WPP Shareholders Oppose Sorrell's Pay Hike

Annual Meeting In Dublin Surprisingly Calm; Only One Activist Asks Questions

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At today's annual general meeting in Dublin, it was determined that a majority of WPP shareholders voted against the company's annual remuneration report, potentially putting Chief Executive Martin Sorrell's 2011 pay package of more than $20 million at risk.

Martin Sorrell
Martin Sorrell

At the meeting, 59.53% of shareholders who voted were against the report although a nearly unanimous 98.17% declared themselves in favor of Mr. Sorrell continuing as a member of the board of directors. (Shareholders don't vote on who should be CEO).

Mr. Sorrell, sitting among 13 peers in a bright blue and yellow setting at Dublin's Convention Center, looked initially agitated when the result was announced, but, speaking after the meeting, was composed and even humorous. Asked if he had been caught up as a victim in the U.K.'s broader shareholder revolt phenomenon this year, he said, "I don't regard myself as being caught or a victim. It's a democracy and the shareowners have spoken, that 's their right."

The next step is for Philip Lader, WPP's non-executive chairman, to lead a consultation with shareholders before deciding how to proceed. The WPP board can either go ahead with the remuneration package as it stands, or make changes. Mr. Sorrell's 2011 package totaled $11.8 million, but he received $20.8 million in total annual remuneration when a long-term incentive plan and what WPP calls "dividend equivalents" are added in.

Despite controversy over the last few weeks about the WPP chief's remuneration, the meeting was relatively calm and there were no rowdy voices of dissent. There was an air of tension as those present -- about 100 people, including a large contingent of journalists and holding company employees -- sat through lengthy presentations for much of the two-hour meeting. That's standard at WPP annual meetings, which are telecast to the group's companies and used as an annual update for the troops as well as shareholders.

The meeting started with Mr. Lader's presentation about the group, whose revenue grew by 7% during the first four months of 2012. Mr. Sorrell then took to the floor, emphasizing WPP's international make-up and its superiority to its peers, including a detailed history of the company's performance under his leadership since its formation in 1985. There were also presentations from WPP company leaders flown in from China, Brazil, India and Russia.

The meeting's Dublin location, WPP's official headquarters for tax reasons, likely put off casual attendees. Tea, coffee, pastries and fruit skewers were provided before the meeting, which began at noon. Afterwards, journalists, many of whom had caught a very early flight from London, were offered sandwiches and cakes in the press room.

In fact, the only person who asked questions was Louise Rouse, director of engagement at FairPensions, an organization that has been lobbying for a vote against the remuneration report and active in the U.K. "shareholder spring." Ms. Rouse's two questions were about moving WPP's headquarters to Dublin and the company's relationship with investors, given that a substantial number of votes at last year's meeting opposed Mr. Sorrell's remuneration, and the figure was even higher this year.

"It is difficult to know whether the WPP board underestimated the level of shareholder anger or simply chose to ignore it," Ms. Rouse said after the meeting. "Last year's 42% vote against should have served as a wake-up call to the board -- instead the response was to provide a salary increase of 30% to Sir Martin Sorrell."

Mr. Sorrell and Mr. Lader were both respectful of the shareholders' non-binding vote, and emphasized the importance of consultation and a good relationship with shareowners (as WPP calls them) but they also expressed disappointment at the vote.

After the meeting, Mr. Sorrell spoke to reporters about the vote's impact on WPP's ability to attract top-level talent. "We are obviously disappointed with the result," he said. "Whether this has an impact on our competitive position or not, only time will tell. Of our competitive set, the strongest is Omnicom, based in the U.S., second is probably Publicis, which is Paris-based, 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."

Despite acknowledging the importance of the shareholder vote, Mr. Sorrell voiced his concern that WPP's competitive set had not been taken into account by proxy advisory services such as Institutional Shareholder Services, which urged a vote against the remuneration report.

Mr. Sorrell said, "If you look at the I.S.S. report on our U.S. competitors, that does not include ourselves or indeed Havas or Publicis. It compares Omnicom to IPG and -- would you believe? -- to Time Warner , to Viacom, to CBS and a whole host of other companies. So I.S.S. in America compares our chief competitors to a competitive set that excludes us. I.S.S. in the U.K., for reasons best known to themselves, compares us to U.K.-based companies. I think it is crystal clear from the presentations today that we are not a U.K.-based company. The BRIC markets... on their own would be the second-largest country in the group."

Asked whether WPP might do better as a U.S.- based company, Mr. Sorrell said that a move to the U.S. is not being considered. In fact, he said, WPP Group still hopes to move its headquarters back to the U.K. as long as the threat of double taxation is removed, which could happen this fall.

Mr. Ladner would not discuss whether Mr. Sorrell's pay could be changed as a result of the vote."We take seriously the vote on the remuneration report. We will be consulting with shareholders and will be moving forward in the best interest of shareowners. It is premature to comment in any other way," he said. "We understand what people are concerned about, and we will be consulting with shareholders to find out specifically what they have in their minds. It does vary."

He declined to say when a final decision would be made.

Asked whether his commitment to WPP has been affected by today's vote, Mr. Sorrell, a major shareholder himself, replied, "What do you think? You come to your own judgment... I've got 140 million riding on it, which people tend to forget."

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