Dr Timothy King from the Kent Business School comments on the resignation of the CEO of Persimmon and what it shows about the tensions that firms face when setting pay structure for top executives.
‘Since 2017 Persimmon Homes have courted controversy over eye-watering pay rewards given to senior executives. The executive remuneration scheme in place at Persimmon, has been, arguably, the most generous in the sector. To highlight this, consider that the CEO, Jeff Fairburn, and two other senior executives were rewarded a combined £104 million in 2017.
A further £400 million was also paid out to a further 147 senior managerial staff. Moreover, these figures were up considerably on the previous year. These observations have certainly attracted much negative and unwanted attention for the company and led to the departure of Chairman Nicholas Wrigley in late 2017.
‘Now CEO Jeff Fairburn has also resigned. In late October and early November 2018 he had been asked repeatedly by the media to comment on his £75 million bonus, which failed to do so. This followed an original figure of £100m that was reduced by £25 million following backlash from politicians earlier in the year. The intense scrutiny in the media and politicians, shows the pressure such high salaries cause and will no doubt continue even after his resignation.
‘Are these pay rewards valid? From one perspective it can be argued, that because Persimmon Plc, which operated the Persimmon Homes brand, is a publicly listed company (a FTSE 100 company) its remuneration committee should be largely free to set executives remuneration packages wince the firm should be answerable primarily to shareholders. However, when evaluating senior managerial pay, it is increasingly important to consider whether pay reflects company performance as well as performance from the perspective of other key stakeholders.
‘In the case of Persimmon, one of the major reasons for the backlash to the remuneration of executives is that the company has pursued aggressive growth in the housing market by, it is argued, exploiting the Government’s taxpayer-funded help-to-buy-scheme, which helped to drive firm profits and pushed up the share price. This has very been much to the distaste of politicians and the general public.
‘A key question going forward, is whether the pay of executives in the house building industry should be capped when taxpayer money is used to drive company growth? From the company’s perspective, lower remuneration for senior management may drive talented employees to look for employment in other industries, which could harm company performance and the provision of homes available to prospective buyers. However, one could counter-argue that in the case of any institution in which taxpayer money is at stake, policy makers, regulators and the general public should have a much greater say in the pay-setting process and transparency should be improved.’
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