitable Life will be no more and Thomson, in his late-50s, will be able to enjoy a more than comfortable retirement, buoyed by a young family and no doubt a clutch of non-executive directorships in the City or his beloved Scotland.

Certainly, the with-profits annuity deal with Pru appears to be good news for the 50,000 annuitants who have been trapped inside Equitable since the mutual went into near-meltdown in late 2000, forcing it to close to new business.

Unfortunately they have had a wretched time at Equitable Life, seeing their income slide year after year because of the poor performance of the mutual's with-profits fund, compromised by the fund's necessary conservative investment stance.

Unlike conventional annuities, with-profits annuities pay retirees a variable income depending on the underlying insurer's ability to continue paying bonuses. Equitable, because of its parlous health, has not been able to do this.

While many Equitable with-profits annuitants have seen their income savaged by a third since the mutual's decline, Pru's equivalent policyholders have enjoyed a less hair-raising ride. Indeed, because of the good health of Prudential's 72bn with-profits fund, many are better off than they would have been if they had opted for a traditional annuity.

It is hoped that Pru's with-profits fund will continue to go from strength to strength, thereby reinvigorating the fortunes of Equitable's with-profits annuitants.

As for Thomson, Financial Mail trusts his bulging pay packet will be slimmed down to take account of the shrinking empire he presides over, though no one denies that, guided superbly by chairman Vanni Treves, he has done a good job at Equitable Life since he joined the board in March 2001.

When he pitched up, Equitable was in disarray, mired in legal actions and sinking fast. Assisted by a phalanx of topdrawer lawyers, financiers and corporate advisers, he has sorted out most of the mutual's big problems.

The result, however, is a business a third of the size it was before the nightmare of 2000. Yet Thomson's pay, bar a blip in 2003, has gone up and up. In 2005, he earned 987,652 - 706,402 plus 281,250 of bonuses from a long-term retention scheme. This compares with the 347,758 he received in his first year - 417,310, adjusting for the fact that he did not join Equitable's board until a full two months into its financial year.

To put Thomson's remuneration into context, he took home more in pay in 2005 than did Mike Yardley, boss of insurance mutual Royal London.

Yardley, whose pay we have criticised in the past, earned 726,000 in 2005 but presides over a financial services conglomerate some three times the size of Equitable. Indeed, Yardley's pay looks frugal compared with Thomson's. Yardley's business is thriving, whether it's in pensions, investments or financial protection. Thomson's isn't.

In total, Thomson has so far earned more than 3m from Equitable. And this does not include his 2006 remuneration package, details of which are due shortly after Equitable's release of its 2006 preliminary results at the end of this month.

Expect to be shocked when they are revealed. Certainly, Thomson's fortunes, unlike those of his with-profits annuitants, do not need further invigoration, though I am sure he will earn massive bonuses as a result of securing the Pru deal and when, and if, he disposes of the remaining with-profits rump.

It could all make for some searching questions from angry policyholders at the AGM in London in May.

http://www.thisismoney.co.uk/news/columnists/article.html?in_article_id=418532&in_page_id=19&in_author_id=3