By Paul Hodgson – CCO and Senior Research Associate
In a spirited defense of his pay package in the Financial Times, against critics that include investors and proxy advisory firms, Sir Martin Sorrell indicates that compensation policy at the company forces executives to act like owners.
I have to admit, at the risk of tarnishing my reputation as a pay critic, that I agree with him. Ever since I first read about the company’s co-investment incentive plan called LEAP (Leadership Equity Acquisition Plan) back in the nineties when I was still working for Income Data Service’s Executive Compensation Review I have thought the plan at the cutting edge of performance-related pay. The LEAP plan requires executives to pledge or purchase shares for co-investment. These shares are then at risk of total loss if performance targets are not met. In other words, executives are required to put their own money on the line, and if they don’t perform, they lose it. It was one of the first plans of its kind and is still going strong. It is, frankly, the pantheon of performance-related pay and far superior to common practice not only in the US, but even in the UK.
Sorrell’s pay is high – and this has often been the case – but at least it is related to performance.
But how high is it?
According to data put together by Business Insider in a report to which I contributed commentary on policy, his was not the highest pay. He earned”
- Less than Maurice Levy, CEO of Publicis, who earned $26MM just over
- Less than Miles Nadal, CEO of MDC Partners, who earned almost $24MM
- Less than John Wren, CEO of Omnicom, who earned $15.4MM
- Less than Michael Roth, CEO of Interpublic Group, who earned almost $13 million
Business Insider puts his pay at about $11.7MM. High compared to his “home market” but not compared to the company’s international comparators, most of whom underperformed WPP quite significantly.
In his defense, Sorrell complains of the make-up of the peer group against which the proxy advisory groups compare his pay. They do not include WPP’s US-based peers, but only those in the UK. Ironically, WPP’s US-based peers all compare themselves against behemoth media companies such as News Corp, Time Warner, Viacom – a fact I complained about regularly in my commentary for Business Insider. It is simply ridiculous to set pay levels with such a peer group in mind. None of the US firms – although they compare performance – compare their own pay levels to UK and European comparator firms. It doesn’t take much consideration to understand why. In fact, the only advertising company that I believe has an even more exacting plan than WPP’s is Aegis, which requires executives not just to perform at the median but to outperform it before they receive any long-term incentive. In contrast, even where there are performance conditions for long-term plans in the US, executives generally begin to receive rewards at the lower quartile.
Due to many of these reasons, while GMI Ratings’ home market governance grade for WPP is not great, its global rating indicates that we feel the company presents little risk to shareholders.