Everyone from Ted Cruz to Elizabeth Warren agrees: The widening income disparities between the super rich and everyone else threaten the health of the economy and the political system. But Big Media companies don’t mind based on Deadline’s fifth annual examination of industry moguls’ compensation packages.
CBS, Comcast, Discovery, Disney, Fox, Time Warner, and Viacom collectively allocated a record $399.2 million to their CEOs in 2014, up 50.9% vs 2013. The median outlay was $44.3 million, up 32.9%.
The numbers are skewed by Discovery’s $156.1 million package for David Zaslav; it’s inflated by a new contract awarding him huge slugs of stock that vest over several years. But if you take him out of the equation, the total still was up 5.2% to $243.1 million while the median increased 15.7% to a record $38.6 million.
That’s just at the industry’s most dominant companies: It doesn’t include the $63.6 million package Lionsgate awarded CEO Jon Feltheimer, the $42.1 million for Yahoo’s Marissa Mayer, the $41.4 million for Liberty Media’s Greg Maffei, the $40.3 million for AMC Networks’ Josh Sapan, or the $34.6 million to Time Warner Cable’s Rob Marcus in 2014.
Our goal here is to look at the reasons — or rationalizations — that the seven most influential media companies offer to justify their compensation decisions. We also provide metrics to help you decide whether the outcomes make sense, or merely rip-off shareholders — including the vast majority who don’t know what they own because the invest indirectly through retirement mutual funds.
Media companies deserve special scrutiny. They accounted for half of corporate America’s 10 highest-paid chiefs in 2013. They also took four of the 10 top spots in an analysis of the most overpaid CEOs by compensation expert Rosana Landis Weaver of shareholder advocacy group As You Sow.
Why are entertainment companies so extravagant? “My guess, in one word, would be ‘ego’,” Weaver says. “Compensation becomes a way to measure power and status, and it’s an industry that pays stars well.”
That’s not what boards say in the proxy statements that lay out their compensation practices. Most describe their CEOs as indispensable talents who are singularly responsible for successes, but not setbacks. Their pay ratchets up as companies benchmark compensation against each other, ostensibly to keep top performers from fleeing. They rarely pay less to those who everybody knows would hang on to their powerful and glamorous jobs even if the compensation was cut in half.
Boards often dole out awards tied to the stock price, which they say rewards results and motivates CEOs to look out for shareholders. Yet companies don’t really control the price. It can swing with changes in the economy, technology, or mere market rumors. To the extent that they can influence the stock, the policies could backfire. For example, a mogul can pump up the stock price by spending on dividends or repurchases instead of smart investments that might take years to pay off.
And it’s hard for an outsider to determine whether the stock awards do the trick. Few companies explain precisely how, or how well, the incentives work: Last month the SEC finally proposed regulations that will require companies to spell out how they align pay with performance, which was mandated in 2010’s Dodd-Frank Wall Street Reform Act.
In the end, most Big Media CEOs are extravagantly paid because that’s what a handful of people want. CBS, Comcast, Fox, Discovery, and Viacom are closely held by families or entities that own supervoting shares and effectively control the boards.
Here are a few things to keep in mind about our examination of seven Big Media companies:
- Most of the data come from proxy statements that the SEC requires publicly traded U.S. companies to file. Regulators say that companies must disclose pay figures for the top execs, usually the top 5. We don’t have compensation info from some media powers including Sony (based in Japan) or MGM (privately held).
- We lead each profile with the CEO’s total 2014 compensation as disclosed in the company proxy for its fiscal year, and the percent change from 2013. For perspective, we’ve added the exec’s median annual compensation over the last five years.
- We cite the change in each company’s “adjusted share price.” That factors in dividends and stock splits.
- Our “Out of Whack Calculation” looks at how much the board pays the CEO vs the company’s other top executives. Corporate watchdogs say that it can be a sign of dangerous hero-worshiping when directors regularly give the CEO more than 3 times the median for his or her closest colleagues.
