To participate, the 15 executives must buy $20 million in WPP shares under an incentive plan. In five years the plan could award them $100 million worth of shares at current prices if the company hits certain performance targets relative to 15 competitors. Depending on WPP's share price then, the payout could be lower than $100 million or higher. Under the last five years of Mr. Sorrell's stewardship, the company's share price increased fivefold.
Since Mr. Sorrell is investing $10 million, he could receive $50 million in shares at current prices. As part of the new incentive plan, Mr. Sorrell has agreed to delay for five years a chance to cash in his existing incentive plan approved in 1995. It would have awarded him on Sept. 4 more than 6.4 million shares worth around $58 million at current prices. Under the first plan, Mr. Sorrell had to invest around $3.2 million of his own money to acquire and hold 1.1 million shares. One of the performance criteria for receiving the additional shares was WPP's share price increasing to certain targets during a sustained period.
In five years time, Mr. Sorrell could receive shares now valued at $58 million from his old plan plus another $50 million under the new proposal.
Mr. Sorrell has said the main features of the Leadership Equity Acquisition Plan is that it's entrepreneurial and performance oriented.
The original incentive plan did not gain shareholder support in 1995 when institutional investors forced the company to modify Mr. Sorrell's bonus package.
Under the new plan approved this week, the 15 executives must hold a significant number of WPP shares for five years in order to qualify for free matching shares.
The minimum value of WPP shares which the 15 executives must commit is one times annual salary and bonus and the maximum is three times (with the exception of Mr. Sorrell who can commit $10 million or four times earnings). Of the $10 million, Mr. Sorrell must spend $3.3 million in cash to buy new shares.
The number of matching shares will depend on total shareholder return achieved by WPP over five years relative to a group of 15 competitor businesses, including Aegis, Cordiant, Grey Advertising, Havas Advertising, Interpublic Group of Cos., Omnicom Group, Publicis, Saatchi & Saatchi, True North Communications and Young & Rubicam.
Within the 15 companies, if WPP ranks first or second the executives will receive five matching shares for each invested, 3rd (4.5 shares), 4th (4), 5th (3.5), 6th (3), 7th (2.5) and 8th (2). If WPP ranks 9th or lower, the execs still receive half a matching share in recognition for tying up their money for five years. There are no separate targets for WPP share performance as in the earlier plan.
Copyright September 1999, Crain Communications Inc.