Persimmon's remuneration plan and its easy passage through the AGM shows why MPs must act on CEO excess

The house builder is benefiting from a housing shortages and sky high prices, neither of which are down to the action of its executives 

James Moore
Chief Business Commentator
Thursday 27 April 2017 17:15 BST
A Persimmon construction site
A Persimmon construction site (Reuters)

Talk about a tin ear. Persimmon, the house builder that infamously once constructed a garage not wide enough to fit a family car, has pushed through an executive pay plan that is extreme even by the (low) standards of corporate Britain.

Royal London Asset Management, which took the commendable decision to vote against it, said that while the company’s performance has been “impressive” the long term incentive plan for executives is excessive.

Just a bit. Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, told Reuters that it could mean a payout equivalent to 10 per cent of the value of the company, allowing the CEO to pocket more than £100m.

That would be problematic even in the case of a CEO producing a miracle in the midst of a recession.

But the housebuilding sector is not in a recession, nor anything like it. In fact, it is enjoying a period of rare good fortune.

Britain has a growing population, but lacks sufficient homes to cater for it. New homes are therefore fetching record prices, and the Government has promised to facilitate the building of hundreds of thousands of them in the hope of easing the pressures created by the current shortage.

Against that backdrop, house builders are set fair and their executives can all but sit back and let the money roll in. They stand to get paid for reasons that have little or nothing to do with any actions they take.

Any rational remuneration committee ought to be able to see that. Members should also understand the context within which they are operating.

Seldom have Britons had less respect for the nation’s business leaders. The perception - entirely justified - that executives enjoy outsized rewards for under-whelming performance has taken widespread hold.

When even a Government of the Conservative Party, which subscribes to a political credo opposed to intervening in pay disputes of any kind, realises that there is a problem, and proposes to upset its friends in business by legislating, it really ought to send a signal.

Members of remuneration committees read newspapers. They watch news reports. They can call upon the advice of expensive public relations consultants. And yet Persimmon’s have ploughed on regardless.

“British businesses must act on corporate governance, executive pay including long-term investment plans, and boardroom diversity to maintain the country’s strong international standing in corporate governance and address a worrying lack of trust of business amongst the public, said the Business, Energy and Industrial Strategy Committee.

Unfortunately, British businesses seem deaf to that. So, shamefully, are the city institutions who invest in them. Royal London was, in this case, a voice in the wilderness. The company easily won the day at its AGM. That's almost as a big a scandal as the company's pay plan itself.

The City is clearly unwilling to pick up the baton. It is time for Parliament to take over. The issue needs to be forced, as this case demonstrates.

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