Handing Martin Sorrell a £63 million share award? That's overpaid

Martin Sorrell: £63 million share award by WPP
Martin Sorrell: £63 million share award by WPP

Is Sir Martin Sorrell worth his £63 million share award that he received this week? The short answer has to be no, says Campaign's head of media.

That was also the view of 60 per cent of WPP shareholders who opposed his five-year LEAP bonus scheme in a (non-binding) vote in Dublin back in 2012, which led to it being discontinued in future years.

By then it was too late for shareholders to stop the award that was only paid out to the boss of the world's biggest advertising group this week. 

That's because the long-term incentive scheme dated back a year earlier to 2011 and was already underway.

Sorrell's £63 million award is so large because he "maxed" out on his targets that were set by the board in 2011. 

Under the terms of the LEAP scheme, he was "invited" each year to pledge a certain number of WPP shares as a "co-investment". 

In practical terms that meant he would pledge some of the shares he already owned and agree not to sell them for the next five years.

Then, if WPP then went on to hit various performance targets, including total shareholder return after five years, the company promised to give him up to five times that number of shares that he had pledged.

In 2011, he was invited to pledge 711,000 shares at £6.65 each (the largest number of shares the board had asked him to "co-invest"). 

Happily for Sir Martin, he was rewarded this week with the maximum number of shares – a five times match or 3.55 million shares. Plus the stock price had more than doubled in value to £15 over the last five years. 

That made the award worth about 12 times his original "investment", and there were additional dividend payouts that he had foregone during the scheme.

But one didn't have to be a City remuneration expert to wonder about this deal even at the time.

The invitation to pledge shares was made by the WPP remuneration committee annually and the amount he pledged (his 711,000 shares were worth about £4.7 million in 2011) appears to have been arbitrary rather than being linked to his base salary (£1.3 million in 2011). For example, he was invited to pledge fewer shares (around 431,000) in 2012.

What's more, when he pledged those 711,000 shares, he already owned about 17 million shares in WPP. Arguably he wasn't putting much of his wealth at risk – merely tying it up for five years by agreeing not to sell a relatively small amount of his stock or receive dividends.

Furthermore, LEAP was a bonus scheme that meant he and other senior executives kept getting long-term incentives every year, so long as they met targets.

Rather than have, say, one scheme over a five-year period, it was more like five rolling schemes – each one based on a 12-month period and vesting five years afterwards.

While the exact terms of the bonus scheme did vary over time, there was a clear trend: The 2007 scheme paid out in 2012 with total pay and bonus of £12 million; the 2008 scheme paid £18 million in 2013; the 2009 scheme paid £30 million in 2014; the 2010 scheme paid £43 million in 2015; and now the 2011 scheme has paid £63 million, plus further short term bonuses to be announced next month. That’s north of £166 million.

WPP and Sorrell say, with justification, that the awards rose because of the company's strong performance after the 2008-9 recession.

The shareholders have benefited a lot with a big increase since 2011 in the share price (up 98 per cent), profits (up 44 per cent) and dividends (up 151 per cent). The latter improved total shareholder return, which is handy because it was a key target for the LEAP scheme.

There is also a strong argument that Sorrell remains unparalleled as the leading advertising boss of his generation in the world, with a formidable grasp of global trends and financial minutiae even at the age of 71, and he is integral to WPP's success which he has built up since 1985. (Let's leave aside for now the debate about whether the company is over-reliant on one man.)

Perhaps the biggest compliment that he received was the 2013 decision by his two biggest rivals, Omnicom and Publicis Groupe, to try to merge – an acknowledgement that neither could hope to match WPP's scale or Sorrell's vision on their own. He then did WPP shareholders a good service by helping to see off the planned merger, by mocking his rivals and wooing their clients at every opportunity.

All of which suggests Sorrell deserves to be well-rewarded for his tenure over the last five years.

His salary, short-term bonus and perks were worth £5.6 million in 2011 alone.

But a long-term bonus scheme that allowed him to "co-invest" shares worth about four times his salary at arguably little risk and get back nearly 20 times? That's over-paid.

However, all this feels historic. After that 2012 shareholder revolt, his long-term share awards will be more modest as he can get a maximum multiple of ten times his salary, with more stretching criteria, after next year.

Still, who can blame the boss of the biggest ad group in the world for wanting to be paid the most?


Subscribe today for just $116 a year

Get the very latest news and insight from Campaign with unrestricted access to campaignlive.com , plus get exclusive discounts to Campaign events

Become a subscriber


The latest work, news, advice, comment and analysis, sent to you every day

register free