EXCLUSIVE: 2016 was a so-so year for Big Media companies. But you wouldn’t know that if you look at how much boards paid the chiefs of CBS, Comcast, Discovery Communications, Disney, Fox, Time Warner, and Viacom.
Their collective compensation rose 21.1% to $343.8 million — their second highest total ever — we find in Deadline’s seventh annual in-depth examination of media and entertainment CEO pay.
Each year at least one CEO’s pay stands out due to special circumstances. This year’s asterisk goes to the $93.0 million that Viacom paid Philippe Dauman. The board gave him a generous exit package after he lost his bitter fight to hang on to his job. He left about two weeks before the September 30 end of the company’s fiscal year.
When you take him out of the equation, the six other chiefs made $250.8 million, up 9.2%.That’s still the second highest for the group. Including Dauman, five of the seven saw their compensation increase in 2016.
This report isn’t just designed to tell you that media CEOs make a ton. It’s to help you understand how the leading media companies contribute to a national problem: the dangerous widening of income disparities.
Corporate governance experts also say that shareholders should beware. Lavish CEO pay often correlates with sub par stock performance. It can reflect a corporate culture that encourages top executives to entrench and enrich themselves at other people’s expense.
Companies usually say that they compensate CEOs fairly — enough to keep and motivate exceptionally talented people who are singularly responsible for the growth that benefits employees, shareholders, and even the public.
More often than not, those are fibs to disguise a culture of cronyism. Media company directors frequently move goal posts, exaggerate accomplishments, and overlook shortcomings to justify the shockingly high pay they approve for their CEOs.
The seven companies here had 77 directors — 79% of them men, and with a median age of 64 — at the time of their reports. They almost always cloak their meetings in secrecy. The clearest windows we have into their world, and thinking, are annual proxies that include information required by the SEC to help investors understand directors’ actions and thinking.
But companies often bury important information in lengthy footnotes, or conceal it with impenetrable jargon.
The halfhearted efforts to hold chiefs accountable may reflect the fact that Disney and Time Warner are the only Big Media companies here not dominated by a single family or shareholder. That could also explain why they are the only two companies on our list that didn’t receive a worst-possible corporate governance grade from advisory firm Institutional Shareholder Services.
Here’s how the Big Media chiefs line up, listed by 2016 compensation size. We include our annual Out-of-Whack calculations, which show how much better CEOs did vs the median for their four closest colleagues. A ratio above 3.0 times suggests that the board is unusually beholden to a CEO.
Look below this list for explanations about the information.
1. Philippe Dauman, Viacom, $93.0 million, +71.8% (5-year average: $52.4 million).You can argue that Dauman doesn’t belong at the top. His total includes the princely settlement he negotiated to abandon his fight to remain CEO. But the compensation tally, following SEC guidelines, is what it is. And it demonstrates a key point in our annual reports: Media company boards often reward CEOs when they fail — not just when they succeed.
In 2015 — a terrible year for Viacom — the board gave him a $17 million bonus to encourage him to extend his contract by two years to the end of 2018. That paid off again a year later when he was allowed to resign for “good reason” which entitled him to payments for the 29 months left on his contract. He’ll collect $9.7 million to make up for the salary he might have made, plus $48.3 million for his potential bonus. He also is due nearly $1.8 million in the form of continued health and welfare benefits, life insurance premiums, office space and a secretary.
The terms were “eye-watering” and “reflect a textbook ‘pay for failure’ situation,” investor advisory service Glass Lewis says. It’s especially galling, Institutional Shareholder Services says, following “a backdrop of three consecutive years of negative shareholder returns.” What’s more, Viacom “failed to achieve performance targets for the past two years.
Last year the company’s total return to shareholders declined 8.6% even as the overall market appreciated 12.9%. The Compensation Committee discretely described it as “a challenging period of uncertainty and transition” that had “mixed results” for Viacom.
