Another Fat Cat Pay Revolt!

Published in Investing on 13 June 2012

This time the global ad giant WPP sees its pay awards firmly rejected.

The London-based international advertising agency WPP (LSE: WPP), the largest in the world, has come under fire at this year's AGM, as the top boss's pay award has been overwhelmingly opposed by shareholders.

The £9.7bn company, ranked 27th in the UK's flagship FTSE 100 (UKX) index of top shares, released a trading update for the first four months of the year, showing a 7% rise in revenues in sterling, or 5% in US dollars. That's £3.2bn, or $5.1bn, which is not small change by any reckoning.

Like-for-like sales are up 4%, and profits and margins are ahead of plan and up on last year. So what was the problem?

Well, against an austere economic background, investors are already a little peeved by pay for FTSE 100 executives having grown 10% over the past year, to an average package worth £3.7m. That's over a period when the FTSE has been falling, most people's incomes are being squeezed and stock portfolios are losing ground.

A 60% rise?!

That average rise for top bosses is dwarfed by the proposed pay deal for WPP chief executive Martin Sorrell. His basic salary rose by 30% to £1.3m, but once all bonuses are included then he is in line for a massive 60% boost, to take his total remuneration for the year to £6.8m.

But a number of major investors have today voted against the award, as it is way in excess of the returns enjoyed by shareholders, who are in line for less than 4% in dividends this year and have seen the share price falling in recent months. At a price of 760p, the shares are on a forward price-to-earnings ratio of only 10.

Shareholder revolts at other companies have led to resignations, with Trinity Mirror (LSE: TNI) boss Sly Bailey being forced out, and banks like Barclays (LSE: BARC) being hit by serious discontent.

A massive rejection

With the support of chairman Philip Lader, the argument is that Mr Sorrell needs to be paid in line with other top media company bosses in order to keep him at the helm, and that the poor soul hasn't had a pay rise since 2007.

But that argument has now been rejected by a massive 60% vote at the AGM. Scandalously, shareholders votes are not binding on UK-listed companies, though there are signs they may be made so by 2014. So how is the WPP board going to react to this serious snub? According to the chairman, the board will carefully consider the result... consult... move forward... best interest of shareholders... etc. In other words, we have no idea.

But there are more ways to get your hands on millions than taking the helm of a major FTSE 100 company, as the Motley Fool's free report "10 Steps To Making A Million In The Market" explores.

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> Alan does not own any shares mentioned in this article.

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Comments

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alsirat 13 Jun 2012 , 10:17pm

"With the support of chairman Philip Lader, the argument is that Mr Sorrell needs to be paid in line with other top media company bosses in order to keep him at the helm, and that the poor soul hasn't had a pay rise since 2007"

What a rubbish argument. Mr Sorrell has been well remunerated. He already has £140 million in shares in WPP. How much more does a person need? He and the chairman expresssed some surprise at the extent of the vote against the pay package. Last year 42% voted against it. They had fair warning.

bouleversee 14 Jun 2012 , 3:51pm

What was the percentage increase in dividend for the year in question? No employee's pay should increase by more than that. There was an article in The Times today which said it would serve shareholders right if Sorrell quit. It didn't even bother to tell readers what the rewards to shareholders had been. Surely that is just as relevant a comparison as the increase in pay to the lowest paid staff. After all, the shareholders are supposed to own the company and they carry all the risk but, unlike taxpayers or ordinary staff, they rarely get a mention when overpayment of executives is being discussed. I don't fall for the blackmail. Where are all these hard done by execs. going to go and won't they go when it suits them anyway (e.g. Bart Becht) and will the companies have any difficulty finding successors? I doubt it. Unless shareholders are also incentivised, there is just as big a chance of them voting with their feet and the sooner companies wake up to this the better.

peep1253 14 Jun 2012 , 5:08pm

There was a programme about 20years ago when similar things were being said about execs going abroad . The BBC or whatever picked 3 of the highest paid execs who were moaning the fuss over their pay,and coming out with the we can go abroad ,I remember one was head of some national milk company,The TV took their CV's to America and showed them to a major headhunting firm in New York and asked if they would place them. Hoots of laughter and looks of pity,and comments like' ten a penny' here.

Personally if anyone used moving abroad to blackmail us in letting them keeping their snouts in the trough,then I would say .Fine ,on you go and as you go through the airport we will stamp your passport as invalid in 1 month from departure.and when coming back you will require passport of your 'new' home to get through border control.
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ANuvver 14 Jun 2012 , 11:29pm

This isn't just any old shareholder vote... This is a totally British, non-binding luscious creamy 60% ballot outcome...

giveusaquid 15 Jun 2012 , 11:31am

There was an interesting piece in the Fool a while back about the difference between being rich and being wealthy. If you can't make yourself independently wealthy after a few years on these kind of salaries then it's a poor show.

I also heard that many of the super rich don't do this for the money, but it is a useful way of keeping score. If that's the case why not develop a virtual salary for directors that is linked to company performance metrics, then they can all keep score without fleecing their businesses.

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