Is Persimmon’s success built on solid ground?
If you are a long-term Persimmon shareholder you will have done pretty well out of recent years. Starting 2012 at around £4 a pop, the stock closed last week near the £25 mark. The arrival of the government’s Help to Buy programme in 2013 may have had something to do with that meteoric rise.
This morning’s trading is likely to be less positive for the company, however, after reports over the weekend that it could become the first housebuilder to be stripped of its right to participate in Help to Buy following a wave of complaints surrounding its homes’ quality – or lack thereof. Persimmon, the UK’s second-largest housebuilder, has also come under fire for leasehold charges attached to new homes.
This is not a good look for a business already beset by negative publicity, largely surrounding its former chief executive’s bonus. Jeff Fairburn, you may recall, was originally awarded an astonishing nine-figure bonus, prompting outrage among shareholders and the wider public.
Read more: Brokenshire 'concerned' over Persimmon's Help to Buy scheme, reports say
Despite the bonus being reduced to a still-exorbitant £75m, the row claimed the scalps of the firm’s chairman, its head of the remuneration committee, and finally – following a car-crash TV interview – that of Fairburn himself, who was forced out last November.
Investors will not be impressed by the latest developments, with Persimmon’s success highly-reliant on a Help to Buy scheme labelled “Help to Bonus” by its critics.
CityAM has long defended the practice of rewarding exceptionally talented executives with high levels of pay. If an exec delivers billions of pounds in shareholder value, creating thousands of jobs along the way, it makes sense to pay them accordingly.
Read more: Persimmon eyes higher profits despite boss bonus scandal
However, the case of Fairburn was always uncomfortable – an executive compensation scheme imposed without a sensible cap, the folly of which was exposed when housebuilders’ shares soared thanks to a government policy that doped up the sector in a flawed bid to fix an affordability crisis. The aftermath appears even worse – a mega-rich boss whose company is accused of profiting from unfair leaseholds and shoddy workmanship.
This is more like corporate cronyism than capitalism, and proponents of free, fair markets should call it out.