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17 March 2015 -
Jermaine Haughton
Advertising honcho Sir Martin Sorrell is set to spark further grumbles from WPP investors over his bumper salary, after it was confirmed that his total pay for last year could exceed £40m, if a short-term bonus is included. Under the company’s controversial Leap incentive scheme – a long-term share programme – WPP is planning to pay Sorrell more than 2.3 million shares worth £36.04m. That would take Sorrell’s pay past the £100m mark for earnings in the past five years, and is his biggest payday since 2005 when he received £50m. The 2014 sum’s magnitude is highlighted by Sorrell’s need to divest a massive tranche of corporate shares just to foot the tax bill.
A total of £79m has been earmarked for payment through the scheme, with the jackpot to be distributed among 17 WPP executives.
Introduced to the world’s biggest advertising corporation in 2009, Leap was subsequently the focus of a 2012 shareholders’ revolt. In 2013, WPP announced that it would scrap Leap – but nonetheless said it would honour the remaining two years of payouts to executives. However, the size of those ongoing payouts under the plan has disturbed some shareholders, and is likely to be a bone of contention with investors at the firm’s next annual meeting in June.
Justifying the use of the Leap to remunerate Sorrell and his peers, WPP chairman Philip Lader said: “This senior management incentive compensation plan required substantial personal, long-term investment by the participants, exceptional corporate performance over five years, and was approved by an 83% supporting vote of share owners.”
Sorrell’s substantial payment has stemmed from his move to put 416,666 of his own WPP shares into the Leap scheme in 2010, whereby he stood to received up to five times as many shares this year on the basis of WPP’s financial performance. During those five years, WPP’s market value more than doubled from £7.7 billion to £17.8bn, meaning his shares were also beefed up from £7.25 a piece to £15.49.
Executive pay remains a hot topic, with the Institute Of Directors warning companies that it is likely to be a key issue in the run-up to the General Election in May.
Bosses of British SMEs have also expressed their concerns. Earlier this month, leaders of growing companies reported excessive pay as the biggest threat to the reputation of UK firms, in a poll of more than 1,000 SME leaders conducted on behalf of campaign group the High Pay Centre.
The group’s director Deborah Hargreaves said her organisation’s findings demonstrate that “outside the boardrooms of big corporations, ordinary small and medium-sized business owners are as appalled by the culture of top pay as anybody else”.
She added: “When big business leaders rake in seven or eight-figure pay packages every year – including massive bonuses regardless of company performance – we are clearly seeing a corporate governance failure, rather than a fair and functional free market. Ordinary workers, customers and wider society, not to mention shareholders, are being ripped off.”
In its recent Management 2020 report, the Chartered Management Institute (CMI) placed excellent track record of delivery as one of its Top 10 Traits for High-Performing Individuals, pointing out: “A good manager is expected to deliver, and they are expected to deliver consistently strong results time and time again. By doing this, they set the strongest possible example to the people who follow them. Our evidence found the most-senior managers should set the standards of delivery that are expected, and then convey these to the rest of the workforce.”
However, the report also noted that recent, money-related scandals in the business world “have served to make employees increasingly sceptical of their leaders’ motivations and inclined to demand higher levels of integrity than ever before. So leaders and managers, even at a junior level, need to demonstrate strong values and conduct themselves well.”
Download the full Management 2020 report here.
Image of Sir Martin Sorrell courtesy of the Wikimedia Commons.
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