House builder Berkeley Group issued their Interim Results this morning (2/12/2016). It was generally positive about the future so the share price has perked up somewhat today. But the interesting aspect is that Berkeley has been heavily criticised in the past by ShareSoc and others for the generosity of its pay scheme. We questioned whether the total pay figure of £21 million in 2015/16 for Executive Chairman Tony Pidgley was justifiable on any grounds at all and suggested shareholders vote against the Remuneration Report at the last AGM.
But the board has reconsidered the matter and said this in today’s announcement following a proposed revision of the return of cash to investors: “The Board believes that this change will ensure that Berkeley’s shareholders fully benefit from the value embedded in the business. These changes will require consequential amendments to the terms of the 2011 LTIP which the Remuneration Committee of Berkeley will propose to shareholders at a General Meeting in the New Year, following a period of consultation with major shareholders. These proposals will be set in the context of a new Remuneration Policy which will include annual caps for Executive Remuneration which will materially reduce the potential value vesting under the 2011 LTIP. Under these proposals, at the current share price, the reduction in the number of shares still to vest would be approximately 25%; the level of discount increasing as the share price increases. Taken together with the changes made earlier this year and reallocations since the inception of the plan, the maximum number of shares capable of vesting under the 2011 LTIP would be approximately 50% lower than originally anticipated when the plan was put in place.”
This is certainly positive and shows they are reacting to criticism. However, the sting in the tail is that instead of the return of cash being solely via dividends, it will now be partly via share buy-backs. The announcement says: “This recognises that, at certain price points, the Board is of the opinion that the Company is materially undervalued and share buy-backs will be in the best interests of all shareholders”. Perhaps, is my comment – I have seen too many instances in the past where the board thought their company’s shares were cheap only to be disillusioned later. It’s probably worth pointing out that share buy-backs might also be seen as supporting the share price which is a key factor in the worth of the LTIP pay-out so there may be other reasons for the change.
And how about this for a good example of management speak near the start of the announcement: “The current heightened macro uncertainty has led to significant market volatility and there is a dislocation between this and both underlying market conditions and the strength of Berkeley’s operating model”. What exactly does that mean in plain English? But the outlook statement suggests they at least take a positive view on the short term.
Incidentally there was a lot of discussion on how to tackle the outrageous pay levels in some public companies at last nights Conference on “Mobilising Investors” that ShareSoc ran. Chris Philp MP did a great job of promoting the concept of Shareholder Committees to tackle this and other corporate governance issues. He looks like a new MP who could go far. We will be publishing a fuller report on this event as soon as possible.