ShareSoc, which represents individual shareholders in the UK, is advising its members to vote against the remuneration report of house builder Berkeley Group at its AGM on 6th September.
Tony Pidgley, co-founder and executive chairman, of Berkeley, received £21m in the financial year ending 2016 and £23m in the previous year. This total pay figure is boosted by the 2011 long term incentive plan. ShareSoc estimated that the total payouts from the LTIP are likely to be more that £400m which it believes is excessive – Pidgeley received about 30% of this total figure.
Cliff Weight, ShareSoc spokesman on remuneration issues, said, “The plan dilutes shareholders by 14%, even though awards were made towards the bottom of the cycle. The dilution should have been half of what was agreed. This is an unnecessary transfer of wealth from shareholders to management.”
The LTIP was amended in February this year and the company said this had introduced more stretching targets, phased vesting, clawback provisions and increased the exercise price of options granted. Shareholders backed the amendments at a general meeting with a 94% vote in favour. The majority of shareholders raised no concerns on the company’s remuneration generally during the LTIP consultation, Berkeley added.
There has also been general salary increases for executive directors of between 2.8% and 3.0%, while the cost of the company’s executive remuneration is increased by the combination of a separate executive chairman and a chief executive, ShareSoc said. “In total their salaries are £600,000 higher than a more normal combination of a non-executive Chairman and CEO. The Chairman also receives a bonus and pension – so making his annual remuneration in the range of £2 million to £4 million p.a., whereas the going rate for a non-executive Chairman is £130k to £250k.”
Commenting on the quality of the remuneration report, Weight, said “I think the Berkeley Remuneration Report fails the ShareSoc remuneration guidelines test of clarity and transparency. Rather than giving a balanced report to shareholders, the report reads more like a marketing brochure emphasizing the positives and omitting the negatives. The key things the annual statement from the Chairman of the Rem Com fails to mention are firstly the size of the 2011 LTIP total payouts and potential payouts (of over £400 million) that will significantly reduce shareholders’ returns.
Weight added, “This is yet another example of remuneration creep. ShareSoc is opposed to unnecessary increases in directors’ remuneration. Given his huge equity incentives, I am surprised Mr. Pidgley was given an increase in salary. I doubt this will motivate or help to retain him, so it could be considered as a waste of shareholders’ money and may attract unnecessary media attention.”
Manifest’s analysis of the Berkeley Group gave the company a remuneration grade of E (with grading running from A to F). Manifest noted that there was the potential for high bonuses, poor disclosure of the annual bonus targes and no clawback measure for the bonus plan. Commenting on the 2011 LTIP Manifest stated that “the plan was approved during a heavy downturn in the UK housing market that was mirrored by a slump in the company’s share price. While the exercise price of options granted reflected share price at the time, the recovery of the company’s share value in the time since their approval has resulted in a significant disparity between the exercise price of options and the market value of the company’s shares. Shareholders should also note that the company has a substantial reserve of retained earnings (£2.7bn as at 2016 year-end). This reserve is sufficient to cover the total dividends payable to satisfy the targets and given this context shareholders may question the robustness of targets.”