Anger at chief’s ‘£4m golden goodbye’

A SHAREHOLDERS’ activist group is calling on investors to reject a remuneration report for executives at York-based housebuilder Persimmon, because it claims that a long term incentive plan for senior managers is little better than a “gift” of shares.

However, a spokesman for Persimmon challenged the claims made by the UK Shareholders’ Association (UKSA), and said the plan aligned managements’ interests with “challenging” targets.

UKSA is calling on shareholders to vote against the remuneration report at Persimmon’s AGM, which is due to be held at York Racecourse on Thursday, April 18.

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The York-based group’s chief executive Mike Farley is retiring at the meeting, and will be succeeded by Jeff Fairburn, who joined Persimmon 23 years ago.

Last year, Persimmon revealed plans to reward senior managers with options up to 10 per cent of the company if it meets a plan to pay out £1.9bn to shareholders over the next decade.

In February 2012, Persimmon unveiled a dividend payout scheme totalling £6.20 per share over the next 9.5 years – which it intends to achieve without piling debt on to its balance sheet.

Under the long term incentive plan (LTIP) about 140 senior managers, including executive directors, will be granted options based on the success of the capital return plan.

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In a statement issued yesterday, the UKSA, said: “Last September, shareholders were persuaded to approve what the board has called a long term incentive plan (LTIP) and now the remuneration report reveals that virtually all available grants have been made.”

According to the UKSA, Mr Fairburn could take his total number of shares from 2.4m to 4.6m when he steps up to become chief executive.

John Hunter, a UKSA spokesman, said yesterday: “One third of the grants have been made to just four executive directors – one of whom will retire at the AGM.

“These include a ‘golden goodbye’ to the retiring CEO (Mr Farley), worth £4m at the present market price of Persimmon’s shares, which makes nonsense of what is supposedly a long term incentive scheme.

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“Furthermore, although the report follows mandatory guidelines, the full cost of the scheme is hidden from those shareholders not prepared to undertake laborious analysis, yet this is precisely what the institutional shareholders are now expected to do and in this instance appear, in the main, to have failed.”

The UKSA is calling for greater scrutiny of LTIPs, which have come under fire from various quarters, because of their complexity. In a statement, a spokesman for Persimmon said: “This is a wide ranging, long term plan which will apply to 140 senior executives over a period of 10 years.

“The plan is structured as an option that requires growth in the ex-dividend share price before delivering full value, with any options only exercisable after payment of a £6.20 per cumulative dividend.

“It aligns management’s interests directly with the challenging targets of the capital return and provides an appropriate incentive for them to deliver.

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“The scheme has the support of shareholders, the ABI (Association of British Insurers) and RREV (Research, Recommendations and Electronic Voting).”

Under the plan Mr Farley will retain 966,400 options, of an original grant of 4.8m shares, which will be exercisable in December 2015, but only if the company returns £1.70 per share in cash by this date. It must meet the first targets for the capital return plan in full, which is 75p per share in June this year and another 95p per share in June 2015.

Assuming this happens, the exercise price will be £4.50, which is the original £6.20 less the £1.70 capital returned.

According to sources close to Persimmon, the essence of the LTIP is that, if all goes well, it will return the entire market value of the business at the time it was announced in February 2012, to shareholders over the nine-and-a-half-year period.

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The options for executives are only valuable if the business has grown and expanded, which is hard to predict over a long period. The LTIP is much longer than corresponding bonus schemes at other housebuilders, which are usually for around three years.

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