Persimmon director ‘forgets’ about £45m bonus and doesn’t know what average worker is paid

Company's chief executive Jeff Fairburn has come under fire for the 'grotesque' pay deal

(Reuters)

Housebuilder Persimmon came under fire from MPs on Wednesday over a bonus scheme that has seen top executives handed “grossly excessive” awards amounting to hundreds of millions of pounds.

Board member, Marion Sears, who chairs the company’s pay-setting panel, appeared to forget about £45m her company handed to chief executive Jeff Fairburn last year before swiftly remembering when grilled further by Labour's Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee.

Ms Sears, who was appearing before MPs to discuss the controversial bonus scheme, was asked: “What was the chief executive paid last year and the year before at Persimmon?”

Ms Sears replied “In the 2017 accounts, it shows that he was paid £675,000 and it was a 2 per cent increase, inline with the workforce.”

Ms Reeves cut her off, asking what his total pay was, to which Ms Sears conceded it was in fact “about £45m”.

In December, it emerged that Mr Fairburn would be awarded shares worth £100m by Persimmon under its long-term incentive plan (LTIP). He later agreed to reduce this to £75m after public outcry which prompted the company chairman to resign.

When asked what the average Persimmon worker was paid, Ms Sears could not provide a figure. She initially said that the company was a living wage employer, before clarifying that the company was not accredited by the Living Wage Foundation but did comply with the legal requirement to pay the statutory minimum wage.

The Living Wage Foundation sets the Real Living Wage which is £8.75 or £10.20 in London. The statutory National Living Wage, which applies to people aged 25 and over, is £7.83.

Mr Fairburn's £75m bonus is equivalent to the annual earnings of 4,100 staff on the Real Living Wage.

The scheme effectively hands over 9 per cent of the shares in the company - worth around £230m - to senior managers over the decade that it runs, according to an analysis by ShareAction.

The campaign group found that managers were in line to receive substantial rewards even with mediocre performance.

Persimmon's results were also boosted by government subsidies for home purchases under Help to Buy.

Speaking ahead of Persimmon's annual general meeting in April, Euan Stirling, head of stewardship at Aberdeen Standard Investments, which owns a 2.3 per cent stake in Persimmon, said the reduction of Mr Fairburn's bonus from £100m to £75m “did not even get close to acceptable”.

He said that the “reputational damage associated with grossly excessive pay,” endangered the company’s long-term success.

Charles Cotton, senior performance and reward adviser of the Chartered Institute for Personnel and Development (CIPD), who was also appearing before the committee on Wednesday, expressed concern about the way executive pay is awarded at UK companies.

He said it was, “predominantly focused on financial measures, rather than on people measures which can be equally important such as employee retention or commitment or engagement.”

Mr Cotton criticised the assumption that a small handful of bosses were responsible for performance when in actual fact it is a “collective endeavour”.

He also questioned the idea that the only way bosses can be incentivised is through “giving them barrel loads of money”.

Executive pay jumped by around a fifth in 2017 from the previous year, Mr Cotton said. Meanwhile, average wages for all workers have been stagnant as inflation has chipped away at the value of meagre pay increases.

Mr Cotton said that executive pay growth was not in line with the growth of the economy, productivity or wages so, on those measures, was too high.

Committee chair, Rachel Reeves said: “Executive pay at Persimmon is a tale of corporate greed and incompetent pay management, financed on the back of a tax-payer funded housing scheme.

"Persimmon paid out huge bonuses to the men at the top of the firm and yet this morning we have heard that Persimmon are unable to tell us how much average workers at the company are paid.

"If Persimmon can pay their Chief Executive £45m, they must ensure they pay all their staff the Living Wage."