Omnicom Drops Bonuses for Top Execs Who Get Fired; Another Example of Lax Board Oversight

(MoneyWatch)  Omnicom has dropped a plan that would pay millions in bonuses to its top executives if they are fired for cause. According to Adweek, the bonuses were:

• CEO John Wren $18.7 million
• CFO Randy Weisenburger, $17.6 million
• BBDO chief Andrew Robertson, $6.8 million
• DDB CEO Chuck Brymer, $4.3 million

The news came in one of two stories by Noreen O'Leary in Adweek that probably could have been combined into one: The piece on agency holding company boards and how they destroy wealth; and the piece on WPP chief Martin Sorrell's new $95 million pay package.

The one illustrates the other: How compliant, expensive boards create even more expensive executive compensation packages that destroy shareholder value.

Here are the highlights from the story on agency boards of directors:

Omnicom pays the highest compensation, an average of $191,633 ...

WPP pays the least of the top three holding companies, at $139,546, though its non-executive chairman, Philip Lader, took home a hefty $501,560 in cash last year for his service.

IPG's top five executives, including CEO Michael Roth, were awarded pay equivalent to 7.8 percent of the holding company's net income last year ...

At Omnicom, the top five, including CEO John Wren, received 2.3 percent of net income.

The equivalent of 7.8 percent of IPG's profits go to directors! Remember, directors get these packages for what is essentially part-time work. Because their pay is so lucrative, they want to stay on the board, and that means being friends with the CEOs. One hand washes the other. Hence, as O'Leary points out, there are:

... "problematic compensation practices by providing excessive severance packages" for Wren and three other top execs. RMG [an investor advisory group] cited the "magnitude of payments" to be paid out over 15 years, even if the executives were terminated for cause: Wren is entitled to nearly $18.7 million; Weisenburger, $17.6 million; Robertson, $6.8 million; and Brymer, $4.3 million.

There's one small victory for common sense in all of this:

An Omnicom representative said the company amended the plan within the last two weeks to drop the "termination with cause" terms.

I'm going to take a wild guess and say that O'Leary probably took more than two weeks to report her story, and that the removal of the jackpot rewards for being fired is not a coincidence.

WPP, meanwhile, provided a perfect example of how compliant boards create excessive pay packages. Sorrell's $95 million compensation scheme was overwhelmingly approved by shareholders, Adweek reported. (Why do shareholders do these things? As this piece in the New Yorker explains, the odds are stacked against anyone trying to win a shareholder vote against management.)

BNET previously explained why this is a bad deal for shareholders, and why it essentially rewards Sorrell for a number of screwups that aren't going to help WPP stock.