WPP Pay and AGM Report

So 33% of investors in WPP voted against Sir Martin Sorrell’s pay package of £70 million for last year at yesterday’s AGM which made him the highest paid FTSE CEO. That has been reported in the financial media as indicating strong dissatisfaction with the figure, but surely the really astonishing aspect is that obviously 66% voted in favour (and that’s ignoring the abstentions). It seems 66% of the mainly institutional voters think that pay at that level is perfectly reasonable!

Or perhaps they think that once a company has devised a remuneration plan based on false premises they have to stick to it regardless when the outcome is different to that expected? My answer to that would be no they do not – all contracts are renegotiable if circumstances change and pay schemes are no different to any other contract. The fact that Sorrell was bold enough to ignore the public voices opposed to this largess tells you something about the way he runs the company but it is certainly the “unacceptable face of capitalism” as far as most of the general public are concerned. Perhaps he is trying to emulate the career of Tiny Rowland of Lonrho who was the subject of that jibe for those with long memories although it seems that rather similar events have been taking place at BHS recently.

Many ShareSoc members and directors write reports on AGMs which we make available to subscribing members and there is one from Cliff Weight on the WPP AGM below.

Roger Lawson

I got up at 5.15am and a car from the BBC arrived at 5.45 to drive me to the BBC studio to talk on the Radio 4 Today program in their 7.15 business slot. Then it was off to Bloomberg to do a TV interview at 8.45 – see video here: http://www.bloomberg.com/news/videos/2016-06-08/all-ftse-100-ceo-pay-too-high-says-weight . I mainly repeated the comments in the ShareSoc Press Release on WPP here:  https://www.sharesoc.org/pr79-wpp-remuneration.html

The WPP AGM started at 12.00 and I attended along with about 500 shareholders and others.

The performance for the first 4 months of the year was ahead of plan, the Chairman reported to the Meeting. After excellent presentations and videos, which were very informative about WPP, we moved to the questions session.

There had been much comment in the press prior to the meeting and not unexpectedly most of the many questions were about remuneration and the vast majority were critical of the remuneration, the remuneration committee and its Chair.

It was good to see a few fund managers and investors present, including representatives from Hermes, Standard Life and Railpen, who all asked questions. All three asked about succession and remuneration.

The answer on succession is that they do not have an immediate plan to replace Sir Martin, but they have a contingency plan were he to fall under a bus. They also review the talent pool regularly.

The Hermes spokesman asked about lessons learnt from previous remuneration plans. The LEAP plan approved in 2009 was replaced by the 2012 plan but there are still legacy awards from the 2009 plan running. This year’s big payout arises from the 2011 to 2015 award which paid out £62million. The share price went from £6 to £16 plus there were dividends. Next year the 2012 to 2016 award will vest and the likely total pay for Sir Martin is £30 to £40 million, which is my estimate. Sir John Hood, Rem Com chair, said that they had learnt this plan was too much and they replaced it with a less generous plan (still too generous in my view as the award level is a max of £10 million of shares, so if they double over 5 years it could pay out £20million –still far too much in my view). Sir John said the other lesson learnt was about probabilities of outcomes. They had not anticipated their success or how much it might pay out (I think they must have been told this but had not listened!). He also said there were a plurality of views given by shareholders, so it was not easy to come up with a plan which satisfied everyone.

Standard Life spokesman Euan Stirling spoke about succession, the potential dominance of Sir Martin of the Board and about his pay levels. They had voted against the remuneration report. They thought the 15 times salary potential rewards if all performance targets are hit was too high. (n.b. They had understated this as they had not considered the potential increase of the share price, which will probably be correlated with KPI success!).

Deborah Gilshan of Railpen spoke saying she strongly supported Standard Life’s comments. In her view remuneration at these levels is a reputational risk for the company and she had not supported the 2013 LTIP with its 10x salary award for Sir Martin.

I asked a question about remuneration saying it was too high and repeated some of the points made in our press release. “Why when Sir Martin owns £700 million of WPP shares (including shares from vested share incentive schemes) plus his unvested 1.8 million share awards (which would be worth £78 million at today’s share price if they all vested) does he need to be given any more incentives? I don’t think it will make him work any harder?” The Chairman noted my points and said the Remuneration Committee Chair had already explained why they had done what they did.

Another shareholder asked about share buy backs and acquisitions and was concerned about the level of debt. The CFO replied that financial theory suggests a level of borrowings and they aim at a range of 1.5 to 2 x EBITDA (currently 1.8). Buy backs in the past were in the 1 to 2% p.a. range but last year were 2 to 3%, but less this year as they had done quote a lot of acquisitions. Over the last 10 years buy backs had added 1 to 2% p.a. to EPS and acquisitions had added 2 to 3% p.a. to turnover.

A number of shareholders noted how well the company had performed and said they were not concerned about the level of the rewards to Sir Martin.

33.45% of votes were against the remuneration report and 8.36% against Sir John Hood the Rem Com Chair. All the other resolutions were passed with large majorities.

Cliff Weight