By Costas Pitas and James Davey
LONDON (Reuters) – The chairman of Britain’s second-biggest builder, Persimmon, and the head of its pay committee quit after they failed to curb an incentive plan that could see the firm’s top management make a profit of more than 200 million pounds on share options.
Persimmon introduced a long-term incentive plan in 2012, which gave share options to management which they are able to sell once they have returned a set level of cash and dividends to investors.
Since 2012, Persimmon’s share price has soared and it has returned 1.5 billion pounds ($2 billion) meaning its Chief Executive Jeff Fairburn and the firm’s finance director and managing director would jointly currently stand to gain around 240 million pounds before tax.
They are able to sell 40 percent of their share options from the beginning of next year and the remainder could be sold as soon as next year, depending on when the next target is met.
On Friday, Persimmon said its Chairman Nicholas Wrigley had announced his intention to resign whilst the Chairman of the Remuneration Committee Jonathan Davie quit on Thursday, recognising their mistake in not putting a cap on the lucrative deal.
“The board believes that the…long term incentive plan (LTIP) has been a significant factor in the company’s outstanding performance over this period, led by a strong and talented executive team,” it said.
“Nevertheless, Nicholas and Jonathan recognise that the 2012 LTIP could have included a cap. In recognition of this omission, they have therefore tendered their resignations.”
Excessive corporate pay has attracted public ire since the financial crisis and Prime Minister Theresa May has denounced as irrational and unhealthy the yawning gap between the amounts paid to bosses and those paid to the average workers.
Based partly on the current share price of just over 26 pounds, the growth in CEO Fairburn’s share options alone is worth over 100 million pounds.
Martin Sorrell, the head of the world’s largest advertising group WPP, received 70 million pounds in 2015, one of the biggest ever payouts in Britain. That level has been cut to no more than 19 million pounds this year.
Persimmon, like some of its peers, has faced criticism from investors including fund manager Royal London Asset Management which said last year that the builder should scale back its executive pay plan.
The housebuilder said on Friday that since the scheme was introduced, it had increased the number of new homes it has built by over 65 percent and invested 2.9 billion pounds in new land.
It has appointed a new chairman of its remuneration committee and a senior independent director to lead the process of appointing a new chairman. Wrigley will remain in the role until his successor is chosen.
(Editing by Kate Holton and Elaine Hardcastle)