Major City investor tells firms to freeze pay and bonuses

Insurance giant Aviva said it expected a pay freeze at the companies it has invested in and "prudence" when it comes to bonuses.

The firm, which includes the former Norwich Union, is the biggest single investor in Britain.

Its fund management arm has written to a number of companies demanding a say in the rewards given to executives, claiming that at the moment they are presented with a foregone conclusion.

Aviva has written to the pay advisers who recommend pay and bonus schemes for the senior staff of leading firms and demanded a "moratorium" on pay rises. The letter said: "The sensitivity of executive pay issues should be obvious."

Aviva makes special reference to bankers, saying their pay should be "risk adjusted".

The intervention from Aviva - which looks after the pensions and savings of millions of Britons - is the latest episode in the growing "fat cat" furore and follows an attempt by Lloyds Banking Group to give pay rises to its top executives despite having had a massive cash injection from the Government.

Investors refused the request in a rare show of strength from the City.

But there is growing concern among investment companies that their reputation is being tarnished by the huge rewards given to top executives at stock market firms despite the economic downturn.

Directors' basic pay has almost doubled since 2000, while total pay, including bonuses, is up 259 per cent.

The pay consultants who advise boards on executive pay claim that it is necessary to offer high rewards in order to attract the best talent.

But there is mounting political pressure for an end to big bonuses for bankers. Labour peer Lord Gavron has introduced a Private Member's Bill which would force firms to state the ratio of bosses' to workers' pay in their annual report.

According to Incomes Data Services' executive compensation review, earnings for FTSE100 chief executives rose 167 per cent between 2000 and last year and 147 per cent for FTSE250 bosses.

By comparison, the median national average pay rise over the same period for the country's 28 million workers was only 32.2 per cent.