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UK investors press major housebuilder over pay levels

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Institutional investors have publicly objected to pay levels – at both ends of the spectrum – at FTSE 100-listed housebuilder Persimmon.

At the company’s annual general meeting today, Aberdeen Standard Investments voted against Persimmon’s 2017 remuneration report because of the amount of money that was due to accrue for the three most senior executives under a long-term incentive plan established in 2012.

“And while we do appreciate the concessions made by the chief executive, the reduction in the amount accruing to him from £110m to £75m does not even get close to acceptable,” said Euan Stirling, head of stewardship at the asset manager in a statement to the AGM. Aberdeen Standard Investments owns 2.3% of the company’s shares. 

This “grossly excessive pay” was damaging the company’s reputation, Stirling argued, and in allowing this to happen the directors looked to be in breach of their legal duties to promote the long-term success of the company.

Being a company director, especially a chief executive, “requires an understanding of where the company sits within the society within which it operates”, he said.

“Unfortunately when directors act in contravention of their role to promote the best interests of the business, they are inviting more external attention which will affect not just them, but all of their corporate peers,” added Stirling.

The vote on the pay report is advisory. Final results are due later today. 

Meanwhile, UK pension funds NEST and Strathclyde chose to focus on Persimmon’s decision not to pay the voluntary “living wage” – £7.85 an hour outside of London.

In a statement co-ordinated by campaign organisation ShareAction prior to the AGM, NEST chief investment officer Mark Fawcett said: “For investors such as ourselves, accreditation with the Living Wage Foundation sends a clear signal that a company values its employees and is focusing on the long-term success of the business through investment in staff.

“We would be very encouraged indeed to see Persimmon progress towards Living Wage accreditation.”

Both NEST and Strathclyde had engaged the housebuilder on its decision not to pay this rate to its entire staff, including contractors, ShareAction said. NEST, the £2.7bn defined contribution scheme, wrote to Persimmon in 2015 to ask why the company was not accredited with the Living Wage Foundation.

Richard Keery, investment manager at Strathclyde Pension Fund, a £21bn Scottish public sector fund, added: “It is fundamental that companies within the FTSE 100 are able to demonstrate responsible business practice and the fair treatment of staff.

“Particularly in light of recent developments, and with a now-compelling investment case behind the long-term benefits of the Living Wage, it would be reassuring to see Persimmon show positive leadership in working to accredit as a Living Wage employer.”

The interventions from Aberdeen Standard and the pension funds come at a time of heightened attention to the notion that company directors must take into account the interests of a range “stakeholders” and not just their shareholders’ interests.

The Financial Reporting Council (FRC) has suggested revising the UK corporate governance code to acknowledge that companies have a wide-ranging impact and that boards should consider the way companies interact with employees, customers, suppliers, and other stakeholders.

This is based on section 172 of the 2006 Companies Act, under which company directors are required to promote the success of the company for the benefit of its shareholders and “have regard to a range of matters” in doing so.

The FRC previously indicated it was considering amendments to the Stewardship Code to include a “section 172 for asset managers”.

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