- The “Employees” bullet offers each company’s year-end tally and the change from the previous year. It’s the best we can do with the SEC-mandated disclosures. But the numbers are not useful for comparing companies against each other. Some include part-timers, others don’t. Also, the figures may not provide a meaningful year-over-year comparisons since the numbers can rise when a company buys properties and fall when it sells.
- The “Potential change in control payment” shows how much the company says it would have had to pay the CEO if it had changed hands at the end of the fiscal year. The SEC requires these disclosures. Many frown on such golden parachutes.
- The “ISS Governance Quickscore” comes from proxy research firm Institutional Shareholder Services. The number represents its assessment of a company’s governance policies compared to what it deems best practices. A high number on the 1-to-10 scale is bad — it means ISS believes the policies pose a lot of risk to investors. Find out more about it here.
Here’s how the Big Media chiefs line up, listed by compensation size:
1. David Zaslav, Discovery Communications, $156.1 million, +368% (5-year median: $51.2 million). Discovery’s adjusted share price dropped 25.4% in 2014, even as the rest of the market — measured by the S&P 500 — increased 11.4%. But the board didn’t blame Zaslav. It attributed the decline to the “challenging U.S. advertising market in 2014, as well as significant foreign currency headwinds.” In calculating his $6.1 million cash bonus, directors scored him 95.8% in meeting their financial targets for the company, and 94% of their more subjective qualitative goals.
His big reward came in a new contract designed to keep him in place through the end of 2019. It includes stock units valued at $145 million that vest over several years. The actual payout will be based on “the appreciation in our stock price from the grant date to the applicable anniversary.” The board gave him the units to reinforce “his alignment with our shareholders” as well as reward him for “the value he has created and the continued strategic direction he provides.” At the end of his current contract, he’ll own “a substantial amount of equity of Discovery.” Liberty Media’s John Malone currently is the dominant shareholder with 28.7% of the votes.
- Out of whack calculation: Zaslav’s always been paid a lot more than his colleagues at Discovery, but the new contract grossly exaggerates this year’s comparisons. He made 85.7% of the $182.0 million total that Discovery allocated for its top five execs in 2014. That came to 23.3 times the median for the others.
- Odds and ends: Compensation included $296,930 for personal use of the corporate aircraft, $16,800 car allowance, $3,614 for home office expenses (including Internet access), and $16,619 for personal security. Discovery provided a $50,324 so-called gross-up to cover his taxes on the benefit for personal aircraft use when a family member is expected to accompany him.
- Financial performance: Discovery revenues increased 13.2% to $6.27 billion in 2014. Net income was +6% to $1.1 billion.
- Returns to shareholders: Stock repurchases $1.4 billion, +9%. No dividends in 2014 or 2013.
- Employees: 6,800 full time, +19.3%
- Potential change in control payment: $222.1 million for base salary, bonus, and vesting of equity awards. The tally includes $77.4 million from sign-on Performance Restricted Stock Units and $61 million in cash for ungranted PRSUs.
- ISS Governance QuickScore: 10 (highest risk on scale of 1-to-10)
2. Les Moonves, CBS, $57.2 million, -14.6% (5-year median: $62.5 million). The board praises the CEO so effusively in the yearly proxy that you might not realize CBS’ stock price fell 12.4%, while the S&P 500 rose 11.4%. In addition to the extravagant compensation called for in his contract, directors used their discretion to give him 548,546 stock options “to reward his success in creating significant shareholder value and to motivate him to continue these efforts.”
Moonves’ total compensation number dropped in 2014 partly because the value of his stock awards fell. His cash bonus also dropped 12.3% to $25 million: The board gave him $7 million for “his contributions to the creative successes across the Company’s portfolio of businesses,” on top of $18 million for his day-to-day work. In 2013 directors gave him $8.5 million on top of $20 million.
- Out of whack calculation: Moonves accounted for 51.6% of the $110.8 million in compensation CBS earmarked for its top five executives. He made 5.2 times the median for his closest colleagues.
