News Column

Furious investors attack WPP and RBS over excessive bonuses and pay

June 26, 2014

Julia Kollewe Juliette Garside, theguardian.com



Investors at two FTSE 100 companies have joined the chorus of protests against excessive executive pay, with nearly 30% of shareholders at the advertising group WPP refusing to endorse a plan that allowed founder Sir Martin Sorrell to receive a 30m windfall last year.

Meanwhile, the Royal Bank of Scotland chairman Sir Philip Hampton was forced to defend the bank's bonus schemes, admitting: "Pay in the financial sector, particularly banks, got out of line with other sectors and more importantly the underlying performance of the business.

"Ultimately taxpayers picked up some of the bills for that."

The rebellion at WPP's annual shareholder meeting suggests that departing chairman Philip Lader has yet to quell a rebellion that began in 2012. In arrangements described by the influential advisory group Pirc as excessive, Sorrell is expected to collect nearly 100m over the next three years in share awards from long term schemes that were halted in 2012 but have yet to expire.

In addition, he will be entitled to earn a maximum of 19.3m a year in 2014 and 2015, under a new scheme introduced last year.

Votes cast before the meeting at London's Shard skyscraper showed over 28% of shareholders rejected or abstained from approving the 2013 pay plan, up from 26% the year before. In a separate poll on the three year pay policy introduced in 2013, the first binding vote under new city rules, 26% voted against or abstained.

However, in order to pass a resolution, companies need a simple majority of votes cast, and WPP secured approval from nearly 82% of shareholders excluding abstentions for its pay policy.

"There have been some considerable concessions about executive remuneration at WPP over the last few years but the company still maintains a complex assortment of pay arrangements," said Pirc representative Andrew Whiley at the meeting. "Will the board consider making all of the variable pay arrangements much more simple, transparent, and easier for shareholders to get a handle on?"

Because WPP has not cancelled legacy pay schemes, which will make up the bulk of Sorrell's earnings over the coming years, Pirc argues the company is running six separate plans, all of which have different rules.

Awards under WPP's contentious leadership equity acquisition plan (Leap) will continue until 2016. This is because the scheme ran until 2012, but executives are not able to claim their shares for five years. By 2016, Sorrell is expected to receive 7.8m shares from Leap, worth 97.5m at Wednesday's 12.52 share price.

Lader responded: "We admit complexity but hope you see our commitment to transparency," adding that cancelling earlier plans would be unfair and could raise legal issues.

Private shareholder Keith Jago took the floor at the meeting to say Sorrell's 30m earnings last year were equivalent to 24,000 for every working hour. He also questioned the chief executive's benefits, which included a 167,000 travel allowance for his wife Cristiana Sorrell, an organiser of the World Economic Forum at Davos.

"I wonder how anyone can be wroth 30m when the UK is debating over minimum wage levels," said Jago. He also questioned the company's tax haven registration in Jersey. "Personally I don't want to be part of a company that behaves like that. Are we of the same ilk as Amazon or Starbucks?"

WPP paid 240m around the world in corporation tax last year, according to finance director Paul Richardson, and over 150m in the UK in various taxes. Following the collapse of a merger between American rival Omnicom and France's Publicis, WPP remains by some margin the largest marketing group in the world, accounting for at least a quarter of global media spend.

Sorrell pointed out that 1,000 invested when the company was founded in 1985 would be wroth 47,900 today. The same sum invested in the FTSE 250 over that period would be worth just 4,250. He said WPP had enriched institutional investors and pension funds by 18bn during its lifetime as a listed company.

Scottish Widows, the third largest shareholder with 2.5% and a leading voice in previous revolts, is understood to have backed the board this year. Blackrock, the second-largest investor with 3.5%, and Legal & General are understood to have supported the pay policy.

The Local Authority Pension Fund Forum, which represents 60 public sector retirement funds, advised its members to vote against. The forum's chair Kieran Quinn said: "Overall, it is excessive and does not have our support The Forum will continue to highlight examples of where senior leadership of large corporations seek complex salary and bonus packages that are not justified by performance and are out of step with shareholder and community expectations of reasonable reward for effort."

At RBS's annual meeting at its Gogarburn headquarters on the outskirts of Edinburgh, all resolutions were overwhelmingly passed after the UK government voted its 63% stake in favour of the necessary resolutions. The Treasury had previously forced the state-owned bank to scrap plans to pay its bankers bonuses twice the size of their salaries, but nodded through plans to hand executives payouts of up to 100% of basic salary. RBS chief executive Ross McEwan is in line for 1m a year in "share allowances".

This prompted private shareholder Elaine McMillan to ask during the meeting: "How do we get out of the spiral of all banks paying obscenely large bonuses and extremely large salaries?"

Sir Philip replied that RBS, which made an 8.2bn loss last year, "had done more than most". He said overall bonuses had come down by 60% in the last four years, and by 75% in investment banking alone. "I don't think it's 'job done' yet, but huge progress has been made." He also insisted: "We have to have competitive pay structures."

Hampton warned of further branch closures as the popularity of online and mobile banking grows. But he insisted that RBS, which has about 1,600 branches at present, would keep "a very large branch network across the UK" and have more branches than supermarket chains Asda and Sainsbury's combined (1,500). He later qualified his remarks, saying there is no floor.

As in previous years, and somewhat surprisingly, RBS bosses were not asked any questions on Scottish independence, even though the referendum is less than three months away. In his opening remarks, Hampton refused to take sides but said RBS was considering the potential business implications of a Yes vote. He flagged up risks relating to the bank's credit rating, tax and regulation, but noted that it would take up to two years before Scotland actually became independent. During this transition period, the UK would remain the sovereign domicile for RBS.

Investors backed the removal of the dividend access share, which gives the government priority over payouts. It will cost the bank about 1.5bn to buy itself out of the scheme.

Hampton also fielded questions from shareholders over the bank's lending to the coal industry, which Friends of the Earth Scotland said had increased since 2005, despite the bank's claims to the contrary. FoE Scotland says RBS is the third-biggest global investor in coal. Hampton said it's "not a major part of our portfolio."


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Source: Guardian Web


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