Sorrell Faces Pay Revolt, But MDC's Nadal Beats Them All
The British are not comfortable with success. They love the underdog, a lovable loser. Martin Sorrell, CEO of WPP, is neither of those. The company he began building in 1985 has grown into the world's largest agency company, with a market capitalization of nearly $15 billion. Yet WPP shareholders seem to want to cut him down to size. In the shareholder vote at the company's annual general meeting in Dublin last week, owners of nearly 60% of shares voted against the directors' remuneration report, under which Mr. Sorrell received $20.8 million in total 2011 remuneration.
So is $20 million too much?
Mr. Sorrell's compensation ranks second among his global agency-company peers, in front of John Wren, chief of No. 2 holding company Omnicom Group, but behind Miles Nadal, CEO of the much smaller MDC Partners. But in the U.K., Mr. Sorrell doesn't have any peers. As Alex de Groote, media analyst at Panmure Gordon in London, put it, "WPP is a real U.K. success story. Maybe we lose sight of that fact, because the international peer group is beyond our immediate gaze."
Speaking to journalists after last week's meeting, Mr. Sorrell said, "If you look at the [Institutional Shareholder Services] report on our U.S. competitors, that does not include ourselves or indeed Havas or Publicis. It compares Omnicom to IPG (Interpublic) and -- would you believe? -- to Time Warner , to Viacom, to CBS and a whole host of other companies. So ISS in America compares our chief competitors to a competitive set that excludes us." (And what a comparison: The CEOs of Time Warner , Viacom and CBS received 2011 compensation of $25.9 million, $43.1 million and $69.9 million, respectively, according to the companies' proxy statements.)
In many cases, the rises in agency holding company chief compensation are supported by strong business performance -- a pay-for-performance argument that echoes the one going on between clients and agencies. "The shares have been up about 10% in the last year, and dividends up 3% or 4%," said Mr. de Groote. "Everything must be taken in the context of [total shareholder return] -- which is good -- and there is solid profit, plus they've paid off a lot of debt and navigated a foul international economy."
Like his agency counterparts, Mr. Sorrell is the iconic face of the company, the man whose vision has built the group into the world leader it is today. Shareholders seem to give him credit for leadership; owners of 98.17% of shares voted to keep him as a director.
Figuring out CEO pay isn't always easy. One chart in WPP's annual report shows 2011 compensation (including a deferred bonus Mr. Sorrell will collect in two years) jumped 60%. Compensation received in 2011 (included payouts on earlier incentives) rose 37% in pounds. Salary, a small part of his pay package, rose 30%. Regardless, those are all big numbers, not necessarily sending the right signal to an increasingly procurement-driven client base.
"Such a high salary increase sends a confusing picture to the market. Are agencies budgeting correctly?" said Daniel Knapp, head of advertising research at Screen Digest. "There are psychological nuances that are part of the bigger equation. [High executive pay] could lead to even tougher [client] negotiations and a worse cut for agencies."
And while staff lower down the ranks may appreciate the achievements of their CEOs, nobody wants to see their own salaries squeezed so that the boss can earn even more. On the other hand, does decrying the salaries of advertising CEOs devalue the industry -- especially when CEOs in finance, media, Silicon Valley and at many of these agencies' clients make much more? At a time when attracting top talent is tougher than ever, the downward pressure on top salaries could be read as a signal that advertising is not a game for the ambitious.
"We are obviously disappointed with the result. Whether this has an impact on our competitive position or not, only time will tell," Mr. Sorrell told reporters after last week's meeting. "Of our competitive set, the strongest is Omnicom, based in the U.S.; the second is probably Publicis, which is Paris-based; the third is IPG in New York; and there are two others, based in Paris and London. So when we look at compensation, we look at what others do -- and there is a market." The vote against his $20 million payout is not binding, and the board will now enter a consultation period with shareholders to decide whether to hold firm or make changes.
Mr. Sorrell is undoubtedly a victim of the U.K.'s "shareholder spring," where public firms have clashed with shareholders over boardroom pay. Paul Simons, consultant and former chairman-CEO of WPP's Ogilvy & Mather, said the shareholder spring has gotten out of hand. "It feels like a bandwagon out of control."
Said Mr. de Groote: "The culture of activism is good to see ... but I'd suggest there are much more clear-cut targets than WPP."