But with the Omnicom share price becalmed in the $40 range recently compared to a low of less than $30, something else was needed and a new form of stock option, one which pays out even if share price targets aren’t met, was devised to help.
BNET’s eagle-eye commentator Jim Edwards explains how it works:
Omnicom (OMC) CEO John Wren and his management team have again found an ingenious way to line their own pockets — performance-based shares that will vest even if they fail. The new share bonuses were the major reason Wren’s compensation leaped 37 percent in 2010 from $7.9 million to $10.8 million. Of that increase, $3 million was in the form of “performance restricted stock units.”
There is, of course, nothing wrong with rewarding senior staff with stock based on their performance. OMC went up last year, as did revenues and net income. But as this disclosure makes clear, even if Omnicom performs worst than its five peer companies Wren et al. still get 50 percent of every PRSU, or one stock for every two PRSUs. That is the very definition of pay for failure.
Those bonuses come on top of Omnicom’s infamous “golden coffins” — in which Wren’s team (or rather, their families) get millions even if they die. The PRSUs appear to have replaced the straightforward stock options Wren received in 2008 and 2009, when OMC hit lows below $30. Options are much more valuable when the price of stock is low (because the price is likely to rise). In 2010, however, OMC climbed into the mid $40s, and Omnicom stopped giving Wren options. The same options (priced as if the stock were still at its 2008 lows) would have been ludicrously valuable, and therefore not credible as incentive payments.
More realistically priced options would have been less valuable as OMC is less likely to continue its meteoric rise this year. So Omnicom gave him the PRSUs instead. While the option maneuver rewarded Wren when his stock was depressed, the PRSU plan rewards him regardless of what happens to the stock.
One last note: Wren received $144,232 in “personal use of aircraft hours” last year. That’s private jet vacation time, not wining and dining clients.
$10m isn’t all that much by CEO standards these days. Earlier this week Reckitt Benckiser CEO Bart Becht decided to retire after trousering £92m last year.
Then again he could afford to.