Although Martin Sorrell's latest compensation plan at WPP Group has reportedly raised eyebrows in the U.K., here in the States, it has been received with guarded optimism. "Is it expensive? It appears to be," said one WPP shareholder. Nevertheless, his firm will vote for the plan: "Is it worth it? Yes."
The WPP CEO, who stands to reap approximately $55 million worth of company shares next month under terms of his current incentive package, plans to reinvest those holdings into a new plan that could net him another $50 million worth of shares in five years. Shareholders will put the Leading Executive Acquisition Program (LEAP), issued last week, to a vote on Sept. 2. The plan can pass by a simple majority vote, which is expected.
Fifteen top WPP executives will also participate in the five-year plan by investing part of their annual remuneration. Sorrell, 54, will commit up to $10 million. He sees the plan as entrepreneurial in nature since it introduces an element of risk to a performance-based investment, said sources.
In recent weeks, WPP executives have met with the company's top 20 shareholders, who have been "neutral to positive" on the proposed incentive plan, said sources. About half of WPP's shareholders are based in the U.K.
Robert Hagstrom Jr., senior vice president at Legg Mason Fund Adviser, which holds a 5.8 percent stake in WPP, supports the measure. "We think the compensation is very fair," he said, adding that Legg Mason will be voting for the plan essentially because WPP management has done a "good job" in boosting profits.
"Sure, there's downside risk should WPP stock fall in value," said an investment banker in London. "This is an audacious plan that ties performance to reward. Conversely, if performance is lacking or we enter into a bear market and the value of WPP's shares falls, participating executives can see their initial investment decrease."
"This is nothing by our standards. said Alan Gottesman, an analyst with West End Consulting. "People get more money [in the U.S.] for getting fired than for keeping their jobs."