PERSPECTIVE: Investors are right to be circumspect, but Sir Sorrell is worth it

Those of us who live on the other side of the flap often wonder why fat cats require so many inducements to get them out of bed each day - vast salaries, bonuses, incentive schemes, share options, pension plans, golden hellos, golden goodbyes, arrangements for having their fur stroked by counsellors when it all gets too much and so on.

The person who is in the news for his desire to curl up on a million-pound cushion is WPP's group chief executive, Sir Martin Sorrell. Fresh from his triumph in the takeover battle for Cordiant, WPP saw nearly half of its shareholders withhold their approval from its remuneration report this week, principally over Sorrell's three-year contract. The heat's on because investors are determined that anything other than a one-year contract is excessive. Sorrell, however, sees it as a benefit to the company, securing his services for such a length of time. What's it all about? And who's right?

This is corporate governance in action, evidence that companies are accountable to those who have a vested interest in their performance, especially shareholders.

Under new rules, shareholders in Britain get to vote each year on their company's executive pay plans. The issue has been controversial since the 80s, made so by the wave of takeovers in the UK and the US from that time on and by the trend for executives to pay themselves huge amounts that often had little correlation with performance. In the US, the example of Enron leaps to mind. In Britain, Cordiant.

But a purely British conclusion is too narrow. WPP is in an odd position: it is a UK company, but more than 60 per cent of its shareholders are outside the UK and more than 40 per cent of its revenue comes from the US. Sorrell spends much of his time in the US, where his three main ad agencies and numerous other subsidiaries are headquartered. Thus he expects to be paid with American generosity, like his peers at Interpublic and Omnicom (Even they cannot rival Grey's chief, Ed Meyer, who has awarded himself the right on retirement to retain a suite in Grey's offices with two secretaries, car, chauffeur, dining facilities and expenses of up to $100,000 a year.)

Investors are right to be cautious of Cordiant-style rewards for failure, but Sorrell's is a special case. Having nearly lost it all in 1989 when he overpaid for Ogilvy & Mather as the recession was getting into full swing, his commitment to the business he founded is total. Love or loathe him, he's the most inventive dealmaker the business has ever seen. He has a phenomenal workload and a workrate to match that makes him, for shareholders, worth every penny. His personal wealth is bound up in the business and he has not sold a single share. It is thanks to him that advertising and marketing services is one of the few areas in which Britain has a market-leading position. Shareholders in all companies should be so lucky.