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Battle of the bonuses targets a $100m boss

Mail On Sunday

Last updated at 9:50 PM on 23rd May 2009

There will be no bank holiday for veteran governance watchdog Guy Jubb tomorrow. He will be at his desk at Standard Life making sure no executive pay outrage has escaped his attention at any of the companies where the insurer is a major shareholder.

Jubb last week held Sir Peter Job, head of Shell’s remuneration committee, to account over a decision to agree bonuses for top bosses, even though Shell had fallen short of its targets.

Job had been there before. He was on the remuneration committee of pharmaceutical giant GlaxoSmith-Kline when shareholders spectacularly rebelled against a pay plan for the then chief executive, Jean-Pierre Garnier.

Coming from Reuters, where he had been chief executive, Job was accustomed to large pay packets. After he left, that company became the first mainstream firm to pay its chairman £500,000 a year.

But in the wake of the near-collapse of the banking system, the days of Job and his ilk appear numbered. Shareholders have stirred and as Jubb remarked after his confrontation at Shell: ‘Institutions this voting season have been much more acutely aware of their responsibilities – that they must not be absentee landlords, but good stewards.’


Shell protest  

Burning anger: Demonstrators in central London protest against Shell last week

Substantial rebellions have already taken place at housebuilder Bellway and Government-owned Royal Bank of Scotland, but the new mood of vigilance is likely to see more confrontation.

Now shareholders at Sir Martin Sorrell’s WPP advertising giant have been advised to vote against a new remuneration package, which could see him take home a $100million (£63million) bonus.

Leading institutional investor advisory bodies Pirc and the Association of British Insurers have alerted shareholders to a proposed remuneration scheme from WPP that will be put to shareholders on June 2 at an extraordinary general meeting in the company’s new tax-efficient offshore domicile, Dublin.

Pirc has advised shareholders to vote against the scheme while the ABI has flagged the proposals with a Red Top, its highest alert rating, to advise shareholders to take a hard look at the company’s proposed incentive scheme.

It is the third incentive plan in ten years at WPP, which owns J Walter Thompson, Young & Rubicam and Ogilvy & Mather and makes adverts for Ford, Unilever, Vodafone and HSBC. 

 Sir Martin Sorrell, with his second wife Cristiana  

Bonanza: Sir Martin Sorrell, with his second wife Cristiana, could be in line for a bonus of $100m

The plans have all allowed key executives to buy shares and receive others free in return. Along with Sorrell, finance director Paul Richardson and director of strategy Mark Read, as well as about 20 other executives, stand to gain.

WPP has written to shareholders outlining the scheme, which will allow Sorrell, whose total pay last year was £3.1million, to invest $20million (£12.5million) over five years compared with $18million (£11.3million) under the previous scheme and meaning he could be in line for a bonus of just under $100million –though it could be more.

Pirc says that although the performance targets underpinning the scheme are stretching, it regards the rewards under the new plan as excessive, particularly taking into account the previous similar plans. ‘We therefore recommend shareholders vote against the scheme,’ it said.

Pirc has also advised shareholders to vote against the election of four non-executive directors to the WPP board on the basis that they were no longer independent after serving for at least nine years.

Cable & Wireless, meanwhile, is under fire for a ‘private equity-style’ rewards plan that has seen the bonus pot for 60 top managers reach £70million by the end of March. The scheme was created in 2006 at the height of the stock market and the company plans to extend it for a year to spring 2011, even while cutting 600 jobs.

Observers believe the extension could make it easier to sell its international division and this could trigger massive bonuses for bosses. After that, C&W says a ‘more conventional’ bonus scheme will take its place, limiting payouts to four times salary.

The company will already pay £32million this year to top managers, with chief executive John Pluthero set to get £8.3million. C&W’s shares plunged last week after Tony Rice, head of the international division, surprised the market by cashing in shares worth £4.3million.

Investors were also unimpressed by C&W’s profit forecasts of a 25 per cent increase this year, which was less than expected. Almost one in five shareholders voted against the scheme last time and the next rebellion is likely to be even greater.

Investors are also choosing to use their votes rather than register discontent by merely abstaining.

Large companies, which have tended to regard a bonus cascade for the board as a natural right, can expect a particularly unsettling wake-up call.

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