Is Sir Martin Sorrell, chief executive of WPP, justified in defending his £12.9m pay deal?

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Jeffrey Rosen

WPP believes in rewarding performance. Sir Martin Sorrell’s compensation is 85 per cent performance related, with a five year co-investment plan which rewards only superior performance and requires him to take a financial risk rather than benefit from one-way options. Sorrell has no notice period, thereby ensuring no reward for failure. The group’s operations are truly global – across 108 countries – with less than 10 per cent of its revenues and profits being in the UK. We have therefore benchmarked primarily against our international competitors, but have also gone further in respect of ensuring as high a percentage of the package as possible is in the form of shares that have to be held for either a minimum of two years, as in the short-term investment plan, or tied up for five years, in the co-investment plan. We believe this gives an overall package wholly aligned with shareowners.

Jeffrey Rosen is chairman of WPP’s compensation committee.

NO

Alan MacDougall

Shareholders need to be aware of the individual circumstances of each company, and many will want to take a view of executive remuneration that takes account of this. However, companies also frequently argue that they face unique circumstances, and use the need to pay the market rate to justify large hikes. If shareholders accede to large increases in base pay, and maximum awards under incentive schemes, at every company that makes these arguments, then there is a danger that rewards across the board are artificially, and significantly, inflated. In addition, the dangerous divide between boardrooms and the rest of society will widen ever further. WPP can’t be surprised at shareholder opposition to changes to its remuneration policy. In the current environment, these were always going to be controversial. That is why we have recommended our clients vote against the remuneration report.

Alan MacDougall is managing director of Pirc.