Bellway bonus revolt puts pressure on bosses

Jan 17 2009 by Peter McCusker, The Journal

THREE top executives at Newcastle housebuilder Bellway were under pressure to repay their £632,500 bonuses last night after shareholders voted against the payments, saying the company had not performed well enough to justify them.

Bellway has vowed to review its remuneration policy in light of the vote and a major shareholder called for the money to be repaid, saying poor performance at the £640m company should be penalised and not rewarded.

At yesterday’s Bellway annual general meeting at the Copthorne Hotel in Newcastle, 58% of shareholders voted against its remuneration policy under which the bonuses had been awarded, despite the company missing performance targets.

The vote is only the second time in recent UK corporate history that shareholders have objected in such a way to a publicly-listed company’s director payment policies.

Chief executive John Watson received a bonus of £275,000 on top of his annual salary of £500,000; commercial director Peter Stoker received £178,750 on top of a salary of £325,000; and Alistair Leitch, finance director, also received £178,750 on top of his £325,000 salary.

This comes after the company’s performance for the year to the end of July, 2008, saw pre-tax profits fall from £234.8m to £165.7m as turnover dipped from £1.35bn to £1.15bn. Bellway axed 850 of its 2,500 UK staff last year, including 160 in the North East, and reduced the number of its divisions from 18 to 13.

Abigail Herron, corporate governance analyst at Co-operative Asset Management, which holds 2.7% of Bellway shares, said: “Bellway’s shareholders have clearly indicated that it is not acceptable to scrap performance targets in difficult times and award bonuses in any event. The directors should listen to their members and repay these bonuses. Whatever the economic conditions, we will not accept the payment of bonuses that do not reflect performance for the prior year.”

Bellway chairman Howard Dawe said: “The board has noted shareholders’ views on the report of the board on directors’ remuneration and believes it was wrong in not consulting with major shareholders earlier.

“It therefore proposes to review future policy on the matter, in consultation with them, in the coming months.”

Speaking outside the meeting, one angry shareholder said: “The board were very disappointed. It’s very unusual for shareholders to go against the board.

“They got a bit of a bloody nose. They made a right mess-up. It’s a pity because they are a good company.

“But when you see what some of the workers have suffered, it is just not right.”

Stan Peat, a retired civil servant, of Newcastle, who holds 1,000 Bellway shares, was one of a round a dozen shareholders who attended the meeting. He said: “I voted for the remuneration package.

“Bellway has performed far better than most other housebuilders and I think it is fair they (the directors) were rewarded for their performance.”

The company said in its annual report that a “rapidly deteriorating” housing market “necessitated a review” of its bonus structure but it had performed well in comparison to other housebuilders.

The company’s executive remuneration policy had been drafted by its non-executive directors, headed by chairman Leo Finn.

Mr Finn, who was chief executive of Northern Rock until 2001, yesterday retired after 13 years on Bellway’s board.

Peter Montagnon, director of investment affairs at the Association of British Insurers, which speaks on behalf of the UK insurance industry and holds 15% of all shares in UK companies said: “It is important at the stage we have got to in the economic downturn that companies do not go on paying large salaries and bonuses regardless.

“Executive remuneration is becoming a hot political topic. They must be more sensitive to the situation because if they don’t, the whole system falls into disrepute.”

“This is a very clear message that there must be a proper link between reward and performance, even in a sharp economic downturn.

“It is right that Bellway should consult with shareholders on its policy review. More broadly, shareholders expect all companies to be sensitive to the need for bonuses to be paid only if stretching targets are met.”

It is the first time a resolution on remuneration has been defeated in the UK since 2003, when it happened to GlaxoSmithKline.