Help to Buy helps trigger large bonus windfalls for housebuilder CEOs and senior directors.
On 17 March 2014 shares in the housebuilders surged up to 6% as George Osborne announced he was extending the Help to Buy Equity Share on new homes, until 2020. The announcement came less than a year after Help to Buy first became available. It had originally been due to end next year! However the second part of Help to Buy, the UK-wide mortgage guarantee scheme, is still due to finish at the end of December 2016.
At the time the chancellor announced that an extra £6bn would be put into the English scheme, allowing a further 120,000 new homes to be built. However there is little evidence that the housebuilders are responding by building more homes despite Help to Buy “helping” them to around 35% of their sales last year.
Since Help to Buy was introduced in April 2013, based on the most recent full year company reports to date, Britain’s largest housebuilders built around 9,921 more homes than they did in 2013. Taylor Wimpey have built just 758 more homes than in 2013 – up 6%, Linden 248 up 8%, Persimmon 1,981 up 17%, Barratt 2,894 up 20%, Bovis 822 up 29%, with both Bellway 2,100 up 37% and Redrow 1,198 up 42% the only large housebuilders that have made any significant inroads to increase their annual output of new homes.
It is a matter of historic record that all housebuilders shares have soared in tandem with year on year record increases in their pre tax profits. This has resulted in the CEOs and senior directors of Britain’s largest plc housebuilders triggering bonus windfalls under their firm’s long term incentive plans.
At Persimmon, three directors are in line to receive a staggering £100 million pay windfall under a rewards plan set up in 2012. This is part of a £400 million bonus pot linked to a long-term incentive plan (LTIP) equating to around 10% of Persimmon’s market value. To qualify for the payment, Persimmon must pay certain dividend amounts by the end of 2015, 2017, 2019 and 2021.
At Berkeley. co-founding Tony Pidgley received £23.2m last year as the first of a series of payments to the company’s top executives which could total £500m over the next six years (2021) if targets for returns to shareholders set in 2011 are met.
The Barratt LTIP was approved by shareholders in 2012 and ran until 30 June 2014. Under the scheme directors received bonuses up to 150% of basic salary and executive directors ‘filled their boots’ with bonuses up to 200% of their basic salary.
It is a strange that housebuilders long-term incentive plans were approved by their shareholders just before the Help to Buy scheme began and some end in 2021, just a year after the Help to Buy scheme currently ends. You don’t have to be a cynic to reach the conclusion this is more than just a pure coincidence.
Yet despite the rewards these senior directors receive, they all still seem unable and indifferent to improving the quality of new homes that their companies are selling with or without Help to Buy
