The headlines generated by the staggering pounds 35 million bonus
WPP chief executive Martin Sorrell is due to collect when his five-year
incentive scheme pays out next month cannot just be put down to silly
season distortions. Sorrell’s is the biggest single bonus in UK company
The payout is undoubtedly a reward for success - WPP and its share price
have increased more than five-fold in the last five years. The company
is now worth pounds 4.5 billion and its shares stand at 580p. But
Sorrell is in line for a further pounds 31 million under his next
five-year bonus scheme.
A second scheme restricted just to Sorrell might have caused a little
resentment in the ranks of senior WPP managers. So the decision to let
up to 14 executives share a further pounds 31 million, by putting in
pounds 6 million of their own money, can only be applauded.
WPP’s closest competitors, Omnicom and Interpublic, are both US
companies and already reward their executives with lottery-sized
salaries and bonuses.
The WPP scheme should help the group to recruit and retain the best
Criticism of the scheme has tended to focus on the terms by which
executives are rewarded for the company’s performance.
If WPP’s return to shareholders, measured by dividends and share price,
is among the top two in a predesignated 15 company peer group, the
company will pay out five times what participants in the scheme
invested. However, even if WPP comes eighth in the group, the company
will pay out twice what was invested. And in the unlikely event that WPP
should come last, participants will keep their investment and be given
half as many shares again.
Observers have also questioned the peer group WPP will measure itself
against. After the largest players, Interpublic and Omnicom, WPP is
mostly comparing itself to much smaller or more specialist marketing
services companies. But it is easier to grow, as WPP did, from a smaller
base, and other challengers could emerge.
Arguably, the richest bonus schemes should be for industries which are
exposed to the most risk, such as merchant banks which are largely
dependent on the state of the economy. When economies suffer, their
Marketing services companies suffered during the last recession, but the
performance of advertising agencies has tended to fluctuate less since
then. And WPP has made itself less dependent on advertising revenues by
acquiring a substantial portfolio of below the line businesses.
However, on the strength of WPP’s performance over the last five years,
shareholders should not be too difficult to convince that the scheme
will also benefit them.