IPG Proxy Proposal Calls For Separation Of Power

More investor unrest surfaced last week in Interpublic Group’s proxy statement leading up to its annual stockholder meeting this month. This time, one shareholder proposal wants the company to separate the roles of CEO and chairman, a dual post held by Michael Roth, while another is asking the company to review bonuses, based on performance targets, and recoup them should another restatement occur.

The proposals are contained in an IPG proxy statement filed last Thursday, which also details the 2005 compensation paid to Roth, chairman emeritus David Bell and McCann Worldgroup CEO John Dooner, among other senior execs.

Investor recommendations such as those put forth last week often reflect the singular interests of corporate gadflies. But it’s likely that IPG may face more than a few angry shareholders at its May 25 annual meeting.

The proposal urging that IPG split the CEO and chairman roles argues that the board needs an alternative to the CEO when conflicts arise. The proposal reads, “It is well to remember that at Enron, WorldCom, Tyco and other legends of mismanagement and/or corruption, the chairman also served as CEO. When a chairman runs a company as chairman and CEO, the information given to directors may or may not be accurate. If a CEO wants to cover up improprieties or mismanagement and directors disagree, with whom do they lodge complaints? The chairman?”

IPG responded: “The board, after careful consideration, determined that having Michael I. Roth in the combined role of board chair and chief executive officer provides Interpublic with the most efficient and effective leadership model. Consequently, on Jan. 19, 2005, Interpublic amended Mr. Roth’s employment agreement to provide that he serves as chairman and chief executive officer.” Because of those contractual terms, Roth would most likely not be affected by the proposal, if adopted.

In the second proposal, also opposed by IPG, the shareholder cited Computer Associates as a model for its recommendation. CA’s proposal was voted in after the company announced in October 2003 that it had inflated fiscal 2000 revenues by reporting revenue from contracts before they had been signed.

According to the proposal before IPG: “This proposal will give us as shareholders more options if we find ourselves in a situation similar to the Computer Associates scenario. If it appears that our company reported erroneous results that must be negatively restated, then our board should be enabled, by adoption of this proposal, to recoup executive pay that was not earned or deserved.”

In opposition, IPG wrote that such a move would adopt an “overly rigid approach to this issue, one that would require the board to mechanistically recoup bonuses in inequitable circumstances and potentially violate Interpublic’s existing contractual commitments.”

According to the proxy, Roth was the highest-paid exec at IPG last year, taking home a base salary of $1.1 million and a $1.35 million bonus. (Comparatively, Omnicom Group CEO John Wren was paid a $1 million salary and a $4.4 million bonus in 2005, per Omnicom’s proxy.)

No. 2 was Dooner, with a $1.25 million salary and $900,000 bonus, and No. 3, then co-chairman Bell, with a matching $1 million in salary and bonus. Bell relinquished his co-chairman post in March, becoming a part-time consultant at $750,000 annually for five years. Rounding out the list of top earners last year was Lowe CEO Stephen Gatfield, then an evp at IPG, who got $850,000 in salary and a $935,000 bonus. In February, Gatfield’s salary rose to $892,500, when he took the Lowe job for three years. If IPG can’t find a full-time post for him after Lowe, he will become a part-time consultant at $400,000 annually for five years.