If we want action on executive pay, we must take it ourselves

Why is the UK so full of anti-housing “nimbys”? Polly Neate, head of homelessness charity Shelter, put her finger on it last week. No one wants new houses near their own house she says, for the simple reason that new houses are ugly and low quality: 98% of new-home buyers reported defects or snags in the year to March. People don’t like them – and they also don’t like the fact that neither the council nor the developers listen to these complaints. Instead, they just keep approving and building the same old rubbish wherever they can get away with it.

“We once had a proud tradition of housebuilding in this country,” said Neate. We quite clearly don’t any more. Why? The first part of that answer comes down to planning and regulation: our minimum standards are clearly pathetically awful. The second part is due to oligopoly power. A large number of the UK’s smaller housebuilders gave up the ghost post-crisis, leaving a small group to wallow in mediocrity (last year 50% of houses were put up by a eight companies). The third is bad government policy. The state heavily subsidises the housebuilders via its ludicrous help to buy (H2B) scheme (according to the Financial Times the builders charge up to 5% more for an H2B house than a privately financed house, just because they can) – yet asks for nothing in return.

But the fourth comes down to the incentive-driven short-termism that plagues the UK’s corporate world. Take Berkeley Group. Its chairman, Tony Pidgley, has earned £74m in the past three years. His chief executive, Rob Perrins, has taken home £51m. Berkeley sells about 2,000 houses a year (admittedly at the better and expensive end of the market). Say 6,000-odd houses during those three years. So the rewards of these two men alone come out to about £20,000 per house sold.
If their incentives were more related to building brilliant houses than to shovelling up the share price, they could have got by on half the pay. Then they could have spent £10,000 more on each house without even touching the sides of shareholder returns. Net result? Better houses with no real pain to anything except a few corporate egos.

Why do we shareholders allow this? Why don’t we demand that the cash earned by the firms we own go somewhere better than their managers’ pockets? Fund managers are beyond useless at corporate governance – so if we want action, we have to do it ourselves. We must vote at the AGMs of the firms we hold directly. And we must make fund managers see that they have responsibilities to real people. Write to them giving your views on the firms they hold for you. Write directly and often. The more you do, the more likely you are to make them think.