Hermes comments ahead of today’s WPP AGM

Ahead of today’s WPP AGM, Dr Hans-Christoph Hirt, Co-Head of Hermes EOS, comments on succession planning and executive remuneration at the firm:

1. Succession planning

Sir Martin Sorrell, WPP’s CEO and founder, has created remarkable value since setting up the company in 1985. 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 18 months, following intensive dialogue with WPP on board composition and remuneration in previous years. We welcome the chair’s recognition of investor concerns regarding the company’s preparedness for succession. Succession risk appears to have moved up the company’s agenda under the chair’s leadership and management of this seems increasingly reflected in WPP’s work and communications to shareholders. The external board evaluation that was carried out in 2015/2016 was also encouraging. However, while we appreciate the steps that the company has taken so far, we urge the chair to continue to make progress on the management of succession risks and enhance disclosure on existing and planned measures.

We would like to emphasise that our engagement does not question whether Sir Martin is the right person to lead WPP but is about ensuring that the company’s succession risks are appropriately managed and that an eventual succession proceeds smoothly.

2. Executive remuneration

We recognise the company’s strong performance under the CEO’s leadership in recent years. However, in line with our vote against the remuneration report last year, we are unable to support this year’s packages. Unfortunately, even considering the strong performance and pay practices at peers, the legacy equity incentive plan introduced in 2009 (LEAP III) has once again led to what we regard as an excessive level of CEO remuneration for 2015.

We appreciate that a new remuneration policy was approved by shareholders in 2013 and that the legacy plan only has one more year to run. Nonetheless, we are highly uncomfortable with the 2015 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.

While we acknowledge that the current chair of the remuneration committee did not conceive the legacy equity plan, we urge him to draw the right lessons from the controversy around executive pay at WPP in recent years. Only then can the trust of internal and external stakeholders in the effectiveness of WPP’s board and its remuneration committee be restored.

We will continue our engagement with WPP on succession planning and executive remuneration in the third quarter of this year ahead of a vote on a new remuneration policy in 2017.