- Odds and ends: CBS paid $522,769 to protect Moonves’ security “due to the significance of the chief executive to the Company and the security issues that surround a senior executive in Mr. Moonves’ position, representing a high-profile company with multinational interests.” It also allocated $702,855 for transportation, including personal use of the company aircraft.
- Financial performance: The spin off of CBS Outdoor Americas colored 2014 results. CBS revenues decreased 1.4% to $13.8 billion. Net income increased 57.5% to $3.0 billion. But net income from continuing operations fell 22.1% to $1.4 billion.
- Returns to shareholders: Stock repurchases $3.6 billion, +64.8%. Dividends $296 million, +0.3%.
- Employees: 17,310 full and part time, -11.2%.
- Potential change in control payment: $92.4 million for accelerated vesting of equity awards. He’d also be entitled to a so-called gross-up to make up for the excise taxes he’d have to pay, although CBS says there would not have been a tax on his benefits if the company changed hands at the end of 2014.
- ISS Governance QuickScore: 10 (highest risk on scale of 1-to-10)
3. Bob Iger, Disney, $46.5 million, +35.5% (5-year median: $36.8 million). Activist shareholders bang Disney for the lavish packages it awards its CEO and chairman. But the noise level dropped this year as Iger’s big compensation increase for the fiscal year that ended in September was accompanied by a 39.8% jump in the stock price, well ahead of the 17.2% increase in the S&P 500. The board was so happy with Iger that it figured he accomplished 200% of the goals for his performance-based bonus vs 115% in 2013. His “leadership in articulating and implementing the Company’s long-term strategy was a substantial driver of the extraordinary results in fiscal 2014 and continued to position the Company for future growth.”
Some analysts question provisions of a new contract last year designed to keep Iger in place to June 2018. For example, it includes a “special incentive retention award” that could provide him with up to $60 million if the company hits targets for adjusted operating income in the four year period. Such special incentives could “undermine the integrity of a company’s regular incentive plans,” proxy advisory firm Glass Lewis says. What’s more, Disney “has not provided shareholders with a sufficiently cogent explanation of its necessity” considering that Iger’s pay is already “well above peer levels.”
- Out of whack calculation: Iger accounted for 55.0% of the $84.5 million Disney devoted to its top five. He made 5.7 times the median pay for the other four.
- Odds and ends: Disney devoted $391,411 for Iger’s personal air travel, and $614,582 for his security. Disney requires him to use the company aircraft for personal jaunts.
- Financial performance: Disney revenues increased 8.4% to $48.8 billion in the fiscal year that ended in September. Net income grew 22.2% to $7.5 billion.
- Returns to shareholders: Stock repurchases $6.5 billion, +59.7%. Dividends $1.5 billion, +13.9%.
- Employees: 180,000 full time, +2.9%.
- Potential change in control payment: Disney doesn’t have a single trigger payment, and does not provide for a tax gross up. But Iger would have seen $127.5 million ($32.2 million in cash, $50 million in options, $45.4 million restricted stock units) at the end of 2014 fiscal year if someone else had taken over.
- ISS Governance QuickScore: 5 (mid-level risk on scale of 1-to-10)
4. Philippe Dauman, Viacom, $44.3 million, +19.3% (5-year median: $43.7 million). The board liked the job he did even though the company’s stock value slipped 6.6% in the fiscal year that ended in September while the S&P 500 rose 17.2%. Directors figured that Viacom met 92% of its operating income goals, 166% of goals for free cash flow, and 120% of goals for “qualitative objectives” — giving Dauman and other execs a “Weighted Performance Factor” of 112%. He received a bonus of $20 million, above the target of $15 million.
He stands to do even better in the current fiscal year: In January 2014 the company raised his base salary to $4 million from $3.5 million. A new contract in January 2015 designed to keep him in place through 2018 raised his target equity award to $15 million, and his target bonus to $20 million. The improvements “reflected the Compensation Committee’s evaluation of Mr. Dauman’s performance and other factors.” He also was granted Performance Related Stock Units that vest over three years, and are tied to “company financial targets” beginning in 2016. They’re designed to “motivate” him to look out for “the long-term interests of the company” including its shareholder value.
