Section image

Twin Jackpots

Cherries
oil on canvas
22 x 20 in
1981

Penny Machines
oil on canvas
23¾ x 29¾ in
1961

Stack of Books
oil on canvas
30 x 24 in
n.d.

Seven Suckers
oil on canvas
19 x 23 in
1970

Twin Jackpots
oil on canvas
30 x 46 in
1962

Ties
oil on canvas
20 x 26 in
1980

Cake Slices
oil on canvas
20 x 16 in
n.d.

Key elements of short- and long-term remuneration

The principal elements of WPP executive remuneration currently comprise the following:

  • base salaries and fees (fixed);
  • short-term incentives paid both in cash (payable immediately) and shares which vest in the medium-term of usually after two years (variable); and
  • long-term incentives paid in shares (variable, and in certain instances, subject to both co-investment and performance conditions).

Pension contributions, life assurance, health and disability, and other benefits are also provided.

Compensation packages for the senior people at WPP are normally reviewed every 24 months. These reviews are undertaken within the context of:

  • the current mix of fixed and variable compensation;
  • the performance of the relevant business unit;
  • pay and employment conditions elsewhere in the Group; and
  • general market conditions.

In determining suitable benchmarks the Compensation Committee looks at similar roles in competitor organisations and, if appropriate, general industry data for organisations of comparable size and complexity.

Base salary and fees
  Current salary and fees Effective date
Sir Martin Sorrell £1,000,000 1 Jan 2007
Paul Richardson $830,000 and £100,000 1 Jul 2008
Mark Read £325,000 1 Jan 2009

 

As reported last year, fees of £100,000 are paid to each of the executive directors in respect of their directorships of WPP plc. This was not an increase in compensation and in each case salary was reduced by £100,000 when the fees were introduced.

Sir Martin Sorrell’s base salary was last increased on 1 January 2007. It was due to be reviewed in November 2008 with any change to be implemented from January 2009; however, Sir Martin informed the Compensation Committee that an increase would not be appropriate in light of current business conditions. His salary and directors’ fees therefore remained unchanged. Similarly no increase to base salary was proposed for either Paul Richardson or Mark Read.

Retirement benefits

All pension benefits for the Company’s executive directors are currently on a defined contribution basis and only the aggregate of base salary and fees is pensionable under any Company retirement plan. Details of pension contributions for the period under review in respect of executive directors are set out here.

The form and level of Company-sponsored retirement programs vary depending on historical practices and local market considerations. The level of retirement benefits is regularly considered when reviewing total executive remuneration levels.

Short-term incentives

Each year WPP sets challenging 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 2009 were down compared with 2008. 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 PSAs 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 ESAs, the portion of the annual bonus paid in shares which normally vest a further two years after grant (however, the 2009 award will vest three years after grant).

Consistent with previous years, for 2009 each executive director was measured in the three areas shown below:

  • Group financial objectives
    Examples of measures include margin improvement and operating profit growth.
  • Individual strategic objectives
    Examples of measures include relative financial performance, advancing CSR strategy and improving back office synergies.
  • Key business achievements
    Examples of measures 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 2009 to the levels of short-term incentive payouts that would be payable 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
achievements
   
% of
target
Cash
amount
£000
 
% of
target
Cash
amount
£000
 
% of
target
Cash
amount
£000
Sir Martin Sorrell 0 0 100 333 71 236
Paul Richardson 0 0 105 176 75 126
Mark Read 0 0 125 68 91 49

This resulted in the following bonus payments in respect of 2009, 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 57 67 100 38
Paul Richardson 80 120 48 100 133 60
Mark Read 50 75 36 67 100 48

However, the Compensation Committee reapportioned some of the cash into stock for Sir Martin Sorrell and Paul Richardson, and extended the vesting period to three years. The final distribution was therefore as follows:

  Bonus percentage
paid in cash
Bonus percentage
paid in shares (ESA)
  Target Max Actual Target Max Actual
Sir Martin Sorrell 100 200 41 67 100 55
Paul Richardson 80 120 46 100 133 62
Mark Read 50 75 36 67 100 48

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 2009.

Long-term incentives

Following the policy review in 2008, the Compensation Committee, during 2009, continued to believe that the incentive plans remained appropriate in terms of grant levels, performance criteria and vesting schedules. However, this year’s review will need to take into account more intense competitive pressures, fuelled by the general economic recovery and competitors’ behaviour. None of WPP’s incentive plans are pensionable and, other than stock options, all awards will be satisfied out of WPP shares held in treasury or one of the Company’s employee share ownership plans (ESOPs).

Leadership Equity Acquisition Plan III (LEAP III)

At the General Meeting in June the Company obtained the approval of share owners for LEAP III and subsequently awards were made to 13 of the Group’s key executives. Details of these awards can be found here.

Under LEAP III, participants have to commit and retain investments in WPP. Such investments are in the form of WPP shares (investment shares) and, at the invitation of the Compensation Committee, also in the form of options over WPP shares purchased from an independent third party (investment options). Such investments provide participants with the opportunity to earn additional WPP shares (matching shares). The number of matching shares that a participant can receive at the end of the investment and performance period depends on the Company’s TSR performance measured over five years and compared with a peer group weighted by market capitalisation.

Following the end of a performance period, the Compensation Committee is required to perform a ‘fairness review’ on the basis of which it may, in exceptional circumstances, decide to vary the number of matching shares that will vest. This is because relative TSR may not always reflect the true performance of the Company. Factors the committee considers in its fairness review of any awards include, amongst others, various measures of the Group’s financial performance (such as growth in revenues and in earnings per share) and any evidence of distortions in the share price of either WPP or the peer group (such as bid price premiums).

