Europe

Investor urges UK builder persimmon to scale back executive pay plan

A large investor has called for British house builder Persimmon Plc to scale back an executive pay plan that could see its management share in windfalls of almost 600 million pounds ($857 million) over the next six years.

The call from fund manager Royal London Asset Management (RLAM) follows recent shareholder revolts over management pay at several British companies, including advertising group WPP and energy giant BP.

However, as Persimmon’s shareholders approved the company’s long-term share incentive plan (LTIP) in October 2012 and endorsed its director pay policy again in April, there is unlikely to be any obstacle to the executives receiving one of the biggest bonanzas in the residential property sector.

“Given the political and economic context of a national housing shortage and government support for the sector, awarding an LTIP of this size is not in the best interests of investors and insensitive to Persimmon’s wider stakeholders,” said Mike Fox, head of sustainable investments at RLAM, which holds a 0.44 percent stake in Persimmon worth 26.3 million pounds.

“We would ask Persimmon to show its discretion in tempering the scale of awards,” he wrote in an e-mailed statement.

Since the long-term incentive plan was approved, Persimmon shares have gained 198 percent, outpacing peers Barratt Developments Plc, with a rise of 196 percent, and Berkeley Group Holdings Plc, up 110 percent, which has a slightly larger LTIP programme than Persimmon.

However, Persimmon’s shares have underperformed those of Taylor Wimpey Plc, which gained 247 percent over the period after falling more steeply during the 2008 financial crisis. Persimmon shares slipped 1.9 percent on Monday.

About 150 Persimmon executives have the right to earn shares equalling up to 10 percent of the company’s total value, or about 30.2 million shares, provided the company hits a series of profit and investor return targets.

Based on Persimmon’s closing price last Friday of 1,976 pence, giving the company a market value of 6.09 billion pounds, the windfall would be worth about 596.7 million pounds ($845.5 million).

Persimmon defended the programme. “This is a long-term plan that runs for almost a decade which is designed to drive outperformance through the housing cycle and to incentivise the management to deliver the capital return, grow the business and increase the share price,” a company spokesman said.

Since the scheme was put in place, Persimmon has delivered a 56 percent increase in new homes completed and returned 1 billion pounds to investors.

Under Taylor Wimpey’s incentive plan, executive directors can be annually awarded shares worth up to twice their base salary that vest after three years.

Shore Capital analyst Robin Hardy said there was some concern that housebuilders’ strong performances over the past few years could only in part be attributed to management drive.

“So there is a bit of a debate about how much of the profit has been earned genuinely from good strategy execution and how much of it has come from a very rosy market environment being created for the housebuilders,” Hardy said.

House sales have been boosted by British government measures, including a scheme to help people buy houses launched in 2013, under which 73,813 properties had been bought by Dec. 2015, according to official data. [ID:nL5N16Q5F2}

UK Shareholders’ Association, which represents small retail investors, has vocally opposed Persimmon’s plan from the start. ($1 = 0.7000 pounds)

(Reporting by Esha Vaish in Bengaluru; editing by Adrian Croft)

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