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Persimmon Management Potentially Set for £600M Bonus

A prominent City investor has requested that leading housebuilder Persimmon pull back on a scheme that could see the housebuilder’s management dividing £600m over the next five years.

The programme has been described as one of the biggest of its kind at a non-banking FTSE company.

Chief executive Jeff Fairburn will be the biggest beneficiary, with more than £100m potentially due. Royal London Asset Management representative Mike Fox insisted that the payments were simply too high.

Mr Fox, head of sustainable investment at Royal London Asset Management, asked the board to cut back on its plans in view of the housing crisis and government support for the housebuilding sector.

When the programme was implemented, the housing market was in the process of recovering from the recession of 2008. A group of managers, approximately 150 in total, were provided with the opportunity to earn shares worth up to 10% of Persimmon’s value, on the condition that they hit challenging targets.

Persimmon recently confirmed that it was well ahead of those goals and analysts predict that the scheme will be paid out as planned. Company shares have tripled in value since the plan was put in place, rising to around £20 from £6.20.

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The revelation of how much is going to be paid out is likely to incite debate over compensation for executives. This year has experienced several investor protests against pay deals, and last April a £14m package for BP head Bob Dudley was voted down by a majority of shareholders. Although shareholders cannot veto the amounts, they do have a voice in the pay policies of companies.

Some analysts see Persimmon management as being rewarded for an overall recovery in property prices.

The company’s scheme has been supported by the majority of shareholders, who have also been rewarded by the rise in share prices, but some are strongly opposed.

Royal London Asset Management has voted against the scheme since the beginning. Mr Fox said that it “gave away” too much of the company. Other critics complain that executives of Persimmon are being handsomely compensated because they happen to be at the helm during the recovery of the housing market.

Persimmon has defended the payouts, pointing out that since the programme was implemented the company has increased its output of new homes and invested over £2bn in new land acquisition. It has also returned £1bn to shareholders.

A company representative explained that the scheme is a long term plan designed to propel high performance through the housing cycle and provide management with the incentive to increase the share price, expand the business, and deliver capital return.

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