WPP has stunned its major investors by suggesting that Sir Martin Sorrell, its long-standing chief executive, should be awarded a pay rise of as much as 50% that could take his salary to £1.5m – and push up the potential bonuses he might also receive.
The advertising and marketing group, founded by Sorrell and home to names such as JWT and Ogilvy & Mather, has not increased Sorrell's £1m salary since January 2007 and is now arguing that the chief executive needs a boost in his basic pay to keep pace with his rivals.
Jeffrey Rosen, the chairman of the remuneration committee at WPP, has told major shareholders the company wants to increase the size of Sorrell's bonus potential as well as raising his basic pay.
Basic salaries are important for chief executives – and other board directors – because bonuses and potential long-term incentive plans are usually set as a multiple of basic pay.
Sorrell, who turned a shell company called Wire & Plastic Products into an empire that also includes media buyers Mediacom, market researchers Kantar and public relations firms Hill & Knowlton and Finsbury, has often ranked high in the Guardian's executive pay surveys.
He pocketed £50m of shares in 2005 after a long-term share scheme – known as a leadership equity acquisition plan or Leap – dating back to 1993 came to fruition. Last year, he took home £4.2m after his £1m salary was enhanced by benefits, bonuses and shares.
The high-level discussions about increasing Sorrell's pay are taking place after other top executives at the company were given pay rises last year. The company endured a rebellion on the issue in June when more than 40% of investors failed to back the remuneration report, largely because Mark Read, chief executive of WPP Digital, was handed a 30% rise to take his salary to £425,000.
The timing and scale of the pay rise being proposed for Sorrell, who is widely admired for his business acumen and commitment to WPP, has surprised investors. One said: "This is just not the time to be pushing for a pay rise." Another pointed out that WPP had been preparing the ground after pointing out on a number of occasions that he had not had a rise in his basic salary for 2008, 2009 and 2010.
In the latest annual report, WPP explained that Sorrell's base salary had been due to be reviewed in November 2008 but he had told the compensation committee an increase "would not be appropriate in light of business conditions".
But the annual report added: "As part of the extensive review of the executive directors' compensation at the end of 2010, the committee considers that an increase in base salary and adjustments to incentive opportunities are appropriate. Consideration of these issues has continued during 2011 and the committee intends to consult share owners before the proposals are finalised."
That consultation is understood to have begun in the summer and is now the subject of hot debate among investors, who admire Sorrell for his drive and ambition in expanding WPP but doubt that the executive is at risk of leaving the group he has founded to go to a rival.
He has likened his relationship to WPP as "the closest a man can come to giving birth" and insisted that money is not his driving force. He took a loan against his shares in advertising company Saatchi & Saatchi to enable him to buy WPP and the City began to notice him once he pulled off the takeover of advertising network J Walter Thompson in 1997. He told the Observer in July 2010: "I think when we did our first high-profile deal, which was JWT, I was definitely the outsider."
A WPP spokesman said: "As we said in our most recent annual report, Sir Martin Sorrell's base salary has been unchanged since 1 January 2007 and Sir Martin declined a review due in November 2008 because of business conditions at the time. We also said that the compensation committee considered that an increase in base salary and adjustments to incentive opportunities were appropriate and that the committee intended to consult share owners before finalising proposals.
"We are going through the very early stages of that process now."