Does a rich list CEO really need another £43 million?

The pay of Martin Sorrell's employees has gone down while his has continued to soar

The advertising and marketing firm WPP approved the £43 million pay package awarded to Chief Executive Sir Martin Sorrell in 2014 at its AGM yesterday, despite 22 per cent of shareholders (an unusually high number) failing to endorse the deal.

It’s a ludicrous pay package for a number of reasons. Sorrell is undoubtedly a capable business leader and has achieved great success in building WPP into a global advertising giant since taking over the business in the mid-1980s.

But with a net worth of over £300 million according to the Sunday Times rich list, he has already been amply rewarded for developing the company over the longer term.

WPP now employs over 100,000 people. This is testimony to Sorrell’s success, but also suggests that the continuing growth of the company is not solely down to his individual brilliance.

While Sorrell’s pay leapt nearly 50 per cent from a mere £29 million in 2013, the pay of the average WPP employee, actually fell slightly, from £39,900 to £38,500.

If pay is intended to reward and/or incentivise excellent performance and to retain key staff, it’s also difficult to fathom the logic behind an award of £43 million. Does somebody already worth £300 million really need this kind of money to get them out of bed?

Would Sorrell feel so de-motivated, demoralised and under-appreciated that he just wouldn’t bother if he was paid any less? Even if so, the dependency of a company employing over 100,000 people on a single individual indicates a major failure in terms of staff development and succession planning as much as the genius of the person in question.

Unfortunately, this is exactly what a lot of people involved in the executive pay-setting process think, not least because they have a vested interest in doing so. Research from the TUC found that over a third of the remuneration committee members that set executive pay at FTSE 100 companies are themselves executives of other companies.

Thus, it’s hardly surprising that they believe the senior management team is the be-all and end-all of a company, and that the leading directors deserve to be paid millions.

Similarly, it is the well-paid investment fund managers who control the shareholder votes on pay at company AGMs, not the ordinary people with a pension plan or an ISA whose money the fund managers invest.

So the ‘going rate’ for executive pay is set by something closer to a cartel than a fair and functioning market, with those lucky enough to be in on the racket bidding their own pay up while holding down wages for their employees.

The net result is a steadily widening gap between the super-rich and everybody else (tempered, perhaps only briefly, by the global financial crisis), with all sorts of potentially de-stabilising social and economic consequences.

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(IFS)

This certainly isn’t a state of affairs that anyone who believes in the free market should feel compelled to support, but in the aftermath of the election result, there is a real danger that it will be seen as ‘anti-aspirational’ to talk about the economic power of the super-rich and their ability to capture an undeserved and disproportionate share of pay and incomes.

However, if we believe in a sustainable economy that rewards people fairly and effectively for the work that they do, a bit of outrage at a £43 million pay package is entirely appropriate.

Luke Hildyard is deputy director of the High Pay Centre. Follow him on Twitter

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17 Responses to “Does a rich list CEO really need another £43 million?”

  1. Matthew Blott

    Eh?

  2. Jacko

    Let’s examine that with a specific example. Take Apple, for instance. Without Steve Jobs and Johnny Ive, the Ipad would never have been conceived by Apple, let alone produced. Sure, it took salespeople to sell it in stores, but salespeople can be found anywhere. They’re ten a penny. Creative visionaries cannot be found anywhere. They are, by definition, rare and therefore much more valuable commodities. They’re the people that were ultimately responsible for the growth in Apple to the world’s most valuable company and the massive increase in share price, because they take strategic decisions that last years.

    Pop stars and footballers are major assets of big companies. How the lastest U2 album performs has major implications for the balance sheet of their record company, how that company is valued and all manner of financial metrics that are calculated from its accounts. But of course, pop stars are cool. A bald headed, old guy in a suit in an office is not cool. “I work in an office, and I only earn £30k, why should that guy get £50M? But U2? I saw them at Cardiff Arms Park. They’re a great rock band.”

  3. AlanGiles

    Apparently the more you have, the more you need. You only have to look at the example of Tony Blair to see that. Does he really need all those fees for speaking engagements and “advice” to dictators?. Of course he doesn’t – he is just a greedy money-grubbing hypocrite

  4. CarolBOlivares

    nowRead this leftfootforward….. Here’s a Blog

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  5. Dark_Heart_of_Toryland

    Could you explain precisely how any CEO deserves to be paid more than a thousand times more than the average wage of the employees who actually do the work which produce the company’s profits?

    It’s very well to harp on about ‘increasing skillsets and pursuing their own career’, but the fact remains that grotesque levels of inequality cripple society generally and destroy social mobility. This is a fact which the right consistently ignores, as it doesn’t fit their self-interested, self-serving myth of ‘meritocracy’.

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