Housebuilders join bankers on the list of most-hated fat cats
In April last year, Taylor Wimpey completed “the most complicated financial transaction in the history of construction”. After 10 months of arduous negotiations, a deal was struck to refinance £1.5bn of debt. This was a triumph for Pete Redfern, Taylor Wimpey’s chief executive, as the deal ensured the survival of the company. But it was a Dunkirk-style triumph – snatching defeat from the jaws of catastrophe – and you could argue that Redfern had a hand in the decisions that got the firm into the mess to begin with. Taylor Wimpey’s remuneration committee thought Redfern’s deal-making performance (together with hitting cash flow targets) deserved a bonus of £788,000. Incidentally, he only received £558,000 during the boom of 2007, when he headed Wimpey and concluded the deal with Taylor Woodrow. This brought his total pay for 2009 to £1.7m. Meanwhile, the firm’s losses were reduced from £2bn to a mere £604m.
Redfern is not alone – Mike Farley, Persimmon’s chief executive, bagged £407,000, or about 6% of his company’s £7m profit. We’re just at the start of this financial cycle so we’ve yet to see which other executives will be joining this exclusive club, after a virtually bonus-free 2008. Of course, housebuilders have long been paid more than contractors (family contracting businesses are a different matter, as our page 10 story on Bowmer & Kirkland shows). Even so, some have drawn parallels between Redfern, Farley and the bankers, and for similar reasons.
The argument for paying bankers more than anyone can spend in a lifetime is that that’s the international rate for the job. In the case of housebuilders, the argument is that good management means more in a recession than a boom. Bellway bosses were able to ride out last year’s storm over their pay on the strength of their comparative performance. But let’s remember what the industry has gone through: over the past 18 months it’s laid off half its staff and the market value of its companies has fallen by as much as 90%. Critics say the pain should be shared. Paying hundreds of thousands of pounds to people who are merely doing their job begins to look like a disconnect from the real world.
As with banking, the public view is that the leaders of an industry that has received any kind of bailout should wear sackcloth and ashes and eat nothing but bread and margarine
Of course, as with family businesses, one may argue that if shareholders are happy then a firm’s payment policy is nobody’s business but its own. That might be the case if housing and housebuilders hadn’t become such a political issue. But as last week’s Budget informed us, we the taxpayers have spent £7.5bn over the past two years to underpin the subsiding housing market. That has gone on 112,000 affordable and 15,000 private homes that might not otherwise have been built. Shared equity schemes, Kickstart, Homebuyer Direct and other initiatives have all benefited volume housebuilders. As with banking, the public view is that the leaders of an industry that has received any kind of bailout should wear sackcloth and ashes and eat nothing but bread and margarine.
There is another reason that this is bad PR. Hardly a week goes by without somebody in housebuilding shouting that they’re being strangled by red tape – we’ve highlighted the issue ourselves in our Charter 284 campaign. This week a suite of standards has been unveiled by the Homes and Communities Agency that may add £10,000 to the cost of building a home. In response to this, John Healey, the housing minister, has promised a package of measures designed to stimulate demand and cut regulation. And such action is most welcome. But we must remember that politicians have always been wary of housebuilders crying wolf, and large bonuses have a way of extinguishing sympathy. These ones will do nothing to persuade politicians or the public that there’s a genuine crisis.
Denise Chevin, editor