ABI protest at Schroders pay deal

BRITAIN'S most influential investment trade body, the Association of British Insurers, has written to Schroders to protest against the £10.5m three-year pay package it has awarded new chief executive Michael Dobson. This is the second letter of complaint sent to the fund management group by the ABI in less than a year.

The note was sent only hours before a shareholders' meeting to approve the takeover of Dobson's hedge fund company, Beaumont Capital Management. Schroders agreed to buy this business for £33.5m to secure Dobson's services. Schroders shareholders approved the takeover, so giving the go-ahead for Dobson's appointment.

The ABI, which acts for institutions holding a quarter of the London market, has three principal objections to Schroders' latest deal.

It objects to the large guaranteed element of Dobson's pay and the comparatively small element of the package that depends on performance. Schroders is paying Dobson a £200,000 base annual salary, topped up with a minimum cash bonus of £1.8m and at least £1.5m a year in share options. The ABI says the large fixed sum provides sufficient incentive to Dobson.

It says Dobson would receive an inappropriately large pay-off if his role at Schroders failed to work out and he was forced to leave the company early. He would be entitled to £3.5m if he resigned ahead of time.

The pay package and the potential compensation figure are particularly problematic for the ABI given the current investor focus on boardroom fat cats. As Schroders is itself a large investor in companies, the group is thought to be setting an unfortunate example. 'We want to show through this letter that we do not want the Dobson deal to set a precedent,' said one source.

The ABI says too that the details of the Beaumont acquisition are unclear. Various profit-share agreements that have been put in place with Beaumont executives make it hard for the ABI to know precisely what Schroders will get from the acquisition in years to come. On a broader level, institutions remain dissatisfied with Schroders' voting structure which gives the eponymous family effective control.

The ABI wrote to Schroders less than a year ago to complain about the £5m bonus given to former chief executive Sir Win Bischoff for masterminding the takeover of the group's investment banking subsidiary by Citigroup.