Crest Nicholson Lose Pay Vote

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Builder Crest Nicholson (CRST) lost the Remuneration Report vote at their AGM yesterday with 58% opposed (107 million votes against plus another 5 million withheld on a 74% turnout). This may be the first of a number in this year’s AGM season. However they won the Remuneration Policy vote.

The company expressed their disappointment on the advisory vote on the Remuneration Report and suggested it was profit before tax target for the 2017-19 LTIP. They reduced the target because they do not expect the recent rate of growth to continue.

Just looking quickly at the Remuneration Policy that has been adopted, it could be worse. For example the maximum bonus and LTIP ratios to base are similar to those at Persimmon – more on that company at a later date. At Crest, the maximum “annual bonus” is 125% of salary and the maximum LTIP payout is 150% of salary (or 300% in exceptional circumstances such as new recruitment). An LTIP is another form of bonus but companies like to call it something else.

So it might well be possible to achieve 275% of salary if not more. Now back when I started in business a “bonus” was a small amount added to salary for exceptional performance. Over 100% would have been considered really odd. So the Oxford Dictionary defines bonus as “something paid or given in addition to normal amount”. But if you look at the pay of directors of such companies as Crest you find that not only do they expect to get the bonus every year, in reality they do so.

So at Crest the CEO got a base salary of £539,000 in 2016 but also received an Annual Bonus of £552,000 which was almost identical to the previous year, and received £132,000 in pension benefits. That means total pay of £1.2 million not even counting the estimated value in LTIP awards (called “Performance Awards” at this company) of £899,000, i.e. total “single-figure” pay of £2.1 million.

Bonuses over 100% encourage risky behaviour as it encourages directors to try to win the jackpot rather than doing the boring work of simply managing the business competently in the interests of the owners (that’s you the shareholders).

We clearly need a new word for such “bonuses” because these are such enormous figures in comparison with base salaries, which are high in any case. So please get your Thesauri out and submit your suggestions – just add comments to this blog.

Lastly how many shareholders in Crest supported their new pay policy? The answer is 96% which just shows how difficult it is to get institutions to reset expectations over pay in any significant way. As I was saying to a member of the press only yesterday, to really fix remuneration one needs to tackle the way it is set before it gets to the AGM vote. A Shareholder Committee would be one way it might be done.

Roger Lawson

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