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Persimmon chair resigns over chief executive's 'obscene' £128m bonus Persimmon chair resigns over chief executive's 'obscene' £128m bonus
(about 1 hour later)
The chair of Persimmon has resigned over his role in orchestrating a £128m bonus for the housebuilder’s chief executive, Jeff Fairburn, that will begin paying out on New Year’s Eve.The chair of Persimmon has resigned over his role in orchestrating a £128m bonus for the housebuilder’s chief executive, Jeff Fairburn, that will begin paying out on New Year’s Eve.
Nicholas Wrigley, the company’s chair and a former banker, said he regretted not capping the bonus scheme and was leaving “in recognition of this omission”.Nicholas Wrigley, the company’s chair and a former banker, said he regretted not capping the bonus scheme and was leaving “in recognition of this omission”.
The Guardian understands that Wrigley had put pressure on Fairburn to donate of some of his bonus to charity, although Persimmon declined to comment. The Guardian understands Wrigley had put pressure on Fairburn to donate some of his bonus to charity, although Persimmon declined to comment.
The bonus scheme – believed to be the most generous ever in the UK – is due to start paying out more than £800m to 150 senior staff on 31 December. The payouts are linked to the company’s stock market performance, which has been massively boosted by the government’s help to buy scheme. The bonus scheme – believed to be the most generous ever in the UK – is due to start paying out more than £800m to 150 senior staff on 31 December. The payouts are linked to the company’s stock market performance, which has been significantly boosted by the government’s help to buy scheme.
Persimmon’s share price has more than doubled since George Osborne introduced help to buy in 2013. About half of Persimmon homes sold last year were to help to buy recipients, meaning that government money helped finance the sale. Persimmon’s share price has more than doubled since George Osborne introduced help to buy in 2013. About half of Persimmon homes sold last year were to help-to-buy recipients, meaning government money helped finance the sales.
The pay deal, which was put in place in 2012, has been widely criticised by politicians, charities and corporate governance experts the Guardian had contacted this week. The bonuses have been widely criticised by politicians, charities and corporate governance experts contacted by the Guardian this week. One expert described the bonuses as “corporate looting”, while another said directors had their “hands in an open cookie jar”.
Vince Cable, the leader of the Liberal Democrats, said the “scale of this bonus is obscene” and built on a “government subsidy”.Vince Cable, the leader of the Liberal Democrats, said the “scale of this bonus is obscene” and built on a “government subsidy”.
“It is reminiscent of the worst excesses of corporate greed that helped to create the financial crisis, when short-termism was heavily incentivised and long-term planning ignored,” he said.“It is reminiscent of the worst excesses of corporate greed that helped to create the financial crisis, when short-termism was heavily incentivised and long-term planning ignored,” he said.
“This is a also a perverse situation where corporate fortune has been built on what is essentially a government subsidy in help to buy. This situation shows just why help to buy is so flawed: it fuels demand rather than supply, putting house prices even further out of reach of young people, while adding zeros to the bank balances of housebuilding executives.” “This is also a perverse situation where a corporate fortune has been built on what is essentially a government subsidy in help to buy. This situation shows just why help to buy is so flawed: it fuels demand rather than supply, putting house prices even further out of reach of young people, while adding zeros to the bank balances of housebuilding executives.”
Polly Neate, the chief executive of Shelter, a housing charity, said: “Help to buy has comprehensively failed to help those most in need of an affordable home. Instead, it’s made the situation worse by inflating house prices and subsidising developers’ profits. Fairburn is due to collect the first £50m worth of bonus shares on 31 December. The scheme, which is based on the level of dividend returned to shareholders, was meant to take 10 years to pay out, but the company has accelerated dividend payments.
“Rather than pumping public money into the broken market, the government should direct funding towards genuinely affordable homes and intervene to lower the cost of land.” This means Fairburn, other executives and more than 100 middle managers are likely to collect all of the £800m worth of shares by July 2018, far ahead of the 2021 schedule.
Fairburn is due to collect the first £50m worth of bonus shares on New Year’s Eve. The bonus scheme, which is based on the level of dividend returned to shareholders, was meant to take 10 years to pay out but the company has accelerated dividend payments. This means Fairburn, other executives and more than 100 managers are likely to collect all of the £800m by July 2018 far ahead of the 2021 schedule. The top three Persimmon bosses are due to collect more than £230m. The top three Persimmon bosses are due to collect more than £230m from the scheme, which was worth 9% of the entire company when it was created.
John Hunter, chairman of the UK Shareholder Association which represents small investors, said the John Hunter, the chair of the UK Shareholder Association, which represents small investors, said the bonus scheme was “completely ridiculous” and was based solely on the dividend payments.
“Any bloody fool can pay dividends – it’s just paying them their own money. The scheme is doing the opposite of what it is meant to do – incentive performance and retention,” Hunter said.
“How does this incentive people when they’re all sitting on fortunes? If you’re a manager and you’re getting millions you’d retire on the spot.”
Hunter said Persimmon defends the scheme, which was approved by 85% of investors in 2012, as a reflection of the company’s strong performance and the billions of pounds it has returned to investors through dividends.
“It has done brilliantly well – with our money,” he said. “Help to buy has been almost a license to print money – our money. These bonuses are being subsided by us. All building companies have made a lot of money from help to buy, a government subsidy. We, the voters, have subsidised these payments to directors.”
He added: “I don’t blame directors for putting their hands in an open cookie jar – they are only human. The question here is how this scheme ever got approved.”
Jonathan Davie, Persimmon’s senior independent director and chair of the renumeration committee, which sets company pay, also resigned on Thursday.
“Nicholas and Jonathan recognise that the 2012 LTIP [long-term incentive plan] could have included a cap,” the company said in a statement. “In recognition of this omission, they have therefore tendered their resignations.”
Davie resigned with immediate effect. Wrigley will stay on until his successor has been appointed.
“Since 2012, when the capital return plan strategy was launched and the 2012 LTIP was approved by shareholders, the company has made substantial cash returns to shareholders at the same time as increasing the size of the business and delivering significant shareholder value,” Persimmon said in a statement to the stock market.
“Since the strategy was launched, Persimmon has delivered an increase in the number of new homes supplied of over 65%, invested £2.9bn in new land, returned 485p per share (£1.5bn) in cash and increased the proposed capital return by 49% to 925p per share, about £2.85bn.”
Garry White, the chief investment commentator at the stock broker Charles Stanley, said: “The size of these bonuses means management could easily be accused of corporate looting, so shareholders have every right to be unimpressed. Of course, Persimmon’s share price has risen sharply, but a significant amount of these gains has nothing to do with the actions of management.
“Bonuses should reward success, but these are rewarding luck based on taxpayer subsidies. Actions like these cause real damage to investor confidence in UK businesses.”
Polly Neate, the chief executive of Shelter, a housing charity, said: “Help to buy has comprehensively failed to help those most in need of an affordable home. Instead, it’s made the situation worse by inflating house prices and subsidising developers’ profits.”