Standard Life defends executive bonuses

Speaking ahead of the company’s annual general meeting next week in Edinburgh, Lumsden also said the insurer would fight any fresh demutualisation bid, after David Stonebanks, a retired lecturer from Dorset, said he could collect the 1,000 signatures needed to push for a ballot on the matter.

News that Lumsden and other top staff at Standard Life had received hundreds of thousands of pounds in bonuses last year has caused a storm of controversy and is expected to result in fierce criticism from the floor at next week’s AGM.

But talking publicly for the first time about the row, Lumsden told The Scotsman that the bonuses reflected the overall performance of the company not just its investment performance, and it would have been "destructive" of him or other directors to refuse the payments.

"I’m not agreeing that the whole of Standard Life has done incredibly badly," he said.

"I quite understand the concern about the bonus reductions for policyholders, and I very much regret them, but that is largely a market thing and not the only thing in the running of the company."

Lumsden received a 26 per cent increase in overall remuneration last year to 619,000, including a performance-related bonus of 136,000. His deputy, Sandy Crombie, received a 20 per cent increase to 520,000, including a performance-related bonus of 122,000.

During the year, Standard Life cut payouts on long-term policies three times, most recently an average 15 per cent reduction in maturity values.

Lumsden added the executive pay packages were determined by the company’s remuneration committee, made up of independent directors.

He said: "We believe that performance bonuses should be properly aligned to performance criteria. You have to remember that a business of this size, operating in eight countries and with many other facets other than investment performance to its long term success, has to structure its bonus scheme to make sure it reflects success on all these criteria."

Lumsden said that while he understood public sentiment that remuneration packages for directors of big companies were very high, "it is not a good policy for a company consciously to pay less than the market rate at any level in an organisation. By so doing you will actually find it increasingly difficult to hire the right kind of people in all parts of the organisation."

He said that for an individual director to decline the bonus payments would undermine the remuneration committeet.

"If the remuneration committee thinks it’s done its job correctly in all of these areas, then it would be destructive to turn around and say, ‘I think you’ve done it all wrong and I’m going to forgo something’."

Lumsden said Standard Life had deferred bonus reductions for policyholders for longer than other companies and its payouts remained significantly above those of its competitors.

"You put all those things together and I think I would argue that our business in most respects is going pretty well."

He also insisted mutual status meant it could provide better with-profit returns. "Compared with three years ago when we last had a demutualisation vote, our payouts will now be better in relation to our competitors than they were then.

"Mr Stonebanks makes no pretence that there is a business case for demutualising Standard Life - he simply says that he would like to take his windfall before someone else does - whereas we don’t see demutualisation as inevitable at all.

"If Mr Stonebanks receives the required 1,000 signatures on a valid resolution, then we will put our case to our members once again."