Taylor Wimpey bonus “slashed” from £1.08 million to £827,757 after leasehold scandal

“Housebuilder Taylor Wimpey has slashed 23pc from its directors’ bonuses in response to the scandal over punitive leasehold terms.

The company’s annual report shows that chief executive Pete Redfern received £827,757 through Taylor Wimpey’s executive incentive scheme (EIS), rather than almost £1.08m as originally planned.

Ryan Mangold, finance director, and James Jordan, legal director and company secretary, also received a 23pc cut in their bonuses for 2017.

Taylor Wimpey has come under fire for selling homes with leasehold terms which mean the ground rent payable by the homeowners doubles every 10 years. In some cases, this has made the houses unsellable.

The homebuilder said the scaling back of bonuses was a “meaningful and proportionate approach to take”, even though the leasehold issue had not directly inflated the bonuses last year.

Meanwhile, housebuilder Persimmon has confirmed that chief executive Jeff Fairburn will receive a total pay packet of £47m this year thanks to a generous long term incentive plan agreed in 2012 which came to maturity last year. His total bonus award was due to be around £100m over two years, although it was later reduced to £75m.

Mr Fairburn has said he will give some of the money to charity.”


Dominic Lawson: Big bonuses the fault of former Chancellor and help-to-buy

Owl says: While Lawson blames Osborne it should be noted that May and Hammond have not closed the loophole … which could easily be done …

“At first he said he deserved his £110m bonus, and resisted all the pressure to assign a large chunk of it to charity. Then he said he would give some of it to good causes, but not how much (“a private matter”). Finally, on Friday, after three months of hectoring by the media and investors, he said he’d forgo . . . £25m.

I’m referring to Jeff Fairburn, chief executive of the housebuilder Persimmon and the principal beneficiary of a remarkably generous share-based incentive scheme that has sprinkled more than £500m of equity around 140 of the company’s “top individuals” as if from a fairy godmother’s wand. Except it doesn’t come out of thin air, but by diluting all the ordinary shareholders’ stakes in the business.

Their representatives — pension fund managers, principally — have spent those past three months moaning about it. But when the incentive scheme was drawn up in 2012 — linking the rewards to share price performance and dividend payments — it was approved by 85% of shareholders. So Fairburn’s resistance is understandable; and, indeed, Persimmon’s investors have done fine — since 2012 their shares have quadrupled in value.

But the main reason is not the ingenuity of Fairburn and his colleagues. No, if there was a fairy godmother in this, it was George Osborne. As chancellor, he launched the help-to-buy scheme, which economically crazy but politically astute subsidy supports about half of Persimmon’s recent house sales. We as taxpayers are not directly funding those £500m worth of bonuses, but we have underwritten the personal mortgages that made that colossal windfall possible. Don’t mention it, Jeff: happy to help.

The person most annoyed by this is actually a lot richer than Fairburn — and another housebuilding boss. Steve Morgan, the head of Redrow, complained: “For somebody who has not taken a salary for 20 years it sticks in the craw, being called a greedy housebuilder because of that one company.” And why has Mr Morgan not taken a salary for 20 years? Because he founded Redrow in the 1970s and is worth about £830m. He would be a billionaire (according to the compiler of The Sunday Times Rich List) had he not passed £226m of Redrow shares to his charity, the Steve Morgan Foundation, which supports disadvantaged and disabled people in north Wales and northwest England.

Here we see, in instructive proximity, the sort of wealth that compels admiration and the sort that provokes contempt. That stark divergence is not because Morgan has been philanthropic. It is because he has created his own business and, at the outset, would have been at personal risk if it had not worked out (perhaps, like so many entrepreneurs, he had offered whatever he owned as security for bank loans). Fairburn had a good story to tell, too: he began in the building trade as a youth training scheme apprentice, studying to become a quantity surveyor while mixing concrete. But he did not create the firm of which he is, after all, just another employee: he is taking the rewards of entrepreneurialism without the risks.

He is not, in the true sense of the word, a capitalist. But Morgan is. And the point is that while there has in the decade since the credit crunch been a gale blowing the sails of those who denounce “capitalism”, the public hostility is actually — and rightly — directed against those who are not capitalists (as Karl Marx defined them), but who have seized capital from its owners. After all, that is what the discredited banking executives, both here and in America, did. They leveraged the capital of which they were merely managers, to generate vast bonuses for themselves: when that blew up the banks, the exploded corporate balance sheets were rescued by the taxpayer . . . while the executives kept all their winnings.

