The contract, which must be approved by shareholders at an extraordinary meeting, gives him an annual salary of dollars 1.15m, with performance bonuses that could be worth as much again. A further dollars 500,000 a year will be paid in pension contributions. Mr Sorrell's contract has also been reduced from a five-year rolling one to a three-year contract, renewable annually.
WPP has also set up a capital investment plan under which Mr Sorrell must invest dollars 3.3m in shares. The group will subscribe up to two-and-a-half times that number of shares, depending on the share price performance over a five-year period.
There will also be a conventional share option scheme, similar to the current one under which he has already been granted options to buy 190,476 shares at 52.5p. WPP's shares closed yesterday at 120p, 1p up on the day.
The package is likely to cause a furore in the City and government, where there is increasing concern about the size of salaries paid to some of Britain's top executives. The Conservative and Labour parties have attacked the 'corporate gravy train' and, while much City criticism has focused on compensation payments when directors are ousted, there is also growing distaste for excessive remuneration packages.
Some fund managers, led by PosTel, are also campaigning against three-year service contracts. They want them replaced by one- year contracts, which make it less likely that compensation payments will be excessive. WPP, however, believes that a one-year contract is too short for a senior executive.
The package compares with Mr Sorrell's 1993 salary of pounds 956,000, including a pounds 316,000 bonus. There were no pension contributions.
Gordon Stevens, WPP's chairman, said the group was assisted by external benefit consultants, who devised the package based on comparison with salaries of its international competitors. 'We found that Martin Sorrell was among the lowest-paid executives of a marketing service company, although WPP is the biggest and most complicated.'
It was approved by the remuneration committee, which is chaired by Paul Judge, a non-executive director, who made a personal profit of pounds 45m when he sold Premier Brands shortly after a management buyout from Cadbury Schweppes.
Mr Stevens said the package was aimed at motivating Mr Sorrell to get the best return for shareholders. 'As directors, our interest is in securing the health and wealth of the business. What you pay directors is another tool in that, just as you might pay to go out and buy a business.'
Investors may, however, question why the package should be set up just as WPP comes out of the recession and is poised to take advantage of strong advertising growth. Three years ago, WPP was on the brink of collapse under the weight of debts taken on to finance the purchase of J Walter Thomson and Ogilvy & Mather - deals masterminded by Mr Sorrell as he strove to build a media empire to rival Saatchi & Saatchi, his previous employer.
It was forced into a debt-for-equity swap in 1992. That will finally come to fruition on Monday when the convertibles issued to the banks as part of that deal become ordinary shares, increasing its share capital by 36 per cent.
Under the annual bonus, up to 60 per cent of Mr Sorrell's salary will be paid if he achieves targets set by the company and the remainder will depend on WPP outperforming its rivals.Reuse content