LLOYDS of London insurers Amlin and Hiscox get top marks for running pay schemes that attract and retain good staff, while transparently linking incentives to performance.
A report by Collins Stewart found that Hiscox and above all Amlin lead the industry on pay and performance. Beazley was described as “work in progress,” Hardy and Novae as “adequate,” and Brit as “lagging”.
“Amlin in particular gives good disclosure around generous pay schemes that tie in senior staff – high ROEs [return on equity] at the company have generated a ‘virtuous’ circle in this regard,” said Ben Cohen, Collins Stewart’s pan-European insurance analyst, who wrote the report.
He said he hoped Amlin’s peers would improve their disclosure to better highlight how they differentiate their pay structures and align interests of staff and shareholders. His main disappointment was the lack of information on pay below board level.
On the whole, Cohen judged that companies are more transparent on the size of the bonus pool than the criteria for awarding bonuses. Hardy is the only firm that sets bonuses to executive directors as a percentage of pretax profit (currently 1.5 per cent).
Amlin is the only company that bases the underwriters’ bonus pool on its relative underwriting performance, and defers the annual cash bonus payment for two years. Beazley is unique in requiring senior management to back participation in the syndicate with their own money, funded by deferred bonuses. Participation for executives is 30-50 per cent of salary.
Brit, Hardy and Novae have a matching scheme for bonuses taken in shares, deferred over three years. “Hurdles for matching are less demanding than for the LTIP, which seems appropriate,” Cohen said.
Hiscox, Brit and Novae are Collins Stewart’s preferred stocks, but the broker is cautious on Beazley. The London Market insurers materially underperformed the stock market last year following a strong performance in 2008.