The chairman of Britain’s biggest housebuilder resigned yesterday amid a row over an ‘obscene’ bonus scheme for the company’s executives.
Former banker Nicholas Wrigley was instrumental in drawing up the scheme, which will trigger bumper payouts worth £800million for 150 executives at the firm Persimmon from the end of this year.
Chief executive Jeff Fairburn will get shares worth £126million provided targets are hit.
Finance chief Mike Killoran will pocket £88.5million and managing director Dave Jenkinson will get £63.2million.
The arrangement has been slammed by campaigners as a betrayal of savers scrabbling for a deposit amid sky-high property prices stoked by developers.
Presided over booming profits: Persimmon’s chief executive Jeff Fairburn is in line for an astonishing £126m payout
The bonus scheme, which awards shares to executives based on the value of the company, is hugely controversial because it is uncapped – there is no limit to the number of shares that can be awarded.
It is believed to be the most lucrative bonus deal in British corporate history and comes at a time when developers’ profits have been swelled by the nation’s broken housing market.
The company has also seen its stock market value soar due to the Government’s Help to Buy scheme and leasehold deals.
At the time of the launch of Help to Buy, Persimmon was worth £2.5billion, but last night the firm’s value had soared to £8.1billion. Half of the properties Persimmon sells are now through Help to Buy, which assists first time buyers with deposits and loans.
The programme gives interest-free loans to first-time buyers moving into new houses. Launched by former chancellor George Osborne, critics claim it acts as a giant subsidy for developers.
Persimmon is set to build about 16,000 homes this year, with half of sales through Help to Buy. It has also benefited from highly controversial leasehold deals.
Such deals force buyers to pay a yearly ground rent to the freeholder.
It is feared thousands of families are trapped in homes they cannot sell because of punitive clauses that see the ground rent double every decade.
While many of these properties are flats, which have traditionally been leasehold, there are now 1.4million houses that have leases including 186,000 detached homes.
Such an arrangement would see a ground rent that starts at £250 a year rise to £500 a year in ten years, £1,000 annually in 20 years and £2,000 in 30 years.
Building firms such as Persimmon have drawn criticism for offering new homes which have leasehold clauses attached to them, and for making huge profits by selling on the leases to investment firms at a later date.
Yesterday, Mr Wrigley announced he will step down when a successor has been found, saying the bonus scheme should never have been approved in its current form.
He is understood to have suggested that Mr Fairburn should give some of his payout to charity, but Persimmon refused to say if any donations would be made.
Senior non-executive director Jonathan Davie – who ran the company’s pay-setting committee – also stood down, with immediate effect.
Liberal Democrat leader Sir Vince Cable said: ‘The scale of this bonus is obscene. It is reminiscent of the worst excesses of corporate greed that helped to create the financial crisis, when short-termism was heavily incentivised and long-term planning ignored.’
Propped up by ultra-low interest rates from the Bank of England, average UK property prices have surged from £77,698 in 2000 to £211,672 today.
The rise is greater still in London, from £140,148 to £471,761 according to Nationwide building society. It made a £782.8million profit last year. In the same year Help to Buy was launched, Persimmon introduced a new long-term bonus scheme for bosses.
The bonus – a so-called long-term incentive plan (LTIP) which was approved by 85 per cent of shareholders in a 2012 meeting – will be paid in shares. However, it has drawn criticism because the amount bosses could claim was never capped.
The scheme was meant to pay up over a decade, but executives have speeded it up by doling out extra dividends to shareholders so they hit targets faster.
As a result, the bonus plan will see Mr Fairburn receive his first £50million on December 31. And the entire £800million is likely to have been handed over by July 2018. Paula Higgins, of the Homeowners Alliance, which campaigns for better new-build housing, said: ‘The Government is literally lining the pockets of these bosses.
‘It’s a betrayal of working people who are struggling to try to get on to the property ladder, and it’s a betrayal of homeowners stuck in sub-standard houses.’
Labour MP Mike Amesbury, of the communities and local government select committee, said: ‘People struggling to get on the housing ladder will be asking how many homes could have been built with this obscene level of bonuses.’ Stefan Stern of the High Pay centre said: ‘It’s offensive to people struggling to find affordable housing that the property market – which is not functioning well – can deliver such gigantic returns to a handful of executives.’
Persimmon said: ‘The board believes the introduction of the 2012 LTIP has been a significant factor in the company’s outstanding performance, led by a strong and talented executive team. Nevertheless, Nicholas and Jonathan recognise that the 2012 LTIP could have included a cap.’
Mechanic’s son who is cashing in on the property crisis
A motor racing fanatic who left school at 17, Jeff Fairburn always wanted to work with his hands.
Mike Killoran: £88.5million
The boss, whose father was a mechanic, trained as a quantity surveyor and took a building course at a college in his home city of York before working his way up from building site to boardroom.
Mr Fairburn, 51, has a reputation for modesty despite the vast bonus coming his way.
He is known to shun the Lamborghinis and Rolls-Royces of other executives for a Ford Fiesta and he also once booked a family camping holiday near Silverstone to watch the British Grand Prix.
He bought the family home in Durham for £1million and sent his three children to comprehensive schools.
Mr Fairburn joined Persimmon in 1989 and four years later married wife Jayne, a treasurer for Pancreas North, a pancreatitis support group, in Sunderland.
The boss survived the financial crisis, in which Persimmon sacked 2,000 of its 50,000 staff.
Dave Jenkinson: £63.2million
He secured the top job in 2013, and has presided over booming profits and bonuses.
Mike Killoran, 56, is the finance director of Persimmon, having worked his way through jobs in manufacturing, distribution and retail before joining the housebuilder in 1996. Born in Leeds, he studied at Sheffield University and is a chartered accountant. He is a member of the risk committee at Persimmon, where colleagues speak highly of his financial skills.
Dave Jenkinson is the group managing director of Persimmon. The 50-year-old joined the company’s board four years ago after previously holding various senior roles, including managing its north east business and being a regional managing director.
When being grilled in the past by MPs about why housebuilding in the UK has not hit targets, he has argued protections on Green Belt land should be rolled back so more homes could be built.