Allegations could well boost his pay not lower it

There are allegations, allegations being investigated, about Sir Martin Sorrell’s possible misuse of corporate assets and also his personal behaviour. No, we don’t know what these are in any detail yet but it has given the papers another of those lovely opportunities to be wrong about executive pay. For this is far more likely to increase Sir Martin’s pay than it is to reduce it.

Because that’s how share options and awards work.

The board of WPP has appointed an independent counsel to investigate allegations of “personal misconduct” made against its chief executive Sir Martin Sorrell, it confirmed late on Tuesday.

Although WPP did not provide further details on the allegations, it said they “do not involve amounts which are material to WPP”.

Well, OK, until we know what’s alleged and whether he did it there’s not a great deal more we can say. Although we can observe something at least:

Shares in WPP closed down 15p yesterday,

Adding a further fall to the 15% decline because of bad trading conditions announced recently. At which point:

A third of shareholders rejected WPP’s remuneration report for 2015, prompting a less generous scheme to then be put into place. Last year, Sir Martin took a £22m pay cut, receiving £48.1m for 2016 down from £70.4m for the previous year.

It is thought that Sir Martin’s pay is set to be slashed further this year.

Well, no, not really. For near all such executive pay is determined in shares in the company, whether as options (rather old fashioned now) or restricted stock. If the share price is lower because of some temporary factor like an investigation which will go away soon enough, but the share awards are at that temporarily lowered price, then the future value of the pay award will be higher, not lower.

As an executive paid in shares you just love it when there’s a price slump just around share award time….just as much as you love a pop when it’s time to sell.

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