Renewed Leadership Equity Acquisition Plan (Renewed LEAP)

No further awards were made under Renewed LEAP and no awards vested in 2009.

The awards made in 2004 had a four-year performance period and vested in 2008. Awards made between 2005 and 2008 all had five-year performance periods. The 2005 award vested in March 2010 with a match of 2.50. The remaining awards will, subject to satisfaction of performance conditions, vest between 2011 and 2013.

As with LEAP III, the Compensation Committee is required to perform a ‘fairness review’ before any awards can vest. When performing this fairness review prior to vesting of the 2005 award there were two particular factors that the committee felt had a significant influence on the results, namely:

  • the existence of a ‘bid premium’ in the ending share price of one of WPP’s peer group companies (Aegis); and
  • the dramatic swings in currency, particularly the fall in the value of sterling towards the end of the performance period.

It should be noted that both these factors were also present when the previous award vested in March 2008, however at that time sterling had appreciated sharply towards the end of that period. On that occasion the committee adjusted for both factors with the net result that the number of matching shares was reduced from 3.27 to 2.60. On this occasion the committee again adjusted for both factors with the net result that the number of matching shares was increased from 1.64 to 2.50.

The committee discussed both these points and the appropriate treatment of delisted companies (which is outlined here) with the largest share owners and the share owner advisory bodies before any decision was made.

Restricted Stock Plan

Other than to satisfy awards under the short-term plans (ESAs and PSAs), the principal use of the Restricted Stock Plan is for awards under the WPP Leaders and WPP Partners programs. These programs are used to further align the interests of about 1,200 of our key executives with the interests of share owners.

In both programs awards are made to participants that vest three years after grant provided the participant is still employed within the Group. Some executives at the head office participate in these programs but no awards are made to executive directors.

Executive Stock Option Plan

In order to attract or retain key talent it is sometimes necessary to make special grants of options. Only one grant was made to a single individual in 2009; 15 grants were made in 2008. None of these grants were to executive directors. However, the Compensation Committee is conscious that stock options remain a powerful motivator and, in certain circumstances, it might be necessary to grant to a broader population under the Executive Stock Option Plan.

Worldwide Ownership Plan

The Worldwide Ownership Plan is an all-employee plan that makes annual grants of stock options to employees with two years of service who work in wholly owned subsidiaries. As at 31 December 2009, options under this plan had been granted to approximately 84,500 employees over 38.4 million ordinary shares since March 1997. Any executive who participates in one of the other share plans described above does not receive grants under this plan.

    Objective   Participation   Performance
period
  Conditions   Change of control
Short-term                    
Base salary   To maintain package competitiveness at all levels within the Group.   All employees.   n/a   Salary levels are determined by taking a number of relevant factors into account, including individual and business unit performance, level of experience, scope of responsibility and the competitiveness of total remuneration.   n/a
Cash bonus   To incentivise delivery of value at all levels within the Group.   Approximately 10% of employees are eligible to receive a performance bonus.   1 year   Achievement of challenging performance goals (financial and non-financial) at the individual and business unit level.   The cash bonuses of executive directors do not crystallise on a change of control.
Performance share awards   To incentivise delivery of value and to align with interests of share owners.   Key operating company executives.   1 year   Achievement of challenging performance goals (financial and non-financial) at operating company level. Further two-year retention period.   See note below for Restricted Stock Plan.
Executive share awards   To incentivise delivery of value and to align with interests of share owners.   Key head office executives and executive directors.   1 year   Achievement of challenging individual annual bonus objectives. Further two- or three-year retention period.   See note below for Restricted Stock Plan.
Long-term                    
LEAP III and Renewed LEAP   To incentivise long-term performance by comparing WPP’s TSR against the TSR of key comparators (which are weighted by market capitalisation in the case of LEAP III), and to maximise alignment with share owner interests through a high level of personal financial commitment.   Participation offered only to those key executives (currently no more than 20 people) whose contributions transcend their day-to-day role, including executive directors.   5 years   Relative TSR performance against a group of key communication services comparator companies, (weighted by market capitalisation in the case of LEAP III), subject to a fairness review by the Compensation Committee.   On a change of control, the investment period for all outstanding awards ends, the number of vesting shares is determined at that date (pro rated in the case of LEAP III) and any other rights cease. The number of shares that vest may be reduced to prevent adverse US tax provisions applying. The Compensation Committee may determine that outstanding awards are exchanged for equivalent awards.
Restricted Stock Plan   To encourage a share ownership culture and long-term retention as well as supporting recruitment.   Directors and senior executives of the operating companies and senior head office executives.   n/a   Typically three-year retention period.   The vesting period for all outstanding awards is deemed to end. The Compensation Committee may determine that outstanding awards are exchanged for equivalent awards or that outstanding awards are unaffected by the change of control.
Executive Stock Option Plan   To provide a tool to promote retention and recruitment.   Occasional use only to deal with special situations.   3 years   Conditions, if any, are determined at the time of grant of the award.   The number of shares or ADRs is pro-rated down in accordance with the change of control date. The Compensation Committee may determine that outstanding awards are unaffected by the change of control.
Worldwide Ownership Plan   To develop a stronger ownership culture.   Employees with at least two years’ employment. Not offered to those participating in other share programs or to executive directors.   n/a   Three-year vesting period.   The number of shares or ADRs is pro-rated down in accordance with the change of control date. The Compensation Committee may determine that outstanding awards are unaffected by the change of control.

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