The bloodiest nose incurred at yesterday’s annual meeting of WPP should have been felt by the company’s remuneration committee headed by Lazards deputy chairman Jeffrey Rosen - the group of people appointed by the board to approve incentive schemes and the packages paid to top executives like Sir Martin Sorrell.
Clearly this has not provided an adequate conduit between the investment community that owns WPP - let alone public opinion – and the company itself. It’s time that the Government looked more carefully at how such committees are appointed.
However, some of the outcry about Sir Martin’s remuneration might have been ameliorated if WPP’s annual report had given a clearer picture of how much each director had earned in the period – including the value accruing in the form of share awards attributable to the year – as distinct from what was paid, particularly as £7.3 million of what he was paid in 2011 related to performance awards earned in earlier years (see Sorrell’s £13m reward package comes under fire.
The company may retort that this is too difficult because some rewards – particularly some of those satisfied in shares – are dependant on achieving performance targets that straddle more than one year. Even so it should be possible to provide an estimate or to indicate the maximum and minimum reward that would accrue for any year.
While company law calls for a lot of detailed disclosure and no reasonable person could complain about the amount of information that WPP provides, it is the distillation of that information into simple meaningful numbers that is missing.
There are three steps that would help improve confidence between shareholders and companies in determining directors’ remuneration in a public company like WPP:
- The remuneration committee should be underpinned by a statutory requirement for up to one half of its members to be nominated directly by major shareholders and for the remainder to be nominated by the board of the company.
- The company’s annual report should specify the total remuneration earned, or estimated to have been earned, in a financial year by each executive director and its composition (including share awards, cash bonuses and benefits in kind) irrespective of when it may be paid. For example, at present share awards are disclosed separately and are not easily related to the year in which they have been earned.
- The annual report should state the maximum and minimum remuneration (including the value of potential share awards) that could be earned by the chief executive in respect of the year ahead.