Implementation report

This section of the Compensation Committee report (entitled the Implementation report) contains details of how the Company’s Executive Remuneration Policy was implemented in 2014. We start by setting out the details of the Compensation Committee – those setting and implementing the Executive Remuneration Policy. We then present a summary of the 2014 executive remuneration together with a summary of pay across the Group.

Governance in relation to compensation

Sir John Hood and Nicole Seligman were appointed as non-executive directors of the Company and members of the committee with effect from 1 January 2014, subject to the confirmation of their appointment by share owners at the AGM. Roberto Quarta was appointed as a non-executive director of the Board and a member of the Compensation Committee with effect from 1 January 2015, subject to the confirmation of his appointment by share owners at the AGM, in June 2015.

During 2014, the Compensation Committee met six times on a formal basis, with additional meetings held as needed.

The committee members have no personal financial interest (other than as a share owner as disclosed in Non-executive directors’ interests) in the matters to be decided by the committee, potential conflicts of interest arising from cross-directorships or day-to-day involvement in running the Group’s businesses.

The terms of reference for the Compensation Committee are available on the Company’s website, wpp.com/wpp/about/howwebehave/governance/, and will be on display at the AGM, as set out in the Notice of AGM.

Advisors to the Compensation Committee

The Compensation Committee regularly consults with Group executives. In particular, the committee will invite certain individuals to attend meetings, including the Group chief executive (who is not present when matters relating to his own compensation or contracts are discussed and decided), the Company Secretary, the chief talent officer and the worldwide compensation & benefits director. The latter two individuals provide a perspective on information reviewed by the committee and are a conduit for requests for information and analysis from the Company’s external advisors.

External advisors

The committee retain Towers Watson to act as independent advisors. Towers Watson is engaged to provide advice to the Compensation Committee and to work with management on matters related to our Executive Remuneration Policy and Practices. Towers Watson is a member of the Remuneration Consultants Group and has signed the code of conduct relating to the provision of advice in the UK. In light of this, and the level and nature of the service received, the committee remains satisfied that the advice is objective and independent.

Towers Watson provides limited pay survey services at a Group level, and some of the operating companies may engage advisors, including Towers Watson, at a local level. In 2014, Towers Watson received fees of £86,000 in relation to the provision of advice to the committee. The committee also receives external legal advice, where required, to assist it in carrying out its duties.

Statement of share owner voting

During the period immediately preceding the 2014 AGM there was limited consultation with share owners due to the extensive consultation that took place prior to the 2013 AGM and since no subsequent changes had been made to the Executive Remuneration Policy or Practices. The level of voting in favour of the remuneration resolutions was similar to that received in 2013. While the overall level of support remains lower than we might hope for, the committee remains aware of the reasons why some share owners feel unable to support our resolutions.

In particular, in respect of 2013, some share owners were generally concerned at the overall level of pay for the executive directors. While large, compensation levels were driven by the maturing of a five-year LEAP award and the rise in the Company’s share price. The committee acknowledges these concerns, but also recognises that the majority of share owners supported the remuneration resolution last year (see below) and LEAP III when it was approved in 2009. Furthermore, the committee is content that the LEAP program has performed as intended and in the manner approved, with very strong share returns and share price performance delivering significant value to both share owners and management.

There have not been any changes to the Executive Remuneration Policy approved by share owners, and no substantive changes to the manner of its implementation, during 2014, with none planned for 2015.

Executive directors’ total remuneration received (audited)

Single total figure of remuneration in 2014 and 2013

Fixed elements of remuneration (audited)

Base salary and fees

Each executive director receives a fee of £100,000 for their directorship of WPP plc, included above. The base salary and fees for the executive directors are reviewed every 24 months. Sir Martin Sorrell’s salary was reviewed by the Compensation Committee in December 2014. The committee decided that his base salary should remain at the level set at 1 January 2013.

Benefits, dividend equivalent payments and pension

The benefits shown are those provided to the executive directors that are deemed taxable in the UK (or those that would be taxable if Paul Richardson were resident in the UK). The value of benefits received detailed in the numbers above include car and/or car allowance, healthcare, life assurance, long-term disability allowance, spousal travel costs and a per diem housing allowance paid when the executive uses their own accommodation when travelling outside of their home country. The table above also includes share owner-approved dividend equivalent payments of £1,288,191 (£1,100,579 during 2013) which are due on certain of Sir Martin Sorrell’s deferred share awards. The following table provides a break down of the key taxable benefits for 2014:

All pension benefits for the executive directors are provided on either a defined contribution or a cash allowance basis. Only the aggregate of base salary and fees is pensionable. No changes have been made to pension provision in the last year. Sir Martin Sorrell and Mark Read’s pension contributions are lower than the contractual amount due to the impact of exchange rates and the deduction of employer’s national insurance contributions respectively.

