Shareholders are angry that news Bob Mendelsohn, the ousted chief executive of insurance giant Royal & Sun Alliance, was paid £2.5 million for the nine months he worked last year.

Mr Mendelsohn, who spent four years running the company on a two-year rolling contract, left the embattled insurer in September.

On top of a basic salary of £600,000 and allowances of £416,000 during 2002, he was handed £1.44 million in compensation for the loss of office.

A spokesman for the National Association of pension Funds said: "This highlights why we are opposed to people being on two-year rolling contracts.

"That's almost £3 million of shareholders' money up the spout.

"If he had been on a one-year contract it would have been half that."

Smaller shareholders were also shocked at the scale of the payments, which were revealed in the company's annual report, just weeks after London-based R&SA was relegated from the blue chip FT-SE100 Index.

David Blundell, national chairman of the UK Shareholders Association, said: "This is just one part of what many ordinary workers and our members believe is little more than legalised theft among big business.

"Senior executives of the larger, listed companies are getting quite breathtaking levels of earnings for, in most cases, underperformance."

A month ago the world's oldest insurer, which has offices in Horsham, slashed its dividend payout by 60 per cent and unveiled operating profits at the low end of market expectations.

R&SA's value has slipped to £1.1 billion from £10.4 billion since 1998.

Mr Mendelsohn, 56, has a pension fund of £3.85 million which will pay him an annual retirement income of £325,543, the annual report showed.

Last year R&SA cut jobs, closed its UK life and pensions operation to new business and announced the sale of some divisions in an effort to plug a shortfall of £600 million required to pay claims and fund new business.