M&C Saatchi’s top directors will more than triple their pay through bonuses if they hit financial targets under a new scheme, which includes “more robust” governance, after a shareholder revolt last year.
The annual report showed Moray MacLennan, the chief executive since 1 January, has a basic salary of £650,000 – up from £600,000 in his previous role as CEO of M&C Saatchi Worldwide, the main agency operation.
He can earn an annual cash bonus worth up to 100% of salary and has the potential to collect up to another 150% of salary in shares as part of a long-term incentive programme (LTIP) – subject to performance conditions.
Hypothetically, his 2021 package, including a pension contribution worth 6% of salary, could be worth £2.3m over time, although he is not eligible to receive the shares from the LTIP for three years and cannot sell them for another two years.
MacLennan’s pay has not been disclosed until now because he was not on the board of stock market-listed M&C Saatchi, where he has worked since 1995 when it was founded.
Mickey Kalifa, the chief financial officer, who joined in spring 2019 and played a key role in uncovering historic accounting irregularities that led to a boardroom exodus, has a basic salary of £375,000 – after an increase from £300,000 at the start of 2020.
He can earn a cash bonus of up to 75% salary and share awards of up to 200% from the LTIP, hypothetically taking his potential package to more than £1.4m – but again, the bonuses are subject to performance conditions.
The annual report also revealed that M&C Saatchi’s previous founding directors, Jeremy Sinclair, David Kershaw and Bill Muirhead, set up a plan to give Kalifa LTIP awards in cash in 2019 and 2020 worth a total of £1.3m – with “no performance criteria attached”.
Kalifa subsequently agreed with M&C Saatchi’s new board to make changes to his bonus schemes “to better align them with shareholder interests”, including converting the LTIP awards from cash into shares and moving them from one-year to three-year performance periods.
His LTIP potential will drop to 150% of salary in 2022 and 100% of salary in 2023.
Kalifa earned £373,000 last year, plus £485,000 towards his LTIP, the annual report said.
He and MacLennan did not receive an annual cash bonus and took a 20% salary cut for three months because of the pandemic.
Asked whether it is fair to say the CEO and CFO can hypothetically treble their pay by hitting targets in future, an M&C Saatchi spokeperson pointed out the maximum “in-year payment” is salary and annual bonus for 2021. Any LTIP is only “payable” in 2024.
Many listed companies, including peers such as WPP, pay a combination of salary, annual bonus and LTIP to top directors.
Shareholder protest
Some shareholders have been unhappy about M&C Saatchi’s pay arrangements – with 23% voting against the previous remuneration report at the annual general meeting in December 2020.
If abstentions were included, 30% failed to back the remuneration report, which is a significant protest by UK stock market standards.
The vote was only disclosed nine months later in the newly published annual report – one of a number of issues that the company admitted did not comply with the UK Corporate Governance Code, a series of recommendations for best practice.
These issues included having a chairman, Sinclair, who had served for more than nine years, employing non-executive directors on a three-year basis instead of putting them up for re-election each year and not disclosing when more than 20% of shareholders had voted against a motion at an AGM.
Gareth Davis, chairman of M&C Saatchi since January, told shareholders the company is now “fully compliant with the majority of the provisions of the Code” and promised shareholders “strong and effective governance”.
In another sign that M&C Saatchi did not follow the highest governance standards previously, the company admitted the remuneration committee “had only operated informally” when the old board was in charge.
Louise Jackson, new chair of the remuneration committee, acknowledged last year’s shareholder protest over pay and said there will need to be further dialogue.
“We spoke with a number of shareholders to explain the company’s position and have received extensive feedback and insight on areas to consider in the design of a new [pay] framework,” she said.
“We believe we have reflected those views. We anticipate that this will be a year of executing a new remuneration policy and framework and will consult internally and with our shareholders on its effectiveness in 2022, allowing a full year of implementation.”
Bonus targets
The annual cash bonus targets for the new scheme are headline profit before tax (50%), revenue (25%) and the achievement of critical personal objectives (25%).
The LTIP award focuses on “driving longer term performance” aligned to the financial goals shared externally with targets for total shareholder return (70%) and headline profit before tax (30%).
“The committee understands the importance of simplifying the series of complex remuneration and ownership structures that exist across the group and thereby reducing the level of minority interests,” Jackson said – a reference to how M&C Saatchi has many subsidiaries in local markets in partnership with agency leaders.
M&C Saatchi’s share price plunged from £3.30 at the start of August 2019 – because of the accounting irregularities at four UK subsidiaries – to about £1 at the time of the board exodus in December 2019, before falling further to about 30p during the worst of the pandemic.
Vin Murria, a technology entrepreneur, bought a minority stake in May 2020 and the stock has begun to recover. She became deputy chair this year.
Since MacLennan took charge in January and announced a new strategy around simplification, integration and digital, M&C Saatchi’s share price has risen more than 50% to £1.33.
When Sinclair, Kershaw and Muirhead were in charge, they received annual dividends as significant minority shareholders and tended to focus less on bonuses.
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