Sir Martin Sorrell, the CEO of the world’s biggest advertising company, WPP, looks likely to be facing a shareholder revolt over his record pay package at the company’s annual general meeting this Wednesday.
Sorrell received £70.4 million ($101.6 million) in cash and shares in 2015, which was one of the biggest annual remuneration packages in UK corporate history.
WPP said the deal — which included £63 million ($90.9 million) in share awards and a £4.2 million ($6.6 million) annual bonus — was large but was due to the fact that he had delivered “an outstanding set of returns to share owners.”
But advisory firms are lining up to tell shareholders to vote against Sorrell’s 2015 pay deal, which was up nearly 64% on the previous year.
The Local Authority Pension Fund Forum (LAPFF) has written a letter advising its 70 member funds to reject WPP’s remuneration report and its “excessive” payments to Sorrell.
LAPFF notes that Sorrell’s pay has increased by 56% per year over the past five years, which represents twice the year-on-year average increase in the company’s total shareholder return over the same period (28.8%). Sorrell’s variable pay is more than 58 times his salary and the highest in the sector, the forum added. In addition, the forum thinks Sorrell’s 1.42% share capital should already provide him with “substantial alignment with other shareholders and an incentive to perform.”
Kieran Quinn, LAPFF Chairman, said: “Most shareholders will, in the main, accept what they consider a reasonable level of pay for performance. However, with WPP, we consider there are several aspects of the payment which do not reflect this, and we are advising our member funds to oppose the remuneration report on this basis.”
Meanwhile, The Times reported that two proxy advisory firms, ShareSoc and Pirc, are also advising investors to vote against WPP’s remuneration report. Another advisory firm, ISS, is recommending only “qualified support” for the report, according to The Times.
WPP told Business Insider it does not comment on shareholder advisory bodies’ recommendations.
However, a WPP spokesperson provided this statement to clarify the company’s compensation policy:
The remuneration policy is clearly stated in the Annual Report and some 90% of Sir Martin Sorrell’s remuneration is derived from the formulaic application of the LEAP long term co-investment scheme approved by an 83% vote in favour by shareholders in 2009. During the five year performance period 2011-15 WPP’s market capitalisation increased by over £10bn and its shares rose 98% while the FTSE100 increased by only 5.8%. The LEAP scheme was replaced in 2013 by a long term scheme with a substantially lower opportunity and the run-off of the LEAP scheme has one more year to run. The final year of LEAP also has a substantially lower opportunity for Sir Martin with over 40% less shares than for the five years ended 31 December 2015.
Last year, advisory firms predicted a shareholder revolt in reaction to Sorrell’s 2014 pay package, which had increased 43% year-on-year to £43 million ($66 million).
However, just over 22% (19.5% against and 2.7% in abstentions) voted against Sorrell’s pay package, which was fewer than the 28% who voted against Sorrell’s compensation the prior year.
In 2012, 60% of WPP shareholders voted against the “LEAP” long-term incentive scheme, which was replaced next year with a new plan that is expected to substantially reduce Sorrell’s total compensation from next year.
In a 2014 interview with Business Insider, Sorrell had this to say about his pay deal:
In terms of my own compensation, what people tend to forget is that about 85% to 90% of my compensation is based on performance. For 28 years, all my net worth is in WPP, except for a very small piece, therefore the success or failure of WPP is tied very much with what I am paid.
I’ve not sold stock, with the exception of when I had a divorce settlement, in that last 30 years. And, interestingly, I’ve paid tax on that stock and locked myself in. And if the share price falls below the price of stock vested, I get a double whammy: I pay tax on that rate and the value of what I can ultimately disclose.
There’s a very important distinction between people that have started a company from zero and stayed with it for 28 years and haven’t flitted from flower to flower, and people who do.
The risk I have taken is substantial and it goes against all conventional financial planning where they say to diversify your risk. But my dad always used to tell me to invest in the company you know best and that company is the company you work with.
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