Big investors vote against Persimmon CEO’s £75m

Jeff Fairburn

Aberdeen Standard Investments voted against the “enormous” remuneration packages for executives at York-based housebuilder Persimmon including a £75 million package for Persimmon CEO Jeff Fairburn at the company’s AGM on Wednesday.

Aberdeen Standard owns 7.1 million shares in Persimmon on behalf of its clients — about 2.3% of the house builder’s stock.

Aberdeen Standard Investments is the asset management business of Edinburgh-based Standard Life Aberdeen and is one of the world’s largest investment companies, managing £575.7 billion of assets worldwide. 

Royal London and the Church of England were among other major Persimmon shareholders who also voted against the enormous pay packages.

Despite the outrage of the major investors, Persimmon shareholders later narrowly voted to approve the remuneration packages.

Of the votes cast, 51.5% were in favour of Persimmon’s Advisory Remuneration Report and 48.5% against. Some 31% abstained.

Euan Stirling, Head of Stewardship at Aberdeen Standard Investments, told Persimmon’s AGM: “My reason for attending the AGM today is to explain the votes that we have cast against the approval of 2017’s remuneration report which outlines part of the sums accruing to the group’s executives under the long term incentive plan which was established in 2012.

“My colleagues and I have spent a great deal of time in recent months meeting with executive and non-executive directors of Persimmon to discuss the enormous sums due to accrue to the three most senior executives under that plan.

“And while we do appreciate the concessions made by the chief executive, the reduction in the amount accruing to him from £110 million to £75 million does not even get close to acceptable.

“Many newspaper column inches have been filled in an attempt to apportion blame for where we are now. Is it the fault of shareholders for approving the scheme in the first place?

“What about government schemes that have supported the housing market? Are monetary authorities to blame for spending vast amounts to support the economy? What about the board of Persimmon and its remuneration advisers?

“In a sense, all have played a part but to continue to focus on the past risks missing an important point. What is clear is that in 2012, no-one expected Persimmon’s name to be tarnished by the payment of such excessive amounts.

“The important point I referred to is that regardless of any moral or societal duties, company directors have a legal responsibility to act in the best long-term interests of the company that employs them.

“Today’s remuneration results suggest that the executive directors at Persimmon have lost sight of that because the long-term success of the company is being endangered by the reputational damage associated with grossly excessive pay!

“I understand that the executive team at Persimmon have been very successful and are highly regarded in the industry for their technical and managerial expertise.

“But being a company director, and in particular a chief executive, requires more. It requires a broader context. It requires a personal motivation that goes beyond simply amassing a fortune.

“It requires an understanding of where the company sits within the society within which it operates. Little of that is evident currently at Persimmon.

“And while the majority of UK directors diligently pursue the majority of their objectives successfully, Persimmon is clearly not alone.

‘A casual flick through most days’ business pages can point to a number of corporate scandals and departures.

“And there is a danger to this.

“A common complaint from businesses relates to the interference of outside parties, such as politicians and regulators, who create bureaucracy and obstacles to value generation.

“Unfortunately when directors act in contravention of their role to promote the best interests of the business, they are inviting more external attention which will affect not just them, but all of their corporate peers.

“There have been changes in board personnel at Persimmon in recent months. We welcome those changes as necessary and positive. We also recognise the enormous efforts of existing non-executives to try to improve the current situation.

“However, we remain very keen to hear the board’s explanation as to how, in the current situation, it is fulfilling its legal obligation to promote the long term success of the company, taking into account all stakeholders.”

Earlier on Wednesday, Persimmon said in a trading update: “Customer activity since the start of the year has been encouraging with the group’s total enquiry levels running c. 13% ahead of the prior year.  

“This has resulted in robust trading since the start of the year with visitor levels to site, sales conversion rates and cancellation rates all running in line with our expectations.

“The group’s forward sales position remains very strong with total forward sales revenue, including legal completions taken to date in 2018, of £2.76 billion, being c.8% higher than last year (2017: £2.56 billion).

“Our weekly private sales rate per site since the start of the year of c. 0.85 (2017: c. 0.83) reflects solid market conditions.

“We have 9,048 (2017: 8,928) new homes sold forward into the private ownership market with an average selling price of c. £236,500 (2017: c. £229,500).

“Pricing conditions remain firm across our regional markets.

“The group has also maintained a substantial forward order book of new homes for delivery to its Housing Association partners, with 5,330 (2017: 4,616) new homes included in our forward sales position.

“The group has opened 65 of the c. 100 new sites planned for the first half of the year and is building new homes on all sites that have an implementable detailed planning consent.

“The group is currently developing 375 active sales outlets across the UK.

“During the period we continued to identify good opportunities to acquire new land on a selective basis to support the future growth of the business.

To help meet demand for new housing in all of its regional markets and to support the sustainable growth of the group, six new operating businesses have been opened over the last three years, bringing the total regional house building businesses to 30. 

“Since the launch of the group’s new strategy in 2012 the group has built and sold over 80,000 new homes across the UK.”