How did the housebuilder Persimmon get away with paying their chief executive, Jeff Fairburn, a £75m share bonus? One answer is that too few City fund managers are willing to follow the example of Euan Stirling, of Aberdeen Standard Investments, and state the bleedin’ obvious – that a chief executive of a public company sometimes has to put the interests of the business ahead of his personal desire to become immensely rich.
Stirling’s address to Persimmon’s annual meeting was admirably furious. The reduction in Fairburn’s bumper payday from £110m to £75m “does not even get close to acceptable”, he said. Company directors have a legal responsibility to act in the long-term interests of the employer, he argued but Persimmon’s executives were endangering success by linking the company’s name with “grossly excessive” pay.
Persimmon investors revolt against chief’s ‘excessive’ £75m bonus
Note Stirling’s wider point, too: executives grumble about interfering regulators and politicians but they invite attention when they breach their duty to do the right thing for their own businesses. This will affect “all their corporate peers”.
He’s completely right, of course. The Persimmon saga has been a shambles from start to finish. A technically flawed incentive scheme should never been proposed or approved in 2012. When it spat out figures that were obviously absurd, even by modern standards of boardroom pay, the lucky trio at the top of Persimmon should have known that trousering £200m between them would be damaging.
Yes, the company has been successful but the chairman had just resigned out of shame and embarrassment over the pay debacle. The voluntary reductions that eventually followed from Fairburn and his two top colleagues came too late and, as Stirling suggests, were too small.
Fairburn sat in silence at Wednesday’s meeting, presumably in the knowledge that the vote itself was in the bag. The company’s remuneration report was duly approved by 74.5m votes to 70.1m, or a 51.5% majority. Look at the number of active abstentions, though – 64.8m. What were those “no opinion” box-tickers thinking?
They will probably tell themselves, and their clients, they were registering a protest and fulfilling their stewardship role. Get real: fund managers are paid to have an opinion and they justify their princely fees on that basis.
If you can’t get off the fence when boardroom greed reaches Persimmon levels, you don’t deserve to be managing other people’s money.
Whitbread’s Brittain should stay grounded
Whether Whitbread – a hugely successful company since it stopped brewing beer in 2001 – really needs to demerge Costa is a debating point in itself. The coffee shops are doing fine and the self-serve vending machines have returns on capital that are off the charts. There isn’t obviously a business problem that needs to be fixed.
But, yes, it’s true that Premier Inn, Whitbread’s bigger operation, and Costa have little in common. The former requires lots of upfront capital and is expanding in Germany. The latter is light on assets and is growing in China. Now that Costa is generating enough cash to fund its own expansion, a split is a reasonable idea if Whitbread’s share price is labouring under a “conglomerate discount” – which it probably is.
The real debate, then, is about timing. The chief executive, Alison Brittain, reckons up to two years sounds about right and knows she will be booed for taking so long. Elliott – the US activist hedge fund that has been the chief lobbyist for a demerger – thinks six months, max, would be more like it. There will be trouble.
Brittain’s argument for taking her time, though, sounds fair. Renegotiating bonds, attributing pension assets and liabilities, recruiting a new board and rewiring the IT are fiddly jobs. Sure, they could been done faster if there was an urgent need. But there isn’t, especially as Costa in China is still a young operation.
The only reason to rush would be to suit the short-termist agenda of Elliott and its hedge fund co-traveller, Sachem Head. Brittain should ignore them. Two bossy agitators’ demand for instant action – and a pop in the share price that may or may not materialise – is not her lookout. Concentrate on what’s best for the business.
TSB’s wonky wording
As TSB’s computers have gone wonky, so has the ability of the chief executive, Paul Pester, to make sense. “The challenge we are facing at the moment is that while we know everything is working, one of the main ways that our customers see everything is working – through our internet banking and mobile app – isn’t functioning as well as it should be,” he opined on Wednesday.
Eh? Surely the website and the app are important components of this “upgrade”. If they’re on the blink, you can’t claim “everything” is working.