Join our community of smart investors

Shareholder anger at incentive deal

A blistering attack on a pay deal for executives of York-based housebuilder Persimmon by a shareholder activist group raises wider questions about stewardship of our investments
Shareholder anger at incentive deal

The UK Shareholders' Association (UKSA) is calling on investors to vote down a remuneration report for executives at housebuilder Persimmon's (PSN) AGM at York racecourse on 18 April as it claims a long-term incentive plan (LTIP) amounts to little more than a 'gift' of up to 10 per cent of the company - worth £310m at today's prices - to the senior management.

IC TIP: Buy at 1033p

A spokesman for Persimmon said the scheme is an option on up to 30.2m shares over a 10-year period to 140 senior executives and aligns management's interests with "challenging" targets that require the company to grow during a period of potentially significant capital returns to shareholders.

Last year, Persimmon unveiled its plans to reward senior managers with options on up to 10 per cent of the company if it meets targets to pay out £1.9bn, or 620p per share, to shareholders over the next decade. If capital return targets are not met, then the scheme pays nothing. The strike price of the options starts at 620p and decreases by the amount of each successful return of capital. With 170p due to be paid by the first measurement date on December 2015, the strike price would fall to 450p.

John Hunter, a UKSA spokesman, said in its published analysis of the scheme: "This is not an incentive plan but a staged and accelerating compensation arrangement structured and presented in a way that conceals its amount; is irrelevant to wealth creation; offers no incentive that is valuable to shareholders; and has no concern with the long term future of the company."

Mr Hunter told the Investors Chronicle: "One-third of the grants have been made to just four executive directors, and this includes a 'golden goodbye' to retiring chief executive Mike Farley, worth £4m at the current market price of Persimmon's shares, which makes a nonsense of what is supposedly a long-term plan."

It may be too late for shareholders in Persimmon to oppose the scheme as it was voted through with support from 85 per cent of shareholders at a company general meeting called with three weeks notice in October last year. But Mr Hunter feels that shareholders should still vote against the report at next week's AGM, adding that the acquiescence of big institutional investors last year raises a wider question over their ability to investigate and scrutinise such complex arrangements.