- Out of whack calculation: Dauman accounted for 42.4% of the $84.5 million that Viacom awarded its top five executives. He made 4.3 times the median paid to the other four.
- Odds and ends: Viacom devoted $457,564 for Dauman’s personal use of the company aircraft and $17,458 for a car service. The proxy notes that the compensation tally doesn’t include small items including “meals provided by our corporate kitchen upon an executive’s request (we do not have an executive dining room), access to the executive fitness room (non-staffed) and occasional receipt of tickets, DVDs and other merchandise related to our businesses.”
- Financial performance: Viacom revenues fell 0.1% to $13.8 billion in the fiscal year that ended in September. Net income declined 0.2% to $2.4 billion.
- Returns to shareholders: Stock repurchases fell 24.3% to $3.5 billion while dividend payments dropped 2.5% to $541 million.
- Employees: Viacom had 9,900 full and part time employees at the end of the fiscal year, down 1%.
- Potential change in control payments: Viacom says it does not provide for a special single trigger payment or acceleration of vesting of equity solely due to a change in control. But it’s a different story if Dauman had been fired without cause: He’d have been entitled to $47.5 million for salary, bonus, benefits (including office space and secretary), and the 6.87% annual interest on his deferred income. He’d also have been able to take advantage of stock units valued at $50 million that would vest.
- ISS Governance QuickScore: 10 (highest risk on a scale of 1-to-10)
5. Brian Roberts, Comcast, $33 million, +5.1% (5-year median: $30.7 million). The compensation committee knows it has an unusually tough job. It’s a “challenge” to set goals for execs at the sprawling cable and entertainment colossus, the group says — adding that it’s “aware” that Roberts is the son of the company founder and “is our shareholder with the greatest beneficial voting power” with 33.3% of the total. The committee insists that it “maintains an objective stance” to determine his compensation. Yet it also notes that it makes a lot of subjective judgments as part of “a holistic evaluation process” to ensure that execs “do the right things to help our businesses succeed.”
However it works, Roberts has little reason to complain in a year when Comcast’s share value appreciated 13.1%, a little ahead of the S&P 500’s 11.4%. Directors say Roberts was “instrumental in continuing to shape the strategic vision of our company” including the now-abandoned deal to buy Time Warner Cable, and showed “strong leadership…in championing our technology initiatives, in focusing on the customer experience, in creating a culture of integrity and compliance and in reinforcing our ‘one Company’ culture and diversity initiatives.” Directors boosted his base salary by 2.5%, his first raise in that category in six years. They were prepared to award Roberts and other top execs 118% of their target bonus, but the group asked to stop at 105% “to more closely align their bonus outcomes with those of other management employees.”
- Out of whack calculation: Roberts accounted for 26.9% of the $122.4 million Comcast assigned to its top five executives. He made 1.6 times the median for the other execs.
- Odds and ends: Comcast spent $346,564 for the CEO’s personal use of its aircraft which gave him and other execs “greater security” and opportunities to use their time “productively.” Comcast has a generous retirement plan for execs: It guarantees 9% interest on deferred compensation (it’s 12% on contributions made up to last year). Last year Roberts had $96.6 million in deferred compensation.
- Financial performance: Comcast revenues increased 6.4% to $68.8 billion, with net income up 22.9% to $8.4 billion.
- Returns to shareholders: Stock repurchases up 112.6% to $4.3 billion, and dividends up 14.8% to $2.3 billion.
- Employees: Full and part time up 2.2% to 139,000.
- Potential change in control payment: Comcast doesn’t have single-trigger payments, but Roberts’ contract says that if someone else takes over and he’s let go then it would be deemed a termination “without cause.” That would have been worth $26.8 million if it had happened at the end of 2014.
- ISS Governance QuickScore: 7 (moderately high risk on a scale of 1-to-10)
6. Jeffrey Bewkes, Time Warner, $32.9 million, +1.2% (5-year median: $27.5 million). The CEO had to impress Wall Street after he and the board rejected Fox’s unsolicited $80 billion takeover bid. And his message — that Time Warner will thrive as a focused video content producer following the spin off of Time Inc — appealed to investors: The share price jumped 30%, ahead of the S&P 500’s 11.4%.
