From ‘Pie’ To Payouts

Reflecting a year in which WPP Group resumed modest growth after two years of retrenchment in one of the industry’s worst recessions, CEO Martin Sorrell’s pay jumped 33 percent to about $3.9 million last year, from approximately $2.9 million in 2002. In the holding company’s annual report, released last week, WPP disclosed Sorrell’s base salary was about $1.5 million, with a bonus of some $2.3 million. Sorrell also collected another $46,000 in benefits.

Last year, London-based WPP’s profits climbed 18 percent to $869 million. In his outlook letter, Sorrell—one of the most conservative of industry CEOs in declaring a recovery to be under way—reiterated recent observations that “economic activity is now picking up, particularly in a quadrennial year.” But Sorrell, whose comments typically include more expansive macroeconomic views, cautions that whoever wins the next U.S. election will need to deal with the deficit and weak dollar by raising interest rates and curbing growth. While the recession has impacted the b-to-b sector, he notes, consumers have emerged relatively unscathed, thanks to low interest rates and discounting.

“The issue will be whether increased corporate profitability and liquidity will stimulate a capital expenditure-led increase in activity,” Sorrell observes in the report. “Will 2005 see a hard landing or a soft one?”

WPP generally uses its annual report as a corporate marketing tool as much as a report to shareholders, utilizing a consumer-magazine approach with colorful graphics, whimsical illustrations, and clever headlines such as “The Steak & Kidney Pie That Wasn’t” (an essay by WPP director Jeremy Bullmore that argues “the end is in sight for Sizzle Marketing.”)

In contrast, industry peers like Omnicom and Interpublic used their actual 10-K submissions to the Securities and Exchange Commission as the core of their annual reports this year. Nonetheless, the companies’ opening CEO letters are very much corporate sales pitches. Omnicom, which used the same formal typographical cover that’s become a corporate signature over the years, could afford that format as it let CEO John Wren’s words trumpet the company’s accomplishments. Wren opens his letter by saying 2003 was Omnicom’s seventeenth-consecutive year of increased revenue and earnings, a significant mark given the past three years of tough industry conditions, and ends with a promise to keep that record going.

While Omnicom used a glossy coated cover and heavy-weight paper stock, IPG opted for a bare-bones look befitting a company in turnaround. In CEO David Bell’s shareholders’ letter, he details progress to date and includes a new feature: “Turnaround metrics.” Reflecting the input of new COO Chris Coughlin and his mandate to introduce financial reliability, the page offers targets for organic revenue (peer-level growth), operating margin (12-15 percent) and debt-to-capital (50 percent, achieved in 2003), among others.