Dauman’s 2016 compensation suffered a bit. The board awarded him an extraordinarily low 55% of his $20 million target bonus (the final number was about 49% after being pro rated to account for his departure a few weeks before the end of the fiscal year). He also didn’t receive new performance share units, which are based on results in subsequent years.
A post-script on those performance share units: Viacom’s board said, when it extended Dauman’s contract in 2015, that giving him a big slug of those units would “motivate” him to look out for “the long term interests of the company.”
Dauman apparently believed that Viacom’s long term interests would be best served by engaging in a series of paralyzing lawsuits to hang on to power when controlling shareholders Sumner and Shari Redstone tried to oust him.
Redstones also showed that they saw many Viacom directors as mere rubber stamps for Dauman. They began their effort to replace him by moving to replace five board members.
- Out of whack calculation: Based on the reported compensation numbers, Dauman accounted for 67.5% of the $137.8 million total, which was up 35.2%. His package was 16.3 times bigger than the median for his closest colleagues, up from 8.8 in 2015.
- Returns to shareholders: Stock repurchases: $100.0 million, -93.5%. Dividends: $635.0 million, +12.6%
- Employees: 9,300, +1.1%
- Board: 5 men, 5 women. Median age: 61
- ISS QualityScore: 10 (lowest score indicating high shareholder risk)
- Return on Invested Capital: 9%
2. Les Moonves, CBS, $69.6 million, +22.5% (5-year average: $62.5 million). CBS directors — who just extended Moonves’ contract by two years to 2021 — seem to believe that he’s only responsible for the stock price when it rises. In 2015, when the shareholder return dropped 13.8%, they found other rationales to award him benefits that limited the decline in his compensation to less than 1%.
But the stock price loomed large in 2016 when the board explained why it gave the CEO a 22% raise. His “leadership,” the proxy says, was partly “demonstrated by a total shareholder return of 37%.”
That’s a bit much. Wall Street appeared more impressed by the company’s good luck and garden variety financial tactics than they were with Moonves’ legendary program picking and talent relations skills.
CBS’ net income fell 10.8% to $1.26 billion for the year while revenues increased 3.9% to $13.17 billion. And the broadcast network’s ratings fell 6%, although that was still good enough to make it the No. 1 network.
On the luck side, the overall market was up 9.5%. Election-year excitement helped broadcasters to beat the average. Moonves himself acknowledged as much when he ill-advisedly said that the political ad dollars flooding his TV stations “may not be good for America, but it’s damn good for CBS.”
Investors continued to salivate over the broadcast sector after Donald Trump’s victory: They envisioned big tax cuts and an FCC that would ease restrictions on station ownership – potentially setting off a new round of merger mania that could strengthen giants including CBS.
As for finance, CBS investors dodged a bullet when Shari Redstone, who controls 80% of the voting shares, abandoned her effort to unite the company with struggling Viacom. Many were relieved early last year when Moonves announced a plan to unload CBS’ declining radio operation; this past February it agreed to sell to Entercom. He also sang Wall Street’s tune when he increased by 5.5% CBS’ payments to shareholders via dividends and share buybacks.
ISS was so put off by the board’s extravagant compensation decisions that urged investors to oppose every candidate for director — with one exception that suggests Redstone recognizes CBS has a problem: Harvard Law School Dean Martha Minow is a nominee to “provide the Board with meaningful insight on matters relating to social and governance policies and corporate reputation,” the proxy says.
- Out of whack calculation: The CEO accounted for 59.2% of the $117.5 million total, which was up 19.2%. His package was 10.0 times bigger than the median for his closest colleagues, up from 9.8 in 2015.
