Jeff Fairburn’s exit from Persimmon should have a meaningful impact
Jeff Fairburn may have been shown the door at Persimmon but his exit should have a meaningful impact. The normally sub-octane Investment Association, representing £7.7trillion of assets, is introducing what amounts to ‘Jeff’s law.’
It is issuing guidelines which will make it possible for boards to reclaim bonuses when rewards to the chief executive damage the company’s reputation.
Had the tougher regime been in place when the Persimmon boss was originally awarded his £105million bonus, later reduced to £75million, the board could have reversed its original mistake of failing to impose a cap.
The saga was not only painful for former Persimmon chairman Nicholas Wrigley, but focused attention on a record of shoddy building and exploitation of leaseholds.
It brought opprobrium on the whole housebuilding industry. This was extremely unfair in a year when 220,000 houses were built, the most in three decades.
There is a tendency when corporate sinners, such as Sir Martin Sorrell leave, for employers to hide behind legal contracts.
In Sorrell’s case it could be argued that his high pay over a number of years reflected badly on advertising giant WPP because it focused public attention on disregard for governance, rather than performance.
The Investment Association played a behind- the-scenes role in showing Unilever the error of its ways in seeking to hide itself away in Rotterdam. It now looks to have the bit between its teeth.
Among its targets are pension pots, now almost always paid as a cash benefit, because the recipients long ago reached the lifetime limit of just over £1million.
Tesco chief executive Dave Lewis has done a splendid job in resuscitating the grocer but his pension contribution of 25 per cent of his base salary is out of line.
The new, already very well-heeled chief executive of BT, Philip Jansen is to receive a £165,000 contribution to his pension which amounts to 15pc or so of his base pay.
The Investment Association believes that the percentage of salary paid to executives towards their pension should never exceed that paid to the rest of the workforce, or act as disguised pay.
Big battalion investors also want a Carillion-Patisserie Valerie clause which requires executives and former bosses to hang on to any share and share option awards for two years.
So when the ship goes down, the greed of the captain goes down with the vessel.
It is high time that the gaping governance shortfalls that damage the free-market model are properly addressed.
The stewardship of Iain Conn at British Gas owner Centrica cannot be considered an unalloyed success.
In his three years at the helm Conn has earned £8.7million, presided over a 50 per cent-plus fall in the share price and seen 3m customers leave.
But it has not been all bad for investors since the dividend has been retained, which means the shares yield 9 per cent.
That used to be considered unattainable but Vodafone, another utility, offers much the same.
As painful as Centrica’s recent share price performance has been, the changes in the energy market have been broadly positive.
One of the weaknesses of privatisation is that it turned public monopolies into quoted replicas, ceding them rents, which previously went to the taxpayer.
The brilliant development in the energy market is that competition has been unleashed and more than 25 per cent of the market, aided by comparison sites, has gone walkabout. It is not Theresa May’s ill-defined price cap which has done that but free-market forces.
Similarly, in the telecoms market disrupters like TalkTalk and broadband specialist Cityfibre have started to give BT a run for its money.
Centrica has learned it must have a better retail offer and is rapidly transferring people from the default standard variable tariff to more attractive packages.
That should over time stem the outflows and allow Conn to strengthen margins through cost-cutting, better marketing and careful investing in deregulated activities.
Competition is forcing change.
Just as well that ebullient Majestic Wine boss Rowan Gormley has caught some headlines with the disclosure that he is stockpiling up to 1.5m extra bottles of wine ahead of Brexit.
That saves him having to explain why the wine merchant fell into loss in the first half and full-year earnings have been downgraded. Not much holiday cheer in that.