Persimmon PLC (LON:PSN) chief executive Jeff Fairburn has been asked to leave the housebuilder following a backlash over his £75mln bonus package.
Fairburn will step down at the end of the year and managing director David Jenkinson will be appointed interim chief executive until a permanent replacement is found.
READ: Persimmon looks to rest of the year with confidence after first-half profits rise 13%
The company said it had requested Fairburn resign as it believed the “distraction” around his pay continued to have a “negative impact on the reputation of the business” and on his ability to continue in his role.
Fairburn will not receive salary and pension payouts after 31 December but will be keeping his £75mln bonus.
Shore Capital analysts said: "Persimmon is a strong business regionally and will not be adversely affected by this change, in our view, and we do not believe that the CEOs position has been any material drag on the stock valuation."
They added: "We switched from sell to 'hold' recently and we see no reason to change this with the shares standing just 3% ahead of fair value. We see no reason to change fair value, now at 2295p."
Shares rose 1.2% to 2,386p in morning trading.
Shareholders call CEO bonus 'grossly excessive'
Shareholders in April had described Fairburn’s bonus as “grossly excessive” and the payout had also drawn criticism from charities, politicians and corporate governance experts.
Fairburn was due to receive £100mln from under the company’s long-term incentive bonus plan but in February agreed to give up £25mln and put some of his rewards into a charitable trust following a public outcry. However, the concessions were not enough to satisfy some shareholders.
In October Fairburn walked off camera during a BBC interview when asked about the bonus.
According to the group's 2017 annual report and accounts, Fairburn received £47.1mln, making him the highest paid FTSE 100 chief executive last year. The sum was more than 20 times his pay in 2016.
Persimmon chairman, Roger Devlin, argued on Wednesday that under Fairburn’s leadership, the company has sold more than 74,000 homes across the UK while more than doubling in size, increasing its market capitalisation from £3.4bn to £7.5 bn, returning more than £2.2bn to shareholders and producing “industry-leading” margins and returns on capital.
“However, given the continuing distraction around the scale of his remuneration resulting from the 2012 long-term incentive plan, the board believes that it is now necessary for there to be to be a change of leadership,” he added.
“On behalf of the board, I would like to thank Jeff for his significant contribution to the business over a 29 year period.”
Third quarter sales supported by low-interest rates
In a separate third-quarter trading update, the group said private sales have risen 3% year-on-year in the period from 1 July to 6 November as low borrowing costs continued to support demand.
The company said it was fully sold for the current year and has £987mln of forward sales reserved beyond 2018, up 9% on the same point last year.
“Persimmon is in a very strong position for the future and whilst we are mindful that there is uncertainty associated with the UK's withdrawal from the EU, the company's investment over recent years in a high-quality landbank provides a sustainable long-term platform for each of our 31 regional businesses and enables the group to be very selective with future investments,” the firm said.
“By adopting this position the group has acquired over 4,750 new plots of land, and spent over £180mln, including payment of deferred land creditors, during the period. Of the replacement land acquired so far this year, 23% has been converted from the group's strategic land holdings.”
Meanwhile, Persimmon is developing its own ultrafast, full fibre to the home, broadband service for new home customers.
The new business, called Fibrenest, has so far provided fibre broadband to 15 sites with plans in place for a further rollout.