More than 16% of shareholders voted against Tony Pidgley’s pay policy © Bloomberg
London house prices have been on such a tear it would require a special talent not to make money. Little surprise that luxe housebuilder Berkeley Group Holdings has seen its investment in the capital pay off handsomely. Executives with bumper remuneration packages cannot claim all the credit.
The rise in Berkeley bonuses this year runs contrary to the prevailing mood. Average FTSE 100 chief executive pay fell by almost £1m to £4.5m in 2016. Berkeley, which lost its spot in the FTSE 100 last year, handed founder and chairman Tony Pidgley £29m for 2016-17, up from £21.5m. Wednesday’s AGM offered a rebuke. More than 16 per cent of shareholders voted against the pay policy.
Berkeley had a good set of figures to mollify unhappy voters. Pre-tax profit rose 53 per cent to £812m in the year to April. Selling prices increased by almost a third to £675,000. If the property cycle were not at such a precarious point, shareholders might be more indulgent but the good times are unlikely to last.
The company deserves some credit. Berkeley has developed unloved locations along the Thames that have since become popular. Unlike Barratt Developments, its better-off buyers have received little support from the government Help to Buy scheme. A total return of 370 per cent over the period beats the index.
Cognisant of criticism, Berkeley has put a new cap on payouts and a two-year extension to the plan. Even so, executive payouts are likely to be large thanks to the house price bonanza. If share prices remain where they are, Mr Pidgley stands to collect £56m by the time the scheme ends in 2023.
But shareholders who accept long-term incentive plans only to balk at the payout look churlish. The real problem is a flawed structure. Berkeley’s LTIP rewards returning cash to shareholders, offering an incentive to do that over investment. Investors should demand pay is linked to a broader benchmark of performance.