Make incentives reflect job done

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Incentive compensation for agency management is a good thing for shareholders, just as incentive pay for agencies is a good thing for marketers. The challenge is in putting principle into practice. We are encouraged by actions by holding companies to better align management wealth with company performance.

Interpublic Group of Cos.' new management incentive plan, up for vote at this month's annual meeting, shifts long-term incentives from cash awards and stock options to stock grants tied to future performance.

Omnicom Group last year began a move from options to other forms of incentive pay. Its proxy says the board is "in the process of considering the establishment of stock ownership guidelines for executive officers." We infer the board wants management to own lots of stock. That's good.

WPP Group shareholders, meanwhile, last month approved a simple, lucrative incentive scheme. The bet: Executives put money on the table by buying shares. The payoff: Up to five matching shares for each of those shares based on the multi-year total shareholder return of WPP vs. rivals. Chief Executive Martin Sorrell could get obscenely rich with an $80 million payout-but only if shareholders get rich with him.

The plans are imperfect. WPP gives Sir Martin and his roundtable the same payoff whether WPP comes in first or second among its peers. At Interpublic, much of the restricted stock granted this year will vest regardless of how the company does in the next few years, though it intends in future years to emphasize stock that vests only if performance criteria (say, earnings or revenue growth) are met.

There's still an issue about bosses getting rich as worker bees toil. We wonder how staffers react when they see Mr. Sorrell's payoff or Omnicom CEO John Wren's cache of $79 million in stock options. But employees and investors benefit when companies prosper. It's OK for executives to get rich-if they perform.

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