New Chairman Michael Roth, a one-time accountant, isn't far behind with a $4.4 million package-not including an annual incentive bonus of $2.1 million that kicks in next year.
Outside accountants-PricewaterhouseCoopers, Interpublic's auditor since 1952, and Deloitte & Touche, brought on two years ago to provide additional services-also are cleaning up. Interpublic is paying them professional fees at an annualized rate of nearly $50 million-approaching 1% of revenue-for work related to the Sarbanes-Oxley Act, the 2002 law mandating stronger financial disclosure.
Welcome to Interpublic Group of accountants. The No. 3 agency holding company is paying the price for years of weak financial controls that came to a head in 2002 with accounting restatements, shareholder lawsuits and an ongoing Securities and Exchange Commission investigation. Interpublic is laboring to fix what the company identified as "material control weakness."
Investors want to see results at Interpublic, which last quarter reported its sixth consecutive quarterly loss (though the loss shrank and revenue rose 3%). The stock last week closed at $10.64, its lowest point in more than a year.
Analysts say Interpublic's executive pay deals generally appear to be in line with industry norms, though they were surprised by Mr. Cyprus' package. "I don't think it is acceptable, but [it] is probably what it takes to get folks to work there," said Merrill Lynch analyst Lauren Rich Fine. Added Joseph Stauff, analyst with Schwab Soundview: "If IPG [makes] significant progress, these numbers will look minor relative to the potential shareholder value that would have been created." Interpublic disclosed the contracts in an SEC filing last week.
Interpublic employment peaked at 59,500 in June 2001 after the purchase of True North Communications and dropped 27% to a bottom of 43,400 at year end 2003, after layoffs and asset sales. It since has grown to 43,900 as of June 30.
Interpublic is betting that investments in financial talent and systems will produce, as President-CEO David Bell told analysts this month, "a world-class [financial] control environment."
In this costly fix, the deal with Mr. Cyprus stands out. Interpublic paid a whopping $1.8 million signing bonus in May to lure him from AT&T Corp., where he was VP-controller. Mr. Cyprus, 51, has significant experience with Sarbanes-Oxley and is on the advisory group of the Public Company Accounting Oversight Board, new regulator of accounting firms.
His package included $450,000 salary; $1.25 million in stock grants; $850,000 in stock options; a $225,000 full-year target bonus; an $80,000 "Capital Accumulation Plan"; $45,000 in perks such as car service and financial planning; and the signing bonus. The stock grants and options were mostly one-time recruitment incentives; his annual package going forward will be smaller.
Mr. Cyprus declined to comment. An Interpublic spokesman said: "Mr. Cyprus brings unique expertise that is particularly relevant to all corporations today and exceptionally important to Interpublic at this point."
In the boardroom, Mr. Roth, 58, replaced CEO David Bell, 60, as chairman July 13 after wrapping the sale of insurer MONY Group, where Mr. Roth was chairman-CEO. Mr. Bell, who remains CEO and whose current contract runs till March 1, told analysts he is sticking with intentions from last year "to stay for five years"-until Feb. 2008-"but certainly through the end of the turnaround."
Mr. Roth, an Interpublic board member since 2002, is an attorney and former Coopers & Lybrand accountant. He secured a $950,000 salary; $1.26 million annual target bonus; one-time issues of $1.05 million in stock grants and $1.05 million in stock options; $100,000 Capital Accumulation Plan; $32,500 in perks; and, starting next year, an annual long-term incentive target of $2.1 million.
Mr. Roth's salary is just below Mr. Bell's $1 million; neither gets the $1.25 million salary of John J. Dooner Jr., who stepped down as Interpublic chairman-CEO last year to run its flagship McCann Worldgroup.