Friday, 27 April 2018

Persimmon result tells a lot about shareholders and executive pay

As you may have noted, there was a rather large vote against Persimmon's remuneration report earlier in the week. This was in response to a £75m award to the chief executive, reduced from the original £110m.

First things first - the pay award was the direct result of shareholder oversight of executive pay. Shareholders have encouraged the use of incentive pay schemes for executives in general, and shareholders approved the scheme that paid out these gigantic amounts. The obsession with performance linkage produces this kinds of outcomes on a regular basis. If asset managers think directors need to be given a truck load of cash when they hit or exceed targets, we shouldn't be surprised that sometimes the delivery van turns up at an awkward time.  

Secondly, on the headline vote - the only one that matters legally - the company won. In another Brexit-like result they squeaked through on about 52% to 48%. And the 52%ers triumphed. Instead of focusing on large vote against, remember that the majority of shareholders that cast a meaningful vote chose to support the company.

And the company appreciated this:
We are grateful for the support that allows us to draw a line under the 2012 LTIP debate and move forward.
Thirdly, the result actually looks worse for UK corporate governance if you include abstentions. If you add those in, then only a third of shareholders actually opposed the remuneration report. Two thirds of shareholders did not think that a £75m award was enough to justify opposing the company. So much for a crackdown on excessive pay.

Finally, what was the point of all those abstentions? The vote was advisory in any case, so it's a weak stance to take in general. But in practice the investors that abstained prevented the company from losing a vote on a very contentious issue. Was that really their intention?

Not impressive.

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