Why did Bewkes’ pay stay so level? The five-year contract that began in 2013 is built around long term changes in company performance with no increase in salary or target bonus. The board says it will judge Bewkes and other execs with criteria that are “consistent with those used by investors to evaluate the Company’s performance.” But the yardsticks may change to account for “the impact of unusual or nonrecurring items (such as unplanned strategic decisions, regulatory changes and external developments)” as well as “other factors that the [Compensation] Committee deems appropriate.” The board says that Bewkes’ pay in 2014 was comparable to awards at other Big Media companies.
- Out of whack calculation: Bewkes accounted for 60.7% of the $54.2 million awarded to the top five. He made 5.2 times the median pay for the other four.
- Odds and ends: Time Warner paid $103,610 for Bewkes’ personal use of the company plane and a car — needed “for security and efficiency reasons.” But the company doesn’t compensate him for the taxes on the benefit.
- Financial performance: Revenues increased 3,4% to $27.4 billion, and net income rose 3.7% to $3.8 billion.
- Returns to shareholders: Share repurchases were up 48.4% to $5.5 billion, while dividends were up 3.3% to $1.1 billion.
- Employees: With the spin off of Time Inc, Time Warner ended the year with 25,600 employees, down 24.7%.
- Potential change in control payment: The company doesn’t provide additional payments, tax gross ups, or equity vesting simply due to a change in control. But if something had happened at year end he would have collected nearly $102 million mostly from his equity holdings plus $125,000 for “the cost of providing comparable office space and secretarial support” for a year.
- ISS Governance QuickScore: 3 (low risk on a scale of 1-to-10)
7. Rupert Murdoch, Fox, $29.2 million, +1.2% (5-year median: $29.1 million). The raise may seem surprisingly small when you look at the 23.1% increase in Fox’s adjusted stock price in the fiscal year that ended in June 2014. But shareholders only did a little better than they would have if they invested in an index tied to the S&P 500, which increased 22% over the same period.
The compensation committee gave Murdoch — who controls about 40% of the voting shares — credit for helping to “build stockholder value” at a company with “immense financial flexibility, solid strategic positioning and vigorous operating momentum that will drive future growth.” He achieved 96% of the goal for cash flow, and 100% of the board’s qualitative goals, entitling him to a $10.2 million bonus — slightly below the $10.5 million target and the $12.5 million he saw in 2013.
Critics say that the company doesn’t provide enough information about performance targets. Fox says it doesn’t strictly benchmark pay against competitors but seeks to offer packages “that are competitive with prevailing practices in our industry” while retaining flexibility “to respond to and adjust for specific circumstances and our evolving business environment.” Fox also stands out for making it a goal to keep Murdoch’s pay in line with his colleagues. That’s “critical to ensuring fairness and encouraging a collaborative team effort” among top execs.
- Out of whack calculation: Murdoch took 32% of the $91.3 million compensation pie for the top five execs. He made 2.1 times the median for his colleagues.
- Odds and ends: Fox allocated $209,750 for his personal use of the corporate aircraft — which the company requires for “safety and security reasons.” He also received a $13,693 allowance for personal car services.
- Financial performance: Fox revenues increased 15.1% to $31.9 billion. Net earnings at $4.5 billion fell 36.4% mostly due to the additional expenses Fox saw beginning January 2013 when it consolidated Sky Deutschland.
- Returns to shareholders: Stock repurchases +86.2% to $3.8 billion, while dividends increased 29.2% to $792 million.
- Employees: 27,000 full time, +5.5%.
- Potential change in control payment: The company does not guarantee special payments tied to a change in control. Murdoch would have been entitled to $18.0 million — mostly from equity awards — at the end of the fiscal year if he was fired without cause.
- ISS Governance QuickScore: 8 (moderately high risk on a scale of 1-to-10).