In his latest book, Skin in the Game (which I review today) Nassim Nicholas Taleb calls this “the Bob Rubin trade”, in (dis)honour of the former US Treasury secretary who kept his $120m compensation from Citibank: “When the bank, literally insolvent, was rescued by the taxpayer, he didn’t write any cheque — he invoked uncertainty as an excuse.”

The risk — to the market system now under attack from the unreconstructed Marxists at the helm of the British Labour Party — is that the bonny baby of entrepreneurial endeavour will be thrown out with the dirty water of executive self-dealing.

Much of that self-dealing — which I first wrote about as long ago as 1989 in a Spectator cover piece titled “How the bosses help themselves” — is promoted by the argument that it makes senior managers behave more like proper owners, rather than mere time-servers. Specifically, the executive compensation committees of FTSE companies have argued that through the awards of share options, the interests of those managers are aligned with the investors who, collectively, own the businesses.

It is a theory generally accepted and, like many such established doctrines, false. The ordinary shareholders have actually paid for their equity, so if things go pear-shaped, they stand to lose what they have invested; and those who have created businesses can lose everything, even their homes. But share options are free. There is an upside, but as no capital is at risk, no real downside.

One result is that share option schemes have encouraged undue risk-taking by executives, for example by borrowing heavily to finance acquisitions — which is what happened at Carillion. It also encourages a more short-term approach to business-building than a true owner would adopt: share option schemes tend to last for a few years, not the decades that a good business should be measured in.

I should confess, at this point, to having been a beneficiary of just such a scheme. When I was an executive of the Telegraph group I was assigned, for the first and only time in my life, some share options . . . and within just a few months they were most unexpectedly realised when the majority shareholder decided to buy out everyone else. Without any effort on my part — other than just continuing to do my job of editing a newspaper — I was suddenly presented with a cheque sufficient to pay off my mortgage.

I was delighted, of course. But it also felt wrong, somehow. I suppose I might feel the same way if I won the national lottery, although that is most unlikely to happen, and not just because of the odds: I don’t enter it. At least the lottery winners have paid for their stake. We should expect our best-remunerated business leaders to have done the same.”

Source: Sunday Times (pay wall)

“Persimmon slashes boss’s bonus … to just £75m”

Owl says: well the cut is just chicken-feed to these people – and what bets on Persimmon improving other packages such as expenses, stock options and pension payments in future?

“Persimmon is reducing bonus payouts to three top executives by £51m, including a £25m cut for its chief executive, after the UK’s second largest housebuilder was strongly criticised over its huge payout plans.

The FTSE 100 firm said a bonus of £100m for its chief executive, Jeff Fairburn, would be cut to £75m under the company’s long-term incentive bonus plan.

Finance director Mike Killoran will receive £24m less than the £78m he was originally due, and managing director Dave Jenkinson will see his bonus cut by £2m to £38m. …”


“Persimmon increases freehold sales after Government pressure”

Persimmon – whose boss got a £110 million bonus. And note the headline doesn’5 say “stops” leasehold sales of houses … Why isn’t this illegal?

“Persimmon has upped the number of homes it is selling freehold in a sign it is bowing to Government pressure over the sale of leasehold properties.

The company is understood to have changed its sales tactics on a number of sites where it is currently developing homes after concerns were raised about the potential for third party firms to buy up tranches of freeholds, and the high cost of ground rents.

Homes being sold at a development in Melksham, Wiltshire, where a four bedroom house is available for £234,995, are now being offered freehold, where previously only a leasehold sale had been available. Other sites in Penrith, Crewe, Crawley and Bracknell are also now being marketed for freehold sales.

