Dear share owner
On behalf of the Compensation Committee, I am pleased to present the Compensation Committee report for 2014. This is my first report as chairman of WPP’s Compensation Committee, having succeeded Jeffrey Rosen at the AGM in July 2014.
The committee believes it is our duty to set and implement compensation policies that support the Group strategy, that are in the best interests of share owners and that are aligned with UK corporate governance requirements.
In 2014, the committee presented its report and policy in compliance with the new reporting standards introduced in 2013. In its first year, the Executive Remuneration Policy received a supportive vote of 81.93%. The committee carefully considered the outcome and the reasons for opposition, most of which had been previously raised in discussions with share owners and taken into account when finalising the policy. The committee remains satisfied that the approved policy is in the best interests of share owners.
On taking over as chairman of the committee, I wanted to continue the established practice of engaging with WPP’s share owners, to listen to and discuss their views on our remuneration policy. So far I have met with some of our largest share owners and plan to meet more during the remainder of 2015.
The committee expect the primary area of focus for share owners and the broader media in 2015 to be the single figure for Sir Martin Sorrell. This is largely the product of exceptional performance delivered over the last five years, driving the vesting of the 2010 long-term incentive award and the increase in your Company’s share price.
Pay for performance 2014
WPP currently has two very different long-term incentive plans in operation: the legacy Leadership Equity Acquisition Plan III (LEAP) used for awards until the end of 2012, and the replacement Executive Performance Share Plan (EPSP) under which awards have been made since 2013. The legacy LEAP program was a co-investment plan, requiring executives to pledge shares, which would be matched to the extent that WPP’s total shareholder return (share price growth plus reinvestment of dividends) out-performed competitors over a five-year investment and performance period.
2010 LEAP awards, which vested on 12 March 2015, were based on TSR performance over the five financial years ending 31 December 2014. Over the performance period, WPP achieved a TSR of 172.5%. This was underpinned by sustained five-year performance evidenced by a number of metrics:
- Out-performed over 90% of the comparator group’s market capitalisation.
- Ranked in the top three of WPP’s comparator group.
- TSR in the upper quintile of the FTSE 100, out-performing over 90% of the constituents’ market capitalisation.
- Share price increased by 114% from £7.25 at grant (120% of our five- and 10-year average share price at the time, and close to our then five-year high of £7.875) to £15.49 on vesting.
- Strong ongoing underlying financial and operational performance.
- WPP headcount increased by over 20,000.
This strong performance resulted in the LEAP 2010 awards vesting with a maximum match of five-times the shares invested by the executives and other senior leaders invited to participate in 2010.
The value of Sir Martin’s award, while large by any standard, equates to approximately one-third of 1% of the increase in value for share owners.
The 2014 operational performance of the Group was strong with 7.2% headline like-for-like PBT growth, a like-for-like 3.3% increase in net sales and a constant currency improvement in net sales margin of 0.3%. The annual bonus performance review for the executive directors took into account both the financial performance of the Group, together with an assessment of their achievement against individual measures based on areas of strategic importance. Outcomes ranged from 109% to 144% of target. Full details of the annual plan, including enhanced disclosure of the measures, performance ranges and achievements is set out in the short-term incentive section of the Implementation report.
Compensation and policy considerations for 2015
Base pay review
In accordance with the Executive Remuneration Policy, the base pay (base salary and fees) of executive directors is reviewed every 24 months. Sir Martin Sorrell’s base pay was due to be reviewed with effect from 1 January 2015. The committee undertook a review and decided that no change would be made. Paul Richardson’s base pay review will be undertaken during 2015.
In preparation for the 2015 EPSP grants, the committee has undertaken a full review of the performance measures and ranges that will determine vesting of these awards. The committee remained satisfied with the TSR and EPS performance measures’ and ranges’ alignment with the Group’s long-term strategic plans. While there was agreement that ROE remained an appropriate measure, the committee determined the performance range should increase from 10% to 14%, to 15% to 18%, measured as the average annual achievement over the five-year performance period, given the recent improvement in the Company’s ROE to 15%.
In response to developments in corporate governance best practice, the Compensation Committee intends to adopt clawback provisions during 2015 to take effect in 2016. These provisions will apply to the executive-level incentive plans and complement the existing malus provisions adopted in 2010. The combination of these provisions will enable the Compensation Committee to reduce or cancel awards prior to vesting (malus) and/or to seek to reclaim awards that have actually vested and been paid (clawback). We believe that this, in conjunction with the five-year performance period under our long-term incentive plans, the deferral of at least half the annual bonus into WPP shares and the personal shareholdings of our executive directors will afford considerable protection of share owner interests over the long-term.
Share plan approval
A new share option plan is being submitted for approval at the 2015 AGM. This new plan will replace two existing plans that will expire in 2015: the WPP Worldwide Ownership Plan and the WPP Executive Share Option Plan. The primary purpose of the new plan is to provide the ability to operate an all-employee share option plan for Group employees. The current plan makes awards to over 50,000 employees each year and is highly regarded. The secondary purpose of the new plan will be to provide the Company with the capacity to grant selective option awards in the exceptional event they are required to attract or retain key individuals below Board level. While a feature of the current plan, such awards have been granted infrequently in recent years.
Personnel changes in 2015
In February 2015, Mark Read was appointed to a new role as the CEO of Wunderman. In order to focus on this new role, Mark stepped down from the Board as an executive director of WPP. In the future, the committee will have oversight of Mark’s compensation as it does over other senior executives in the Group.
Roberto Quarta, the chairman designate, joined the committee on 1 January 2015. At the AGM in June 2015, Jeffrey Rosen and Colin Day will not seek re-election and will therefore stand down from the committee. I thank them both for the energy and wisdom they have brought to the committee over many years.
Sir John Hood
Chairman of the Compensation Committee
20 April 2015
At a glance
How we performed
Key performance measures
Key performance measures
|Group financial measures (like-for-like)
|| % of target achieved
|| % of maximum achieved
|Headline PBT growth
|Net sales margin improvement
|Growth in net sales
Other key measures
|Other key measures
|Total shareholder return
||Ten years: 198.7%
||31 Dec 2009: £7.7bn
||31 Dec 2014: £17.8bn
Long-term total shareholder return performance
How much the executive directors earned in 2014
How we will implement our compensation policy in 2015
Key measures of five-year performance
Key measures of five-year performance
||Sir Martin Sorrell
1 Opportunity and target expressed as a percentage of base salary and fees.
|Base salary and fees
||$945,000 + £100,000
- 70% ﬁnancial and 30% personal strategic
- One year performance
- 50% cash, 50% deferred WPP shares (two years)
|Opportunity: 0% – 435%
|Opportunity: 0% – 300%
- TSR, EPS and ROE
- Five-year performance
- 100% WPP shares
|Opportunity: 0% – 974%
||Opportunity: 0% – 400%
Number of WPP shares the executive directors owned at 31 December 2014
How many WPP shares the executive directors owned at 31 December 2014
|| Ownership target
(% of base salary and fees)
| Shares owned
|| Multiple of ownership target
| Sir Martin Sorrell
| Paul Richardson
| Mark Read