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John Roberts is a man on a mission. His mission is to become Europe’s, if not the world’s, supplier of fridges, TVs, computers and vacuum cleaners, all online. He is the founder and boss of AO World, and he wants to take his 3,000 employees with him on the mission. If they can make him a billionaire and shoot the lights out, then they will share £140m.
This proposal is a huge improvement on the usual executive incentive scheme, which makes fortunes for a few at the top, and pays for a decent holiday for everyone else (at best). Here, executive pay-outs are capped at £20m each. Roberts has already pledged his to charity. Mind you, he does own 23% of the business, worth nearly £200m today.
This is all very communautaire, but his employees should not get too carried away. The share price, currently 169p, has to reach 520p for them to get anything, and 940p for the full pay-out. To avoid any artificial inflating of profits, the price would have to stay aloft until 2027.
Were AO some whizzy company with visionary technology or a commanding position in its market, then multiplying today’s share price by 5 1/2 times in seven years might be a possibility, but AO is a retailer of domestic appliances. It does seem pretty good at it, including recycling your old kit, but stealing market share during lockdown is not the same as destroying tough competitors like John Lewis and Dixons.
Total group sales last year were only £1bn, and profits painfully thin. As a test of how to motivate the workers, this will be fascinating to watch. AO shares have cheered up recently on Mr Roberts’ upbeat report, but even the 2014 issue price of 285p looks distant. As for that life-changing sum for the loyal 3000…
Time to end the ground rent racket
The Upwards Only Rent Review nurtured and sustained the commercial property business for decades, until it didn’t. This grotesquely one-sided arrangement – in practice, landlords could say accept it or you can’t rent the place – has collapsed, knocked down by the Creditors Voluntary Arrangement and given the coup de grace by the Covid-19 lockdown.
Now, with luck, another disgracefully inequitable property practice is about to be demolished in a corner of the residential market. Ground rents are the residential equivalent of those upwards-only reviews, another nice little bonus for housebuilders and a continuing source of revenue for rentier investors, often domiciled in anonymous tax havens, in blocks of flats.
The Law Commission has called time on this racket, affecting 4.3 million homes in the UK, with a set of proposals to reform leasehold ownership. This has been a long time coming, but when the commission points out that 95% of the equity is with the homeowner, while the owner of the ground rent can effectively call the shots, the need for reform is obvious.
The Leaseholders’ Charity describes the reports as “a nail in the coffin for predatory commercial interests seeking to exploit the “feudal” leasehold system. They are the most significant proposals for reform in a generation.”
The big housebuilding companies have already been shamed into better behaviour, but the owners of existing ground rents (some of them bought from the housebuilders in the past) will prove tougher nuts to crack. Their response is likely to mirror Shylock’s “I will have my bond” by arguing that a contract is a contract, and the leaseholder should have paid more attention before signing it.
Rather like the shopkeeper faced with an upwards only rent review, in practice the buyer of the property may have had little choice, having already stretched financially to her borrowing limit. The extra charges the ground rent owner can impose – for an alteration to the property, for example – are seldom spelled out, while leaseholders attempting the complex process of taking control from the freeholder must pay his legal costs as well as their own.
Commonhold is a perfectly serviceable alternative to many leaseholds. Widely used in other countries, it allows the freehold to be held jointly by all the owners of the flats or developments, but remains unpopular with developers, for obvious reasons.
It is a testament to the power of the property lobby that such unfair contracts have not been outlawed, or at least made less one-sided long ago. It is now up to the government to change the law, including for existing leases, in what would be a rare example of a piece of crowd-pleasing legislation that actually did long-term good.
Eat out, but don’t eat
Ah, the joys of joined-up government. Only days ago, the Chancellor revealed a £10 a head bung to restaurants to get us eating out (but only on Monday, Tuesday and Wednesday, and only next month) and now his boss is set to tell us we ought to order the salad, followed by fruit (but no cream).
The motives of both men may be admirable, as usual, but as a microcosm of the shambles at the heart of this administration, it’s a peach (without cream).