WPP was doing well, so why did shareholders reject Martin Sorrell’s bonus?

The WPP rebellion was unlike other rejections of remuneration reports that have recently taken place because WPP has actually been performing well.

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Duncan Exley works for One Society

The chief executive of WPP, Sir Martin Sorrell, yesterday suffered significant embarrassment when the company’s remuneration report was rejected by 60% of the company’s investors. This is the latest in a series of widely-reported rebellions.

It would be easy to get the idea that shareholders are now tackling the soaring levels of executive pay and that robust government action is unnecessary. That idea would be a mistake.

Martin-SorrellThe WPP rebellion was unlike other rejections of remuneration reports that have recently taken place because WPP has actually been performing well. Other rebellions have taken place in companies where performance was seen as substandard.

In other words, votes against remuneration reports have been used as a proxy for discontent about other issues: shareholders have NOT been saying that ever-increasing top pay is a problem.

There is less to the shareholder spring than meets the eye. The vast majority of companies still have their remuneration report approved.

As Robert Peston wrote just before the WPP AGM:

“There have been just four defeats so far of companies in votes on their so-called ‘remuneration reports’, and only one of these companies has been in the FTSE 100 list of biggest businesses. That does not represent an exponential increase in shareholder rebellions”.

 


See also:

Government bonus crackdown ignores the outsourced sector – again 13 Feb 2012


 

The narrative of the shareholder spring is misleading: rebellions get much more coverage than the commentators like Peston and Nils Pratley who point out that “radical reform to the way companies are managed and directors are paid still lies years away”.

It is important to remember why “radical reform” is urgently necessary. On Tuesday, it was reported that the average FTSE 100 CEO saw their pay increase 12% to an average of £4.8m: approximately 200 times average private sector pay. By contrast, disposable incomes for the rest of us are set to fall for the third year running (pdf).

Even if the so-called shareholder spring does not run out of steam, if it continues at its present underwhelming rate, a few executives may see their pay reduced from levels that are ridiculous to levels that are merely astounding, while the gap between top pay and average employee pay will continue. This soaring inequality is bad for businesses, bad for the economy and bad for society.

 


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