Variable elements of pay (audited)

Short-term incentive

This section summarises the Compensation Committee’s assessment of the Executive Directors’ performance during 2014 under the short-term incentive plan.

2014 short-term incentive plan outcome (percentages expressed relative to base salary and fees)

According to our policy, 50% of the 2014 short-term incentive will be delivered in the form of shares as an Executive Share Award (ESA) with a two-year deferral requirement.

Performance against financial objectives (70% of the award)

Performance against all financial objectives is calculated on a pro forma (“like-for-like”) basis in constant currency. The key financial short-term incentive plan (STIP) objectives for all the executive directors are consistent with 2013 and provide a robust basis for assessing financial achievement.

As illustrated below, the 2014 financial performance of the Group and WPP Digital was very strong. For the Group CEO and CFO, strong PBT and net sales growth produced performance above target, achieving 72% and 83% of the maximum award respectively. The net sales margin resulted in target performance equivalent to 60% of the very ambitious maximum. WPP Digital performance was very strong against both operating profit and revenue targets and solid against the margin improvement target.

Group performance (CEO and CFO)

Performance

2014 financial objectives

WPP Digital performance (CEO WPP Digital)

Performance

2014 financial objectives

WPP Digital is a collection of subsidiary companies and as such the financial data is not in the public domain. While the Company wishes to be as transparent as possible, due to concerns regarding commercial sensitivity, WPP Digital achievement data is presented more generally.

Performance against individual strategic objectives (worth 30% of the award)

2014 short-term incentive plan awards

Based on the performance set out above, the short-term incentive award for each executive was:

As noted above, 50% of the 2014 bonus is delivered in the form of WPP shares as an ESA. These shares were granted post determination of the annual bonus achievement and will vest, subject to continued employment, two years later.

Short-term incentive weightings and measures for 2015

The committee has reviewed the performance objectives and weightings for 2015 to ensure continued alignment with Company strategy. The weighting of financial objectives (70%) and individual strategic objectives (30%) will remain unchanged as will the Group financial objectives of Headline PBT growth, net sales margin improvement and net sales growth. However, the associated targets have been updated to reflect 2015 performance expectations. Mark Read stood down from the Board of WPP on 1 February 2015. Therefore, his 2015 objectives will be set in reference to his new role and are out of scope of this report.

As stated in the Executive Remuneration Policy, the committee is of the view that the targets for the STIP are commercially sensitive and it would be detrimental to the Company to disclose them in advance of or during the relevant performance period. To the extent targets are no longer commercially sensitive they will be disclosed at the end of the relevant performance period in that year’s Annual Report.

Long-term incentives (audited)

2010 – 2014 LEAP III awards vesting

The 2010 awards were granted under LEAP III, the long-term incentive plan which in 2013 was replaced by the EPSP. Vesting of awards was solely dependent on WPP’s relative TSR performance measured in common currency, against a custom group of WPP’s comparators (Aegis, Arbitron, Dentsu, GfK, Havas, Interpublic, Ipsos, Omnicom and Publicis) weighted by their respective market capitalisation.

Over the five-year investment and performance period, WPP out-performed 91% of the weighted peer group including both Omnicom and Publicis, WPP’s largest and most comparable multi-line competitors. Over the period, WPP delivered TSR of 172.5% which means that a shareholding of £100 at the start of the period would be worth £272.50 at the end, including reinvested dividends. On a relative basis, underlying financial and operational performance was also strong over the five-year period, consistent with the TSR outcome.

Aegis and Arbitron, two of the comparator companies, were taken over during the investment and performance period by Dentsu and Nielsen, respectively. In line with the guidelines established by the committee, the two companies remained in the comparator group as they were both listed for more than 40% of the investment and performance period. Their TSR performance was calculated assuming reinvestment into a synthetic stock of the remaining comparators. This was with effect from the date immediately before which it was independently determined that the share price was affected by either a takeover premium or speculation.

WPP’s TSR performance relative to the comparator group resulted in a match of 500%, equating to 100% of the maximum award.

2014 EPSP awards granted

In 2014, all three executive directors, along with a select number of senior managers within the Group, were granted awards under the Executive Performance Share Plan (EPSP). The 2014 awards are subject to three equally weighted independent performance conditions, being relative TSR, EPS and ROE. Performance is measured over the five financial years starting in 2014 as follows:

As in previous years, WPP’s TSR performance is compared to companies representing our most relevant, listed global competitors, weighted by market capitalisation. In 2014, the comparator group comprised Dentsu, GfK, Havas, Interpublic, Ipsos, Nielsen, Omnicom and Publicis. TSR performance will be calculated on a market capitalisation-weighted basis in both common and local currency (weighted equally). Using a dual basis ensures that the interests of both local and international investors are reflected in the performance measures.

