The argument struck me as monstrously disingenuous. Nobody should deny Sir Martin's achievements in building WPP from nothing. He got the group going through breathtaking takeover artistry, he proved a dazzling financial negotiator when the chips were down in the early 1990s and WPP's steady performance for many years since its rehabilitation demonstrates consistent organisational flair. It's just a pity this has not always produced magnificent rewards for shareholders.
But it sure has for him. As pointed out in No Free Lunches passim, Sir Martin has picked up £100m in pay and share awards over a 12-year period in which the shares have barely kept up with the FTSE 100. That strikes me as greed, not genius.
According to Sir Martin: "Anybody who invested £1,000 in WPP at the beginning in 1985 would now have more than £31,000." But I was unable to substantiate his arithmetic. Using the 38p he paid to reverse into Wire & Plastic Products and the current one of 760p, the gain works out at £20,000. I must have overlooked a scrip issue, which would entail adjusting that original 38p price down to 25p - the figure that makes Sir Martin's arithmetic work for me.
However, the only person who invested in WPP at 25p was Sir Martin (and his then partner, Preston Rabl). At this point there were six million shares in issue. The announcement of their deal of course set WPP's shares alight. They were 45p by the end of the day. Nothing wrong in that: when a financial wizard joins a £1m company, you expect the price to soar - it happens all the time. It carried on: within 12 months the shares passed 300p. At this stage, there were 15m shares in issue. When WPP made the audacious acquisition of J Walter Thompson in 1987, the rights issue to pay for it came in at 570p (all these figures are adjusted as above). There were now 37m shares in issue.
Now here's a question. If you're using the share price progress of your company to justify your pay, should the starting point be the very low one from which you were the only person to benefit? Or should it be the more realistic one, at which you raised hundreds of millions of pounds from everybody else and acquired lots of new shareholders?
In my view, you should use the latter, on which basis we have the share price moving from 570p in 1987 to 760p now. If you invested £1,000 in the deal that created WPP as we know it, then 25 years later you're sitting on £1,300. Plus dividends. Big deal.
Also, we should not overlook the fact that WPP came close to collapse in 1992. Overgeared in a recession, WPP's borrowings threatened to throttle it. Twice, Sir Martin stared the banks out, handed them huge quantities of shares and persuaded them that only he could bring WPP back. Which he did, but by then there were 740m shares in issue. Anyone who backed him then - at one stage you could buy the shares for less than 50p - has indeed had spectacular returns.
But Sir Martin passed this period over in his Financial Times article. Maybe it would have looked odd to claim credit for rescuing WPP from the peril into which he led it by issuing debt instead of equity to buy Ogilvy and Mather.
WPP's original shareholders eventually recovered their investment. But Sir Martin did much better. Via share awards and bonuses, he multiplied his many times over. Few decried this. But WPP's performance post the rescue has been more pedestrian. Sir Martin cited WPP's "material outperformance of the FTSE 100 over the last five calendar years" but overlooked the fact that this merely made up for WPP's material underperformance over the preceding five calendar years. During these 10 years, Sir Martin has extracted over £85m in salary, bonuses and share awards.
Perhaps most cheekily of all, he quoted Warren Buffett's opposition to the award of options to senior executives as a sort of endorsement of the fact that he does not receive options, but instead receives shares directly. To my mind, this is preposterous. Warren Buffett is no less critical of the kind of incentive scheme run by WPP than it is of other distorted executive remuneration schemes.
Sir Martin, if you can get Warren Buffett to defend your pay package, I'll eat my hat.
