WPP Plc (WPP) investors voted against the remuneration packages of directors, including Chief Executive Officer Martin Sorrell, as the the revolt over executive pay spread to the world’s biggest advertising agency.
In a non-binding vote today, 60 percent of investors in WPP voted against the proposed pay, which included a 56 percent increase for Sorrell. The company will now approach shareholders to discuss options, which may include changes to performance targets, and reconcile the two sides, said one person with knowledge of the matter, declining to be named as the plan is not public.
The investor rebellion is one of the biggest since 2009, when 90 percent of Royal Bank of Scotland Group Plc shareholders turned down the pension plan for the lender’s former chief Fred Goodwin. Sorrell’s pay package, including long-term incentives, was worth 11.6 million pounds ($18 million) last year, making him the second-highest paid company head in Britain’s FTSE 100 index where CEOs got a median compensation of 3.2 million pounds, according to remuneration researcher Manifest and MM&K.
“If you look at the long-term performance in general in the media industry, it has been dismal,” said Sanford C Bernstein analyst Claudio Aspesi. “So scrutiny over what management teams have done to justify their pay packages is entirely appropriate.”
Investor groups including ISS and Glass Lewis urged shareholders to vote against the increase and said Sorrell’s pay is too high compared with other U.K. executives. Sorrell and WPP have argued that the 67-year-old CEO’s pay should be compared to international rivals such as Omnicom Group.
WPP will take the vote seriously and consult with share owners, Chairman Philip Lader said.
“We’re disappointed by the result of the vote,” Sorrell said in an e-mail. “But the shareowners have spoken.”
European investors are scrutinizing executive pay more closely after four years of stagnant or negative economic growth since the financial crash coupled with the European debt crisis. Last month, shareholders voted down insurer Aviva Plc’s remuneration plans while staging protests at UBS AG (UBSN) and Inmarsat Plc (ISAT) for failing to keep compensation in line with stock performance.
Wire and Plastic
Aspesi said while he understands investors’ concerns about executive remuneration as cash compensation of media executives in the past was often not tied to share price performance, he disagrees with the vote against Sorrell’s package because of WPP’s performance.
WPP in April reported an increase in first-quarter sales of 7.6 percent to 2.4 billion pounds, ahead of its own budget. The company has been offsetting a slowdown in markets hit by the European debt crisis by acquiring digital advertising technology and companies in faster-growing markets such as China and Brazil. Sorrell announced more than two dozen deals this year, scooping up assets in Indonesia, Pakistan and Russia.
WPP dropped 2 percent to 753 pence in London trading, valuing the company at 9.5 billion pounds. The stock had risen 12 percent this year, while the FTSE 100 U.K. benchmark index declined 1.6 percent and the Bloomberg Europe Media Index (BEUMEDA) gained 0.7 percent.
Sorrell turned the company into an advertising giant after taking control Wire and Plastic Products Plc, a U.K.-based maker of wire baskets, in 1985. He acquired J. Walter Thompson Group in 1987, winning ad agency JWT and public relations firm Hill & Knowlton Inc. and transforming WPP into a media company. WPP now has about 158,000 employees in more than 2,500 offices.
Last year, Sorrell received a 30 percent base salary increase to 1.3 million pounds, according to a WPP spokesman. Sorrell’s maximum bonus was raised to 500 percent. No changes are planned for 2012, the company has said.
The WPP CEO also received a boost in the company’s share- matching incentive plan that would allow him to get as much as a 500 percent match to a maximum contribution of 4.55 million pounds over a five-year period if the company meets performance targets, the spokesman said.
This would be Sorrell’s second raise in more than a decade, with his last increase in 2007.
Barclays Plc (BARC) CEO Robert Diamond was also hit with an investor protest over his pay in April after 27 percent of shareholders voted against his 12-million pound compensation package. He agreed to cut his deferred bonus for 2011 until the bank’s profitability improves.
Maurice Levy, the CEO of Paris-based Publicis, became the target of attacks in the French presidential election in April after his 16.2 million euro ($20.3 million) bonus, which had accrued since 2003, was made public.
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