Sorrell weeks from pounds 3.6m share bonanza

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The Independent Online
Martin Sorrell, the chief executive of advertising giant WPP, is just weeks away from a multi-million pound payout under the controversial incentive scheme established earlier this year. If the WPP share price remains above 230p until March, Mr Sorrell will be awarded shares worth at least pounds 3.6m.

The shares closed last night at 251.5p, marking the fourth trading day they have stayed above the 230p trigger price. Under the incentive scheme, worth as much as pounds 14.3m over five years if all targets are met, the shares must stay at or above the target for 60 consecutive trading days and exceed the growth record of the overall stock market.

Thereafter, shares will be awarded at 265p and 304p. Mr Sorrell also has salary, benefits, bonuses and previously awarded share options that could push his five-year total to just over pounds 27m.

The conditions attached to the incentive package, approved by shareholders during a raucous meeting last summer, were defended at the time by Mr Sorrell and the WPP remunerations committee as "nearly impossible" to achieve.

They added that Mr Sorrell had proven his commitment to the company by agreeing to invest more than pounds 2m of his own money in WPP shares.

Mr Sorrell has already been awarded shares worth pounds 877,000 under a pre- existing incentive scheme, as part of his1995 pay.

The rich package was criticised by some institutional shareholders because it appeared to reward Mr Sorrell merely for overseeing the return of the company's shares to the level they had reached when he first joined. Since then, the price zoomed to the 900p level, only to collapse following an acquisition binge and the effects of the recession.

Meanwhile, it emerged yesterday that WPP was on target to achieve revenue growth of between 8 and 9 per cent in 1996, well above the conservative target of 5 per cent established last year and higher than the industry average of between 6.5 and 7 per cent. Operating margins will exceed 10.6 per cent, up from 9.6 per cent in 1995 and in line with Mr Sorrell's promise of a percentage point increase in profit margins per year.

Analysts said yesterday the company should continue to perform well in 1997 and 1998, making the top stock price target of 304p eminently achievable.

WPP should see pre-tax profits hit at least pounds 150m in 1996, rising to about pounds 185m next year, when margins are expected to improve to about 11.6 per cent. Higher revenues next year will come despite the lack of one- off events such as the US presidential election and the Olympics, which helped fuel advertising spending this year.

The margin growth has been achieved by increasing productivity, with head count rising last year by about 3 per cent, far below the rate of revenue growth. But WPP remains below the best performers in the sector, including US giant Omnicom and Interpublic, which managed margins of more than 13 per cent.

WPP currently trades at a discount not only to the highly valued media sector but even to some of the companies in its peer group of publicly traded advertising and media buying companies. Until the recent rise in the shares, Mr Sorrell's firm, which owns Ogilvy & Mather and J. Walter Thompson, was even at a discount to Cordiant, the troubled advertising company formerly known as Saatchi & Saatchi.

If WPP traded at a similar price-to-earnings ratio as CIA Group, the media buying company, its shares would already be at the 275p level, or higher than all but the top trigger price in Mr Sorrell's incentive package. If they matched the trading multiple of the sector's best performer, Abbott Mead Vickers, the shares would even exceed the 304p top target.

According to the media team at Salomon Brothers, institutional investors remain underweighted in WPP, and the shares are rated a buy.

Salomon said the company the company was well placed to withstand a downturn in the economy, given the mix of its marketing, public relations and advertising businesses.

Comment, page 17

Martin Sorrell's incentive share plan

Target price Shares Value Cumulative Status

Awarded Value

230p 1.56 million pounds 3.6m pounds 3.6m pending

265p 1.56 million pounds 4.1m pounds 8.3m not met

304p 1.56 million pounds 4.7m pounds 14.3m not met

Current share price: 251.5p

Other remuneration:

Salary and benefits over five years: pounds 3.75m

Performance-related bonus over five years (maximum): pounds 3.75m

Previously awarded options (at 304p): pounds 5.3m

Value of package over five years if shares reach 304p: pounds 27.1m