The following interests were awarded on 4 June 2014 at the preceding five-day average share price of £12.908 (ordinary shares) or $107.996 (ADRs).

EPSP measures and targets for 2015-2019

The committee has reviewed the performance measures and weightings for 2015 awards to ensure continued alignment with Company strategy over the longer term. The measures and their respective weightings will not change, nor will the targets or comparator group for the EPS and TSR measures. The ROE performance range has been increased to an average of 15% – 18%, reflecting the strong performance over the last two years and future expectations. This will be measured as the average annual achievement over the five-year performance period.

Aligning pay and performance

As set out in the Executive Remuneration Policy, the committee seeks to align variable remuneration with the key strategic priorities of WPP, therefore maximising the dynamic between pay and performance.

This dynamic is contingent upon the committee setting challenging targets each year. The following graph and table demonstrate the relationship between pay and performance over the last six years for the Group chief executive.

Historical TSR performance¹ Value of hypothetical £100 holding

• WPP
• FTSE 100

Value of a hypothetical £100 investment

Relative importance of spend on pay

The following table sets out the percentage change in total staff costs, headcount, dividends and share buy-backs.

Relative change in pay for the Group chief executive

The following table summarises the change in the Group chief executive’s base salary and fees, taxable benefits and annual bonus, compared to that of all full-time employees within the Group. The increase in taxable benefits of the chief executive officer is due to a higher level of healthcare and spousal travel expenses. The UK taxable benefits cost have reduced due to more efficient procurement.

Non-executive directors’ fees

The fees due to non-executive directors, last reviewed on 1 July 2013, are set out below (£000).

Non-executive directors’ total remuneration received (audited)

The single total figure of remuneration table below details fee payments received by the non-executive directors while they held a position on the Board. During both 2013 and 2014, the Company met the cost (including national insurance and income tax, where relevant) of expenses incurred by the non-executive directors in performing their duties of office, in accordance with the policy.

In 2014, the disclosable value of the expenses that would be chargeable to UK income tax totalled £97,453 (including £33,059 of national insurance and income tax, where relevant).

No payments for loss of office were due to those non-executive directors that stepped down during the year.

Past directors (audited)

During 2014, payments were made to past directors who continued to provide advisory services to the Company. Payments were made to Stanley Morten and John Quelch, both having stepped down from the Board in June 2013. A payment of £77,693 was made to Mr Morten in respect of advisory services provided to the WPP Group. A payment of £30,349 was made to Mr Quelch in respect of educational presentations he gave to companies within the WPP Group. A payment of £30,000 was made to John Jackson in respect of his advisory role to WPP, which enables the Company to benefit from his considerable knowledge and experience in the communications and marketing services sector.

Executive directors’ interests (audited)

Executive directors’ interests in the Company’s ordinary share capital are shown in the following table. Other than as disclosed in this table and in the Compensation Committee report, no executive director had any interest in any contract of significance with the Group during the year. Each executive director has a technical interest as an employee and potential beneficiary in shares in the Company held under the ESOPs. More specifically, the executive directors have potential interests in shares related to the outstanding awards under LEAP III and the EPSP in addition to outstanding ESAs. As at 31 December 2014, the Company’s ESOPs (which are entirely independent of the Company and have waived their rights to receive dividends) held in total 17,859,981 shares in the Company (24,048,113 in 2013).

Share ownership guidelines

As detailed in the Executive Remuneration Policy, the executive directors are required to achieve a minimum level of share ownership of WPP shares. The Group chief executive and Group finance director are required to hold shares to the value of 600% and 300% of base salary and fees respectively.

At the end of 2014 and at the date of this Compensation Committee report, all executive directors exceeded their share ownership guidelines.

Non-executive directors’ interests (audited)

Non-executive directors’ interests in the Company’s ordinary share capital are shown in the following table. Except as disclosed in this table and in the Compensation Committee report, no non-executive director had any interest in any contract of significance with the Group during the year.

Outstanding share-based awards

The following tables summarise all share-based awards either vesting in the year or subject to ongoing performance conditions.

Executive Share Awards (ESAs) held by executive directors

All Executive Share Awards granted under the Restricted Stock Plan are made on the basis of satisfaction of previous performance conditions and are subject to continuous employment until the vesting date. The table does not include the 2014 ESAs as these will not be granted until after publication of this Annual Report. Unless otherwise noted, awards are made in the form of WPP ordinary shares.

Long-term incentive plans – Leadership Equity Acquisition Plan (LEAP III)

The following table summarises all of the awards outstanding under LEAP III.

Long-term incentive plans – Executive Performance Share Plan

The following table summarises all of the awards outstanding under the Executive Performance Share Plan.

Full details of the 2014 EPSP award, including performance measures and targets, can be found in 2014 EPSP awards granted.