Short-term incentives

Each year WPP sets challenging financial performance conditions for each operating company. Performance against these targets determines the size, if any, of the incentive pool for that unit. In aggregate, incentive payments in 2008 were down compared with 2007. This trend was also reflected in the bonuses paid to executive directors.

Individual targets (both financial and strategic) for the operating company CEOs are also set by WPP and in turn, these CEOs set similar targets for their direct reports. Payment is in the form of both cash bonuses and Performance Share Awards (PSA) which vest a further two years after grant.

In a similar way, the Compensation Committee sets objectives for Sir Martin Sorrell and the other executive directors. The extent to which these objectives are met will determine the size of both the annual cash bonus (STIP) and the Executive Share Award (ESA), the portion of the annual bonus paid in shares which vest a further two years after grant.

Consistent with previous years, for 2008 each director was measured in the three areas shown below:

  • Group financial objectives
    Determined at the start of each year; examples of measure include margin improvement and operating profit growth.
  • Individual strategic objectives
    Determined at the start of each year; examples of measure include relative financial performance, advancing CSR strategy and improving back office synergies.
  • Key business objectives
    Determined at the end of each year; examples of measure include improving creative reputation and developing digital strategy.

Each of these three elements is equally weighted for cash bonus purposes (i.e. one third of the bonus is payable for the achievement of each objective). Except for the Group financial objectives, the exact measures differ by each individual executive director.

No changes were made in 2008 to the levels of short-term incentive payouts for achieving either target or maximum performance.

After considering each of these areas and the respective measures for each executive, the committee assessed the following levels of performance against target bonus payable in cash (shown as a percentage of target bonus):

  Group
financial
objectives
Individual
strategic
objectives
Key
business
objectives
  % of
target
Cash
amount
£000
% of
target
Cash
amount
£000
% of
target
Cash
amount
£000
Sir Martin Sorrell 75% 250 120% 400 180% 600
Paul Richardson 75% 110 100% 147 125% 183
Mark Read 75% 34 150% 69 150% 69

This resulted in the following bonus payments in respect of 2008, shown as a percentage of salary:

  Bonus percentage
paid in cash
Bonus percentage
paid in shares (ESA)
  Target Max Actual Target Max Actual
Sir Martin Sorrell 100 200 125 67 100 75
Paul Richardson 80 120 80 100 133 100
Mark Read 50 75 62.5 67 100 83.5

In some countries an opportunity exists to defer part of the annual bonus for four years in the form of WPP shares. At the end of the deferral period a 25% match is applied to the original shares subject to continuous employment. No executive director participated in this plan in relation to the bonus paid for 2008.