Interactive Investor

‘Economic shock’ forces housebuilder to rethink boardroom bonus scheme

After a decision made just before the disastrous mini-Budget created a retention risk, this mid-cap firm has introduced a new incentive scheme to motivate sustained performance and keep key staff.

20th October 2023 09:27

by Graeme Evans from interactive investor

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Incentive shares granted to Redrow (LSE:RDW) directors two days before last year’s mini-Budget are to be reset by the housebuilder using different performance conditions.

The FTSE 250 company said the turmoil that followed the fiscal event meant it was highly unlikely directors would receive anything from the 2021 and 2022 long-term plans.

To ensure executives remain incentivised, the company has redrawn the 2022 performance criteria by replacing the usual earnings and return on capital metrics with a total shareholder return condition benchmarked against other builders.

The changes to the three-year plan are revealed in Redrow’s annual remuneration report, which goes before shareholders at the company’s AGM next month.


When: 10am, Friday 10 November.

Where: Village Hotel Chester St. David’s, St. David’s Park, Ewloe, Deeside CH5 3YB.

How to participate: Questions submitted by 10am on Friday 3 November will be answered on the company’s website on 10 November. The deadline for the receipt of proxy voting instructions is 10am, Wednesday 8 November. More AGM details can be found here.

Who’s in the chair? Former Land Securities director Richard Akers joined the board in June 2021.

How did the company do in the year to 2 July? Unchanged revenues of £2.13 billion followed a 5% decline in legal completions to 5,436. Underlying profits fell 4% to £395 million and earnings per share by 5% to 91.2p, but the statutory profit lifted 61%. A final dividend of 20p a share is due to be paid on 16 November, resulting in a total 6% lower at 30p.

How have shares performed? Down 11% at 441p (465.4p on Thursday).

How much is the boss paid? Matthew Pratt’s base salary increased in July by 3% to £676,000. His total remuneration for 2022/23 amounted to £2.1 million, up from £1.6 million the year before. The increase was driven by the £986,000 of long-term incentives granted in September 2020 and which vested in full based on performance against earnings per share (EPS) and return on capital employed (ROCE) targets. The annual bonus scheme contributed £353,000 to the final figure, reflecting 35.9% of the maximum opportunity after thresholds on profits and customer recommendations were missed.

Did the company use discretion? Targets for long-term incentives were set during the pandemic in December 2020, which the remuneration committee said were sufficiently stretching based on the outlook at that time. It added that the recovery over the three-year performance period warranted the vesting outcome. It made its decision in the context of nil vesting in 2020 and 2021, partial 24% vesting in 2022 and anticipated nil vesting in 2024. The 2020 awards were granted at a price of 405p, with an estimated vesting price some 20% higher not considered a windfall gain in need of adjustment.

Why has the company changed targets on its 2022 long-term incentives? Within two days of shares being granted, Redrow said the mini-Budget created an “immediate and significant economic shock to the market”. The remuneration committee said it was highly unlikely the awards made in 2021 and 2022 would achieve their performance targets, creating a retention risk for the business. It added the purpose of the scheme is to motivate sustained performance and retain key staff. The committee revisited the terms six months after their grant, replacing the EPS and ROCE measures with a relative Total Shareholder Return (TSR) condition. Alongside the change, participants surrendered one sixth of the awards they were granted. This cut the face value of the award for Matthew Pratt from £984,000 to £820,000.

What’s happening to the pay of the finance director? Barbara Richmond joined Redrow 13 years ago and is the longest serving CFO amongst FTSE 350 UK-listed housebuilders. Recognising her experience, responsibilities and potential cost of finding a director of similar calibre, the committee proposed increasing her base salary from £400,600 to £470,000. But given the current business challenges it has deferred the increase by a year to July 2024.

What’s the view of voting agencies? Glass Lewis accepts the explanation for changing targets in the wake of the mini-Budget. The agency does not consider this year's vesting levels to be excessive, or to be materially misaligned with the stakeholder experience over the period. It recommends shareholders vote in favour of the annual remuneration report.

How did last year’s AGM go? The annual remuneration report was approved with 98.66% of votes in favour.

How’s the company doing on diversity? The gender split on the board is 50-50, with one director from a minority ethnic background.

Galliford Try

When: 11am, Friday 10 November.

Where: Peel Hunt, 7th floor, 100 Liverpool Street, London, EC2M 2AT.

How to participate: The deadline for proxy voting instructions is 11am, Wednesday 8 November, the same date as the submission of questions. The company aims to publish responses on its website before the meeting. More AGM details can be found here.

Who’s in the chair? Alison Wood, who joined the board in 2022, is the former group strategic director at BAE Systems.

How did the company do in the year to 30 June? Revenues at the construction business lifted 12.6% to £1.4 billion with pre-exceptional profit up by 23% to £23.4 million. Underlying earnings per share (EPS) improved by 18.1% to 18.9p a share, while the statutory figure rose 50% to 8.7p. A final dividend of 7.5p is due to be paid on 8 December, an increase of 29% that lifted the total by 31% to 10.5p. A special dividend of 12p a share is due to be paid on 27 October following settlement of a long-standing dispute concerning three contracts.

How have shares performed? Up 15% to 194.6p (222.5p on Thursday).

How much is the boss paid? The salary of Bill Hocking increased in April by 4.5% to £496,500. His overall remuneration increased from £1.9 million to £2.4 million, a figure that included cash and shares worth £401,000 after the annual bonus scheme paid 70.4% of the maximum opportunity. The 97.2% vesting of long-term incentives granted in 2020 contributed £1.5 million to the final figure. This was based 75% on underlying EPS and 25% on average month-end cash as a percentage of annual turnover in the final year to 30 June.

What’s in the new remuneration policy? There are no material changes to the policy approved by 99.66% of shareholders who voted at the 2020 AGM.

How did last year’s AGM go? The annual remuneration report was approved with 99.86% of votes in favour.

How’s the company doing on diversity? Four out of seven board roles are held by women, including those of the chair and the senior independent director. Galliford Try Holdings (LSE:GFRD) acknowledges more work is required for the board and its committees to become more ethnically diverse.

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