Persimmon, which builds around 15,000 new homes each year, has come under fire for selling houses on leasehold terms to then hold onto the freehold for future sale as an extra source of income. Some leasehold homeowners found themselves on punitive terms with rapidly increasing ground rents and extra charges, or facing spiralling costs to buy the freehold at a later date. There are around 1.4 million leasehold households in the UK in total. …”


Obscene Persimmon bonuses – add nearly £41,000 to cost of each house

Guardian Letters:

What do management bonuses mean to the average customer? Persimmon’s CEO will receive a bonus of £110m. Senior staff bonuses will exceed £500m. Persimmon builds approximately 15,000 houses a year. Arguably, therefore, the CEO’s bonus adds at least £7,333 to the price of a house and the senior staff bonuses add £33,333. It is unlikely that the customer would think it money well spent.”
Martin Jeffree


“Surely the housebuilding company Persimmon can now afford to run its own help-to-buy scheme.”
David Simpson

“Persimmon chair resigns over chief executive’s ‘obscene’ £128m bonus”: “corporate looting”

£128m bonus =
427 homes at £300,000 or
512 at £250,000
– just saying …

The chair of Persimmon has resigned over his role in orchestrating a £128m bonus for the housebuilder’s chief executive, Jeff Fairburn, that will begin paying out on New Year’s Eve.

Nicholas Wrigley, the company’s chair and a former banker, said he regretted not capping the bonus scheme and was leaving “in recognition of this omission”.

The Guardian understands Wrigley had put pressure on Fairburn to donate some of his bonus to charity, although Persimmon declined to comment.

The bonus scheme – believed to be the most generous ever in the UK – is due to start paying out more than £800m to 150 senior staff on 31 December. The payouts are linked to the company’s stock market performance, which has been significantly boosted by the government’s help to buy scheme.

Persimmon’s share price has more than doubled since George Osborne introduced help to buy in 2013. About half of Persimmon homes sold last year were to help-to-buy recipients, meaning government money helped finance the sales.

The bonuses have been widely criticised by politicians, charities and corporate governance experts contacted by the Guardian this week. One expert described the bonuses as “corporate looting”, while another said directors had their “hands in an open cookie jar”.

Vince Cable, the leader of the Liberal Democrats, said the “scale of this bonus is obscene” and built on a “government subsidy”.

“It is reminiscent of the worst excesses of corporate greed that helped to create the financial crisis, when short-termism was heavily incentivised and long-term planning ignored,” he said.

“This is also a perverse situation where a corporate fortune has been built on what is essentially a government subsidy in help to buy. This situation shows just why help to buy is so flawed: it fuels demand rather than supply, putting house prices even further out of reach of young people, while adding zeros to the bank balances of housebuilding executives.”

Homeowners trapped by ‘fleecehold’ – the new cash cow for developers
Fairburn is due to collect the first £50m worth of bonus shares on 31 December. The scheme, which is based on the level of dividend returned to shareholders, was meant to take 10 years to pay out, but the company has accelerated dividend payments.

This means Fairburn, other executives and more than 100 middle managers are likely to collect all of the £800m worth of shares by July 2018, far ahead of the 2021 schedule.

The top three Persimmon bosses are due to collect more than £230m from the scheme, which was worth 9% of the entire company when it was created.

John Hunter, the chair of the UK Shareholder Association, which represents small investors, said the bonus scheme was “completely ridiculous” and was based solely on the dividend payments.

“Any bloody fool can pay dividends – it’s just paying them their own money. The scheme is doing the opposite of what it is meant to do – incentive performance and retention,” Hunter said.

“How does this incentive people when they’re all sitting on fortunes? If you’re a manager and you’re getting millions you’d retire on the spot.”

Hunter said Persimmon defends the scheme, which was approved by 85% of investors in 2012, as a reflection of the company’s strong performance and the billions of pounds it has returned to investors through dividends.

“It has done brilliantly well – with our money,” he said. “Help to buy has been almost a license to print money – our money. These bonuses are being subsided by us. All building companies have made a lot of money from help to buy, a government subsidy. We, the voters, have subsidised these payments to directors.”

He added: “I don’t blame directors for putting their hands in an open cookie jar – they are only human. The question here is how this scheme ever got approved.”

Jonathan Davie, Persimmon’s senior independent director and chair of the renumeration committee, which sets company pay, also resigned on Thursday.

“Nicholas and Jonathan recognise that the 2012 LTIP [long-term incentive plan] could have included a cap,” the company said in a statement. “In recognition of this omission, they have therefore tendered their resignations.”

Davie resigned with immediate effect. Wrigley will stay on until his successor has been appointed. …”