Britain's largest advertising company, WPP, bowed to shareholder pressure yesterday and postponed a vote on an executive pay scheme that could hand Sir Martin Sorrell up to £44m.
The group's extraordinary meeting will take place on April 16, nine days later than planned. WPP also agreed to change the performance criteria which could trigger the multimillion-pound windfall for its chief executive.
The move comes after the Association of British Insurers warned the company of a "substantial protest vote" if it insisted on going ahead with its share-based incentive scheme. Under the terms of the scheme, the company will pay out £112m over the next five years to 19 executives. By far the largest portion of that will go to Sir Martin.
WPP said the meeting, due to be held next Wednesday, will be pushed back to allow more discussions with institutional investors and shareholder groups, including the ABI. WPP said it would change how it measured its performance against a group of 13 companies, a significant factor in determining the size of the payouts.
The ABI had strong objections to the way the group would be measured by the level of shareholder return against a basket of media companies. One concern among some investors was the use of weighting, whereby the share performance of some companies in the group would have a greater role in determining the size of the payout than others. WPP has scrapped the measure.
The ABI, whose members account for almost one quarter of the stock market, welcomed the decision to delay the vote. Peter Montagnon, the head of investment affairs, said: "This gives us more time to consider [the package] and helps us avoid a stand-up argument." One of the ABI's biggest complaints was the speed with which the scheme was introduced, allowing little time for consultation with investors.
The association will keep the vote on a so-called red top - indicating the level of concern felt over the pay scheme - until it has considered its position ahead of the meeting. Pensions Investments Research Consultants, which advises funds with assets worth an estimated £300bn, also recommended a vote against the share options package before yesterday's announcement.
Shareholders believe there was a technical hitch in the comparator group used by WPP to measure performance, which would have made the top awards too easy to achieve.
One shareholder from a leading insurer said yesterday: "We're not against high pay per se, but we are against poor performance measures."
The National Association of Pension Funds believes that some "unique elements" within the pay scheme mitigate its generosity.
The NAPF pointed to the fact that the options will pay out over five years and the need for a significant investment from WPP directors. Sir Martin will need to invest up to £9.9m of his money to reach the £44m total that has alarmed investors.
Institutional Shareholder Services, the US investor advisory group, had also given its backing to the original plan.
The company has already agreed to cut Sir Martin's contract from a three-year term, amid a concerted campaign by investors against any executive deal that lasts longer than one year.
The latest row comes a year after nearly half of WPP's shareholders refused to back the chief executive's pay deal. Excluding payouts from share options, Sir Martin earned a total of £1.6m in salary and bonus during 2002.
Source: The Guardian