York-based housebuilder Persimmon has slashed its chief executive’s bonus following an outcry over his pay deal.
Jeff Fairburn, the boss of the FTSE 100 company, will receive £75 million worth of shares rather than £100m under the company’s long-term incentive bonus plan.
Persimmon has also cut bonus payouts to two other executives. Based on Thursday’s closing share price, Mike Killoran, the finance director, will receive £24 million less than the £78 million originally slated, while Dave Jenkinson, the managing director, will see his bonus cut by £2 million to £38 million.
All three will have future payouts under the scheme capped at £29 a share, compared with a current share price of around £25.
Persimmon argued the incentive plan had been a significant driver of the company’s “outstanding performance”, but acknowledged the lack of a cap in the original terms of the scheme was a mistake.
“It is clear that the absence of a cap … has given rise to the potential for payouts which, when triggered in full, will be significantly larger and paid earlier than might reasonably have been expected at the time the scheme was originally put to shareholders,” Persimmon said.
Persimmon has come under intense pressure from politicians and shareholders for planning record-breaking bonus payouts after it benefitted from the taxpayer-backed Help to Buy scheme, which helps first-time buyers get on to the housing ladder.
More than 50% of Persimmon’s sales are through Help to Buy.
Liberal Democrat leader Sir Vince Cable branded Fairburn’s original bonus as “obscene”, while former Tory Minister Steve Norris said it was “hard-pressed taxpayers” who had made Fairburn and other housebuilding bosses so rich.
Last year the Guardian revealed that Fairburn’s pay deal could be used to provide a council house for every homeless family in Yorkshire, where Persimmon is based.
The bonus was reduced after shareholders indicated they were considering voting against the re-election of some directors at the company’s annual general meeting on 25 April.
The company’s sixth-largest shareholder, Aberdeen Standard Investments, described Fairburn’s bonus as “grossly excessive”, and said it remained a huge concern despite his recent pledge to donate some of it to charity.
Royal London Asset Management, which has a 0.5% stake in Persimmon, said while the board had finally listened to shareholders, the sums being paid to the executives were still generous.
“This incident has been a classic corporate governance failure and highlights the need for remuneration committees to step up and make decisions if circumstances beyond a company’s control change,” said Ashley Hamilton Claxton, the head of responsible investment at Royal London.
“However, even after this reduction, in our view the scale of the remuneration on offer under this plan is still extremely generous given the government’s support for the sector through the Help to Buy scheme. Despite this, we hope the company and shareholders can now draw a line under this issue, allowing management to devote their focus solely to the running of the company,” Claxton said.
Persimmon said its remuneration committee was “fully supportive” of the decision.
DealMakerz reckons the criticism of Persimmon will continue for some time, as the bonuses still seem hugely excessive.
It’s particularly galling given that Britain is in the midst of a housing crisis and the bosses are effectively making enormous profits off the back of a government subsidy.
It’ll be interesting to see how Persimmon’s new acting chairman Nigel Mills will address the issue. He replaces Nicholas Wrigley, who resigned in December over his role in omitting to introduce a cap into the bonus scheme.