Persimmon chief’s £75m bonus was ‘issue’ never likely to disappear easily

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Persimmon chief’s £75m bonus was ‘issue’ never likely to disappear easily

Persimmon is still happily selling houses, but even a half-awake board can spot the long-term danger in becoming a corporate laughing stock. The viral clip of sheepish chief executive Jeff Fairburn walking away from BBC Look North’s cameras, and then protesting that it was “really unfortunate” to be asked about his £75m bonus, was an instant classic in the living-in-a-bubble genre. He had to go.

It’s hard to know if Persimmon will improve its standing by ditching the boss. It could have refused to pay Fairburn his full whack, and invited him to sue for the balance, but few boards dare to defy their lawyers, especially when the woefully flawed pay scheme was approved by shareholders in the first place.

More notably, Fairburn’s temporary replacement, who is also a candidate to be a permanent appointment, is managing director David Jenkinson, who himself gained the thick end of £40m from the same ludicrous 2012 long-term incentive plan, or LTIP, that became supercharged when former chancellor George Osborne launched his help-to-buy subsidies in 2013. Jenkinson actually surrendered a smaller proportion of his windfall – just £3m – than Fairburn did. Maybe the new man will be able to memorise a PR script. Or maybe this saga will drag on and on.

In his farewell comments, Fairburn displayed his usual lack of awareness of the wider picture. “I had hoped that revealing my plans to create a charitable trust and to waive a proportion of the award would enable the company to put the issue of the 2012 LTIP behind it,” he said.

There are at least three reasons why “the issue” was never likely to disappear so easily. First, Fairburn hasn’t said how much he will donate to his trust. Second, his waiving of a quarter of the original £100m-ish award happened very late in the day: the former chairman and head of Permission’s pay committee had already resigned at the end of last year out of shame over their own failure to put a cap on rewards at the outset.

Third, the lower figure of £75m didn’t move the dial. It “does not even get close to acceptable”, Euan Stirling of Aberdeen Standard Investments said at the company’s annual meeting in April. A bigger cut, if volunteered happily at the outset, might have saved Fairburn – but he chose otherwise.

The broader lesson for UK boards is that uncapped incentive schemes are a nonsense. In fact, most share-based LTIPs are a terrible way to measure performance. Winnings too often flow from luck or are overly determined by the timing of the grant. Not every set of executives enjoys the whoosh of a help-to-buy scheme, but lottery-like features are baked into most structures.

Therein lies the other shame about this tale. It should have prompted a wider rethink over the use of LTIPs, as a handful of far-sighted fund managers have argued for ages. Instead, Persimmon has provided a vivid demonstration of how executives will cling to a rotten system and how the majority of City investors don’t care. Remember the most stunning detail. At that same annual meeting in April, by which time the cat was fully out of the bag, some 51.5% of shareholders decided the bonuses were just fine. The vote was purely advisory, so protest would have had no consequences anyway. When orthodoxy is so entrenched, there will be more Persimmons.

Don’t panic about M&S just yet

One has to admire Marks & Spencer chief executive Steve Rowe’s commitment to giving investors new things to worry about. In the latest instalment, the retailer hired This Morning presenter Holly Willoughby to promote some “must-have” items and promptly failed to stock enough of them. Mind you, that’s not as eye-catching as the 2.9% slump in like-for-like sales in the food business at the half-year stage. That represented the weakest performance for about a decade. “Waste and availability remain worse than comparator levels,” reported Rowe.

In truth, little should be read into these gloomy details. They are in the share price already. Reinvigorating M&S will require three to five years of surgery, according to the grand plan, and the first incisions are only just being made. Start to worry for Rowe only if he can’t report meaningful progress in about 12 months’ time. For the time being, the odds on a successful outcome to the operation haven’t really changed – they’re finely balanced.

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