Sir Martin Sorrell eat your heart out. The boss of WPP attracts flak every year when he collects the winnings from his supercharged incentive scheme, but they almost look modest when set against the financial prizes accumulating at Berkeley Group, the company that builds one in 10 new homes in London.
Tony Pidgley, founder and chairman, got £20m worth of shares in April from a long-term scheme created in 2009, yesterday’s annual report revealed; the same scheme is virtually nailed on to pay out similarly next year.
But these distributions (actually worth £25m now because of the subsequent jump in the share price) are appetisers. The main course is the 2011-21 scheme, which already looks likely to generate what could be the biggest payout to the board of a UK public company.
Pidgley and his managing director Rob Perrins each have 5m options under the 2011 scheme; three other directors have a combined 5.1m shares. That 15.1m collection is potentially worth £528m at the current share price of £35, or £400m if one deducts the value of dividends that must be paid to hit the jackpot.
The key point is that Berkeley directors have cleared the first dividend hurdle on the way to a full payout and are odds-on to jump the other two, especially now that the Conservative party’s general election victory in May has killed talk of a mansion tax. As the annual report said: “The board considers that the group is well positioned to meet the remaining milestones of 433p by September 2018 and 433p by September 2021.”
A 10-year scheme is long and, viewed through the lens of the 2011 property market, the targets would have looked tough. Berkeley, in effect, was aiming to return its entire market capitalisation, or £1.7bn, to investors via dividends within a decade. Shareholders thus approved an arrangement whereby 13% of Berkeley’s equity could be handed to the directors as a bonus.
Yet the thick end of half a billion quid shared between five individuals would be an extraordinary landmark in the rise of boardroom pay in the UK. Sums became life-changing long ago, but this could be another league.
Pidgley, it might be argued, is a unique individual whose ability to read the property market is essential to Berkeley’s success – similar arguments are made to justify Sorrell’s rewards. Yet, in Berkeley’s case, we are talking about mega-sums being collected by an entire board. Divisional director Sean Ellis, for example, is on course for a £60m payday at the current share price.
Berkeley is an unusual company, certainly, and not all housebuilders have trebled their share prices since 2011, despite George Osborne’s many housing-friendly measures. But the precedent here can’t be good. Directors everywhere, under pressure to lengthen their long-term incentive schemes, will draw a straightforward conclusion: if they have to wait longer for their prizes, they will want their potential jackpots to be bigger – much bigger. Berkeley will be exhibit A as they make that demand.
A textbook acquisition for Warren Buffett
Precision Castparts is a typical Warren Buffett deal – it’s an industrial company with a long history and a well-entrenched position in a big market, namely components for airplanes. “With few exceptions, every aircraft in the sky flies with parts made by Precision,” the company can claim.
The timing also follows the familiar textbook. Buffett is buying after the share price has fallen from its highs, in this case because of weakness in the oil and gas markets, which Precision also supplies.
So far, so predictable. But, at $32.5bn, Buffett is paying 19 times his earnings for a company whose profits have gone roughly sideways for the past two years. The great man, naturally, is more interested in the next two decades. If his analysis is that the number of planes in the air will only increase, he may be vindicated. Even so, this is not a straightforward bargain. Berkshire’s biggest deal probably won’t be its best. That’s the problem of being so huge already.
Esure looking unsure
Some two years after arriving on the stock market, Esure is still almost a fifth below its flotation price. Car insurance, it seems, is a rough market – lots of whiplash claims and intense pressure on premiums. Underlying profits fell 21% to £46.5m in the first half.
“The management team continue to act in a disciplined manner in challenging market conditions,” says its founder and chairman, Peter Wood. Translation: we are going to lose market share by putting up prices but we have to do it anyway. It’s a reasonable strategy, but you can understand why shareholders aren’t excited.
Sir Martin Sorrell eat your heart out. The boss of WPP attracts flak every year when he collects the winnings from his supercharged incentive scheme, but they almost look modest when set against the financial prizes accumulating at Berkeley Group, the company that builds one in 10 new homes in London.
Tony Pidgley, founder and chairman, got £20m worth of shares in April from a long-term scheme created in 2009, yesterday’s annual report revealed; the same scheme is virtually nailed on to pay out similarly next year.
But these distributions (actually worth £25m now because of the subsequent jump in the share price) are appetisers. The main course is the 2011-21 scheme, which already looks likely to generate what could be the biggest payout to the board of a UK public company.
Pidgley and his managing director Rob Perrins each have 5m options under the 2011 scheme; three other directors have a combined 5.1m shares. That 15.1m collection is potentially worth £528m at the current share price of £35, or £400m if one deducts the value of dividends that must be paid to hit the jackpot.
The key point is that Berkeley directors have cleared the first dividend hurdle on the way to a full payout and are odds-on to jump the other two, especially now that the Conservative party’s general election victory in May has killed talk of a mansion tax. As the annual report said: “The board considers that the group is well positioned to meet the remaining milestones of 433p by September 2018 and 433p by September 2021.”
A 10-year scheme is long and, viewed through the lens of the 2011 property market, the targets would have looked tough. Berkeley, in effect, was aiming to return its entire market capitalisation, or £1.7bn, to investors via dividends within a decade. Shareholders thus approved an arrangement whereby 13% of Berkeley’s equity could be handed to the directors as a bonus.
Yet the thick end of half a billion quid shared between five individuals would be an extraordinary landmark in the rise of boardroom pay in the UK. Sums became life-changing long ago, but this could be another league.
Pidgley, it might be argued, is a unique individual whose ability to read the property market is essential to Berkeley’s success – similar arguments are made to justify Sorrell’s rewards. Yet, in Berkeley’s case, we are talking about mega-sums being collected by an entire board. Divisional director Sean Ellis, for example, is on course for a £60m payday at the current share price.
Berkeley is an unusual company, certainly, and not all housebuilders have trebled their share prices since 2011, despite George Osborne’s many housing-friendly measures. But the precedent here can’t be good. Directors everywhere, under pressure to lengthen their long-term incentive schemes, will draw a straightforward conclusion: if they have to wait longer for their prizes, they will want their potential jackpots to be bigger – much bigger. Berkeley will be exhibit A as they make that demand.
A textbook acquisition for Warren Buffett
Precision Castparts is a typical Warren Buffett deal – it’s an industrial company with a long history and a well-entrenched position in a big market, namely components for airplanes. “With few exceptions, every aircraft in the sky flies with parts made by Precision,” the company can claim.
The timing also follows the familiar textbook. Buffett is buying after the share price has fallen from its highs, in this case because of weakness in the oil and gas markets, which Precision also supplies.
So far, so predictable. But, at $32.5bn, Buffett is paying 19 times his earnings for a company whose profits have gone roughly sideways for the past two years. The great man, naturally, is more interested in the next two decades. If his analysis is that the number of planes in the air will only increase, he may be vindicated. Even so, this is not a straightforward bargain. Berkshire’s biggest deal probably won’t be its best. That’s the problem of being so huge already.
Esure looking unsure
Some two years after arriving on the stock market, Esure is still almost a fifth below its flotation price. Car insurance, it seems, is a rough market – lots of whiplash claims and intense pressure on premiums. Underlying profits fell 21% to £46.5m in the first half.
“The management team continue to act in a disciplined manner in challenging market conditions,” says its founder and chairman, Peter Wood. Translation: we are going to lose market share by putting up prices but we have to do it anyway. It’s a reasonable strategy, but you can understand why shareholders aren’t excited.