BREAKINGVIEWS-Memo to Sorrell: think like an owner

Wed Jun 13, 2012 5:50pm BST

Quotes

   

(Adds Context News) (The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Chris Hughes

LONDON, June 13 (Reuters Breakingviews) - The market has spoken. Almost 99 percent of WPP (WPP.L) shareholders want Martin Sorrell to stay as the advertising group’s chief executive and nearly 60 percent think he is overpaid. Sorrell is a big shareholder too. He says his interest in the company guides his behaviour as the firm’s top executive. If that’s true, he will see the financial logic in performing a U-turn on his vigorous defence of his 13-million-pound pay package in 2011.

Sorrell will this year receive a 1.3-million-pound base salary and a total potential bonus of up to five times that, plus other benefits. WPP points out that his counterparts at U.S. media groups are entitled to maximum bonus awards at much higher multiples of base pay. Moreover, it's true that Sorrell's total remuneration is largely paid in WPP stock, which has to be earned through performance.

WPP’s owners weren’t impressed with the justification. Sorrell should pay attention, if only out of economic self-interest. Since most of his personal wealth comes from his WPP holdings, some awarded and some purchased, he will be better off doing whatever it takes to make his fellow investors happy. Right now that means scaling back or restructuring his pay.

The protest is probably about more than just pay. WPP’s fortunes are unusually reliant on Sorrell himself. Many say he provides the synergy among the empire’s sprawling units. But he will not last forever and needs to show that he listens.

Investors have taken a calculated risk in firing a rocket at Sorrell - he could decide to quit the company over it. The stakes next year will be higher, with votes on pay set to become binding in UK law from 2014. The protest was well flagged. The board and Sorrell could create a lot of shareholder value with an understanding response.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:

www.breakingviews.com/TOPNewsSubscription

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

CONTEXT NEWS

- Shareholders in WPP voted 60:40 against approving the advertising group's remuneration report, in protest at perceived excess pay for Chief Executive Martin Sorrell.

- Jeffrey Rosen, the chair of the remuneration committee, suffered a 22 percent vote against his re-election to the board.

- Sorrell’s re-appointment was approved by 98.2 percent of the poll.

- Philip Lader, the chairman, said: "Our Board exercised its best judgment in the context of the Company's record year, international competitors, and the executives' performance.

“We appreciate our share owners' support on the re-election of all directors and all other resolutions, take the Remuneration Report vote seriously, will consult with many share owners, and will then move forward in the best interests of our share owners and our business."

- Reuters: WPP shareholders reject Sorrell's $10.6 mln pay [ID:nL5E8HDADE]

- For previous columns by the author, Reuters customers can click on [HUGHES/]

(Editing by Edward Hadas and Sarah Bailey)

((chris.hughes@thomsonreuters.com)) Keywords: BREAKINGVIEWS WPP/

(C) Reuters 2012. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing, or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.