Gentoo investigates 'unacceptable' severance pay issue

News28 Sep 2017Luke Cross

Gentoo Group launched an investigation into its executive remuneration policy after it emerged that an “unacceptable” severance payment was made to a former senior staff member.

The Sunderland-based organisation issued a statement today (28 September 2017), explaining that this was the reason its G2 governance rating was last month placed under review by social housing regulator, the Homes and Communities Agency (HCA).

Gentoo said it self-reported the issue to the regulator and commissioned an independent investigation report from a leading legal firm, looking into the governance of executive remuneration.

The report has been shared with the HCA to assist with its review and the Gentoo Group board – now chaired by Keith Loraine – has taken “immediate measures to ensure that no such governance breaches can occur in the future”.

The latest statement comes days after chief executive, John Craggs, resigned with immediate effect. Mr Craggs became CEO in 2015.

The group’s new proposals are likely to include the adoption of a policy regarding the application of a payment cap, broadly in line with that set out in the Enterprise Act 2016.

It added that along with Mr Loraine, the group has made several new key appointments to the board, along with an almost entirely new leadership team.

Gentoo has restructured in the last two years and divested “costly commercial subsidiaries which detracted from the organisation’s core business”.

Part of this consolidation resulted in headcount reductions of over 600 staff, which cost the group £15.3m but enabled savings in ongoing revenue costs in the order of £13m per year.

Executive remuneration has reduced by £800k and is now less than half than it was in 2015.

Mr Loraine said: “The new Gentoo Group board is bitterly disappointed that this flaw in past governance practices has led to this unacceptable payment.

“Our historical checks and internal controls have been found to be inadequate. We are now seeking further legal advice about the possibility of obtaining redress or recovery. Such payments are not in keeping with the Group’s ethics as a responsible business, and it will not happen again."

Mr Loraine added that they intend to commission further external advice "targeted on any weaknesses in our governance structures, and in particular to look at delegations and authorisations".

“Our business plans continue to deliver excellent services to our customers and we are developing approximately 200 new homes every year, under our subsidiary Gentoo Homes.

“We fully anticipate a speedy recovery from this setback and are working hard to ensure a return to an improved governance grading very soon. I have every confidence in our ability to deliver positive and effective, lasting change.”