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Hermes statement on WPP AGM

Home / Press Centre / Hermes statement on WPP AGM

Hans-Christoph Hirt, Head of Hermes EOS at Hermes Investment Management, comments on today’s WPP AGM.

1. Succession planning

We welcome the chair’s recognition of investor concerns regarding the company’s preparedness for succession. Sir Martin Sorrell, WPP’s CEO and founder, has created a great deal of value since taking over as Chief Executive of the company in 1986. He is rightly regarded as one of the most successful entrepreneurs and business leaders in the world. In light of this, the preparation for his eventual succession has been the focus of our engagement over the last years.

Succession risks appear to have moved up the company’s agenda under this chair’s leadership and management of this seems increasingly reflected in WPP’s work and communications to shareholders. However, while we appreciate the steps that the company has taken so far, we urge the chair to continue to focus on the management of succession risks.

Our engagement with WPP does not question whether Sir Martin is the right person to lead WPP but is about ensuring that the company’s success is appropriately safeguarded with an eventual succession proceeding smoothly.

2. Executive remuneration

We recognise the company’s strong performance under the CEO’s leadership over many years. However, in line with our recommendations to vote against the remuneration reports in recent years, we are unable to recommend support for this year’s package. Unfortunately, even considering the strong performance and pay practices at peers, the legacy equity incentive plan introduced in 2009 (LEAP III) has once again resulted in what we regard as an excessive level of CEO remuneration for 2016.

We appreciate that a new remuneration policy was approved by shareholders in 2013. Nonetheless, we are highly uncomfortable with the 2016 quantum, not least in light of our historic concerns about board composition and the remuneration committee’s apparent lack of vigour and stress-testing when the legacy plan was devised.

We acknowledge the work WPP’s board has done in recent years to bring remuneration policies and practices more in line with our expectations. In recognition of this progress, we feel able to give qualified support to the proposed new remuneration policy. The new policy meets many of the requirements we set out in our Remuneration Principles last year although we do remain uncomfortable with the plan’s leverage and therefore the opportunity for high pay. While we understand the pay practices in WPP’s industry, we would expect to see less leverage and reduced pay opportunity in the packages of future executive board members. We are encouraged to see a further reduction in the maximum ratio of variable to fixed pay for any new CEO and hope that a smooth succession process will enable the board to reduce this still further.

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Hans-Christoph Hirt Dr Hans-Christoph Hirt is an executive director and board member at Hermes EOS and as Head of the organisation responsible for the sustainable success of the business. He leads and oversees the global engagement programme and the quality of the services Hermes EOS provides to its clients around the world. Hans also leads some high-profile stewardship activities, including priority engagements with major companies in Asia and Germany, as well as interactions with key regulators and organisations. Prior to joining Hermes EOS, Hans worked with international law firm Ashurst. He is the author of numerous publications on corporate governance and law, responsible investment and stewardship. Currently, he is a member of the Steering Committee of the UN PRI Investor Engagement Clearinghouse and the Shareholder Responsibilities Committee of the International Corporate Governance Network. In 2015, he joined the Institutional Investor Council in Malaysia. Hans is a UK-qualified lawyer, holds degrees in Business Administration from universities in Germany and the UK, the ACCA qualification and a PhD from the London School of Economics (LSE). He continues to be involved in academia as a Corporate Governance Fellow at the LSE’s Financial Markets Group and a Teaching Fellow at University College London. Hans speaks French, German and Mandarin.
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