The advertising giant WPP is hoping it can head off another investor revolt over its chief executive Sir Martin Sorrell's pay by cutting his base salary and potential bonus, even as it was revealed that his package soared by nearly half to £17.6m last year.
Jeffrey Rosen, the chairman of WPP's compensation committee, told The Independent the board has consulted extensively with shareholders since last year, when 60 per cent voted against the remuneration report.
He conceded that many shareholders felt that Sir Martin's pay had been "too high relative to the UK market" after a hike in pay and benefits in 2011 and that WPP "fell short" in its previous negotiations. But Mr Rosen said he believed "sufficient consensus" has been reached this year.
Sir Martin's base salary has been cut by £150,000 from £1.3m to £1.15m and WPP is dropping its long-term bonus scheme, called Leap, in favour of a less generous incentive. It means the maximum long-term bonuses that he can potentially earn has been slashed in half – partly because bonuses are based on multiples of salary.
"The changes we have made were designed to be responsive to an environment in which moderation of executive compensation is considered necessary and appropriate," Mr Rosen said.
He admitted that some shareholders were still likely to oppose the latest pay deal but he hoped that "many and most will feel it's appropriate" at WPP's annual meeting in June.
WPP has been struggling to win support from investors over its pay deals for several years. As well as 60 per cent voting against in 2012, 42 per cent refused to back the remuneration report in 2011.
Mr Rosen faced a major protest vote over his own re-election last year and WPP has announced he will step down as chairman of the compensation committee in December. He will remain on the board and those close to WPP maintain he was always going to do that as he has been in the job for nine years and would no longer be seen as independent.
However, in a sign that WPP is bowing to investor pressure, the group has recruited four new non-executive directors.
One shareholder advisory group gave a cautious welcome to the changes, saying it was "potentially quite positive" that WPP has cut Sir Martin's salary and bonus potential.
The WPP boss saw his total package leap to £17.6m last year because he collected a long-term incentive, known as a Leap award, worth almost £11.4m against £3.2m a year earlier. It means Sir Martin was one of the best-paid chief executives in the FTSE 100 last year.
Stripping out those long-term awards, his short-term remuneration fell by about 30 per cent to about £5.5m, including base salary and bonus.
WPP maintains that Sir Martin deserves his pay because the group has out-performed the FTSE 100 index by eight times in terms of share price and dividend income in the past 20 years.