In February 2012 Persimmon, the UK-based homebuilding firm, announced ambitious plans to make dividend payments to investors totaling nearly £2bn ($2.67bn) over a ten year period. Eight months later the company’s Long Term Incentive Plan was approved by the board and shareholders, providing rewards for management pegged to dividend payout amounts.
Fast-forward five-and-a-half years and the goal has almost been reached. During that time annual revenues have nearly doubled and the share price has increased by a factor of more than three-and-a-half. In the coming weeks the company’s CEO is due to receive the first part of his reward – shares worth approximately £50m ($66.9m) – as part of a wider reward package reaching approximately 500 members of staff for a total of £800m ($1,070m).
However the news has received almost universal condemnation. Politicians, news outlets, charities and the general public have condemned the “obscene” payout, with Liberal Democrat leader Vince Cable describing it as a “perverse situation” and a prime example of corporate greed.
In reality, Persimmon has grown rapidly in recent years. While the Help-to-Buy scheme implemented in 2013 by then-Chancellor George Osborne provided stimulus to the industry it is unfair to attribute Persimmon’s growth solely to this, as is the case in the vast majority of reports on the news. The vast majority of reports are in fact focusing on the wrong side of the story altogether. The company’s management has managed to vastly improve the performance of the company – now one of the largest homebuilding firms in the UK – and have generated significant value for shareholders.
The reward coming the way of CEO Jeff Fairburn in the coming weeks is indicative of this performance. Investors are clearly unopposed to the activities of Persimmon’s management, as external investment is growing constantly. Many also seem to have forgotten that Persimmon is a free enterprise, operating in one of the world’s most open economies, and is liable only to its shareholders. If the actions of Mr. Fairburn have resulted in this significant expansion then he is deserving of reward. The fact that two senior employees – who also likely contributed significantly to the company’s growth – have had to resign over this issue is a real shame and sends damaging signals to the wider industry that stellar performance by management, particularly under such trying economic circumstances, is not always acceptable.