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Limiting damage caused by concentrated power and mega reward

Sir Martin Sorrell’s resignation as WPP chief executive had a seismic effect on the world’s biggest advertising company.  As another company with power concentrated in a strong founder its aftershock may well be felt for some time as governments ponder any intervention.

Sir Martin Sorrell’s resignation as WPP chief executive had a seismic effect on the world’s biggest advertising company.  As another company with power concentrated in a strong founder its aftershock may well be felt for some time as governments ponder any intervention.

Indeed, senior players whose pay and benefits packages have been challenged since the spotlight was shone on the executive include Persimmon plc, The AA and Barclays. Meanwhile, it was recently reported that powerful shareholder groups are querying the validity of the investigation and his leaving status.

Sir Martin’s dramatic company departure followed a whistle-blower (perhaps an employee) raising concerns about his personal behaviour, use of company money and the execution of the misconduct investigation.

However, he first faced a remuneration challenge in 2012, when his annual package exceeded £10m for the first time. Despite a 60% vote against the pay packet, he defended his deal – and prevailed.

By 2015, this remuneration package had reached £62.8m from a five year bonus programme, despite a reduced stake in the company. Investors renewed their challenge, pressurising the company into scrapping its long-term and outdated bonus scheme the following year.

It is so important that all those leading large companies notice that both society and business were changing fast and respond as quickly.  While big remuneration packages are a primary reward of successful businesses and those in control, rightly, set and implement the policy, investors now look for greater fairness of reward from a responsible leadership.

The best leaders know that a commercial giant’s past, fearsome reputation and strength cannot protect it from powerful forces of change.  They must continue to build the reputation and results of the company adapting to changing new markets and embracing new technologies.

Across society and the wider corporate landscape, there is a change in topic of conversation on salaries, compensation and bonuses. What may have been acceptable 20 years ago has been rejected in favour of policies promoting a more equitable distribution of rewards across all stakeholders, rather than a small group leaders with packages rising to many tens of millions.

 An immediate slump in WPP share values following Sorrell’s eventual resignation and the company has announced that it will sell off assets to pay down debts of £750m. It has yet to be seen how clients will react when contracts are up for review and renewal. WPP may still have to manage the implications of any retirement package in the public domain.

So, for the company how could this have been avoided and, more to the point, what can others do to stay on track?

Simply Consider:

Review and empower the remuneration committee to lead on responsible remuneration policy and awards across the full range of benefits for the Executives and employees. It is important to consider who, on the board, is responsible for the People Strategy.

Boost the effectiveness of the nominations committee to develop succession plans and talent pipelines across the organisation reflecting society and the customer base to stay relevant.

Establish better communication with all stakeholders – plan an EGM, Employee General Meeting before the Annual General Meeting, review the quality of the shareholder dialogue.

Review the current working culture within the organisation, what are the outcomes of the processes and how well do we support one another? Agree and action what needs to be different.

For small businesses, build simple, effective governance, aligning business growth to a healthy, sustainable culture:

1.Consider corporate structures, change of control, buy-outs and shareholding implications

2.Cater for unforeseen exits with clear procedures, contracts and rights of redress to manage leavers to build reputation for both parties.

Whatever an organisation’s size, the more open and simple its corporate structure and processes the better for shareholder and client satisfaction, employee wellbeing and long term commercial health. Productivity, sales, profits and staff engagement will be high while attrition, absenteeism and poor punctuality will lower.

For WPP, it could yet forge ahead with a new global leader and structures to become an example of tomorrow’s successful company.

The nuts and bolts of this are a very changed leadership approach with fairer rewards, closer stakeholder relationships, including partners and clients, with open, efficient lines of communication always at the top of their agenda.

Jane Williams People Innovation executive director, NED and advisor specialising in business growth, cultural transformation and remuneration policy.

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