£100m might seem astronomical, but bonuses are the best motivators we have

Emma Haslett
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The £100m bonus has been controversial (Source: Getty)

Keen FTSE watchers could have been forgiven for thinking Persimmon had reported bad news yesterday.

Shares in the UK’s largest housebuilder by volume ended the day 1.4 per cent lower - despite its annual results showing reported revenues of £3.4bn for 2017, while sales came in nine per cent higher than the previous year, ahead of expectations.

But investors were spooked by news Persimmon’s chief executive Jeff Fairburn is due to pocket an eye-watering £100m bonus this year. The figure, over which Persimmon’s chairman and remuneration committee chief resigned in December, is based on the company’s share price, which rose more than 55 per cent in 2017.

Experts were quick to condemn the bonus, with some analysts suggesting the government may seek to intervene if housebuilders continue to offer such high pay deals (Persimmon is not the only one: Berkeley Group has previously come under fire for its generous bonus structure). Ruth Bender, a professor of corporate financial strategy at Cranfield School of Management, even went as far as to suggest it was some kind of mistake.

“The [pay deal] was flawed in that there was no upper limit to it,” she told the Today programme.

Nine figures may strike many as astronomical, but Persimmon’s difficulties do illustrate how difficult it is to get performance-related pay right. Fairburn has, presumably, worked hard this year, but there is no denying he has also been helped along by the government, whose Help to Buy scheme has pushed housebuilders’ shares higher.

Compare that with the likes of WPP boss Sir Martin Sorrell, who faces complaints from investors over his pay packet almost every year. While Fairburn’s bonus has been swept higher on a wave of government subsidy, it could be argued Sorrell has a more active hand in creating shareholder value.

Of course, the counter-argument postulated by remuneration committees is that a juicy pay packet is the easiest way to attract the best talent to businesses. And while investor groups, governments and management experts all complain, it is a system that is unlikely to be replaced anytime soon. It may not be perfect, but it is the motivator we have.

Read more: US bankers retain lead over British in battle of the bonuses

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