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Persimmon and the Executive Pay Polemic

Persimmon and the Executive Pay Polemic

Published on: 27/04/2018

York-based housebuilder Persimmon have been at the centre of much debate this week following “revolt” among the company’s shareholders over executive remuneration proposals.

The company’s chief executive, Jeff Fairburn, will receive a bonus of £75m - a voluntary reduction from the £110m originally proposed as part of what has been labelled a “grossly excessive” bonus scheme. 48.5% of shareholders voted against the payout and have since been joined by politicians and corporate governance experts in criticising the “obscene” figure.

Executive pay has come under scrutiny in recent months, with Melrose and Unilever just two examples of similarly controversial circumstances involving the bonuses going to senior staff.

In Persimmon’s case, critics have argued that recent success is mainly due to the introduction of the Government’s Help to Buy scheme in 2013. However, a look at the Plimsoll analysis of Persimmon paints an impressive picture of the company overall across the last four years. Pre-tax profits have nearly trebled, rising from £337 million in 2013 to £966 million in 2017.  The Plimsoll Chart is high and rising, indicating a much improved financial health.

But it is also worth noting that both success and reward appear to reach beyond the senior staff. Despite their complaints, shareholders received sizeable dividends in 2017 – over 43% of the pre-tax profits. Significant numbers of jobs were created too, as staff numbers almost doubled over a four-year period and average employee remuneration now sits well above the industry average.

Persimmon has made contributions to charity in the last year, and Mr Fairburn has pledged to donate an undisclosed percentage of this new bonus. However, considering the current debate around housing shortages in the UK, it would be beneficial to take greater steps in this direction if critics are to be appeased.

Nevertheless it is hard to deny that Persimmon’s bonus scheme is excessive. But in a company which has seen such success in recent years there is evidence to suggest that Mr Fairburn does deserve a significant reward for his efforts. There is certainly much debate to be had about executive pay in the UK and whether such extreme cases can be justified; the difficulty of quantifying the value of top-class leaders in a competitive market must also be taken into consideration. In the same way, those that drive companies to failure destroying the livelihoods of thousands of employees - Carillion and Capita are two recent examples - must be held to account.

It is arguably down to shareholders to make bolder decisions if they really want change, and in order to do so it is important that they have access to a clear, impartial assessment of their companies’ performance. The Plimsoll Analysis offers this solution, providing decision-makers with the facts that are so essential for making informed choices in the future.

Persimmon PLC features in three Plimsoll UK Industry Reports: Construction, House Builders and Property Developers. For a free sample page of any of the companies mentioned in this article, email d.pattison@plimsoll.uk.

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