- Returns to shareholders: Stock repurchases: $3.0 billion, +6.5%. Dividends: $288.0 million, -4.0%
- Employees: 15,550 full and part time, -4.4%
- Board: 10 men, 3 women. Median age: 76
- ISS QualityScore: 10
- Return on Invested Capital: 12%
3. Bob Iger, Disney, $43.9 million, -2.3% (5-year average: $42.0 million). Talk about lousy optics: Shortly after Disney disclosed its rich annual payment for Iger, it reached a settlement with the U.S. Labor Department for penny pinching pay practices at its Florida resorts. The company had required characters to pay for their own costumes — driving their pay below the minimum wage — and didn’t pay them for chores they had to do before and after their shifts, the department disclosed.
Directors were much more forgiving with Iger when they determined his compensation for the fiscal year that ended on October 1, a period when Disney’s total return to shareholders fell 7.9% while the overall market was up 14%.
When you adjust for the fact that fiscal 2015 included a 53rd week vs 52 last year, then his compensation was just off 0.4%.
Disney directors’ hands are somewhat tied by their widely lauded pay-for-performance strategy. It pegs 70% of Iger’s bonus to the company’s financial performance vs so-called quantitative targets. The board decides where to plant the goal posts, and then watches to see what happens.
The good news for Iger? Disney achieved 152% of those collective quantitative goals in 2016. The bad news? The number was down from 2015 when the company scored 186% — a change that was bound to reduce Iger’s bonus.
But the board helped by giving him a generous grade for the hard-to-measure qualitative achievements that determine the remaining 30% of his bonus. Directors determined that he met 202% of the target, up from 186% in 2015, and even a hair better than the 200% assessment they gave him in 2014.
The board said that his “leadership” was partly demonstrated by the movie studio’s strong performance, his efforts to “respond to and capitalize on changing patterns of media consumption,” his “continued emphasis on diversity,” and Disney’s rankings on the lists Fortune magazine and others give to the most admired media companies.
The problem with the over-the-top grade is that it seemed to ignore Iger’s, and the board’s, most glaring leadership fail: the collapse of their effort to line up a successor. That exploded last year when the board apparently lost confidence in COO Tom Staggs, prompting him to leave.
Succession is so important that Disney’s Corporate Governance Guidelines require directors to “discuss potential successors as Chief Executive Officer” at least once a year.
But there’s still no heir apparent in sight a year after Staggs left — which led Iger to agree recently to extend his contract a year to mid-2019. This was the fourth time since 2011 that the board has extended Iger’s tenure.
The company repeatedly said that hanging on to Iger, and expanding his power by making him Chairman as well as CEO, would help to ensure a smooth succession. Based on the track record, if Iger is thinking about running for president — a popular rumor — then he’d better start looking for his running mate now.
- Out of whack calculation: Year over year comparisons are complicated by the inclusion in 2016 of Tom Staggs, who left mid-year as COO, and in 2015 of Jay Rasulo, who left mid-year as CFO. But the reported numbers show that Iger accounted for 45.2% of the $97.1 million total for the five highest paid execs, which was down 1.6%. His package was 4.1 times bigger than the median for his four closest colleagues, up from 3.5 in 2015.
- Returns to shareholders: Stock repurchases: $7.5 billion, +23.0%. Dividends: $2.3 billion, -24.5%
- Employees: full time 195,000, +5.4%
- Board: 8 men, 3 women. Median age: 62
- ISS QualityScore: 2
- Return on Invested Capital: 15%
4. David Zaslav, Discovery Communications, $37.2 million, +14.9% (5-year average: $61.8 million). Credit where credit is due: Discovery just raised its pay-for-performance grade in the eyes of investor advisory firm Glass, Lewis. The company scored a “D” for 2016, following two years of “F.”
Directors also finally admitted a woman into the all-male club in December when they appointed C-SPAN’s Susan Swain to the board.
But the decision makers still had to explain why they gave Zaslav such a big raise in a year when total shareholder return just improved 2.7% — less than the growth in the overall market, and coming off a low bar from 2015 when Discovery’s market value fell 22.6%.
Revenues increased 1.6% to $6.5 billion last year. Net income rose 15.5% to $1.2 billion, helped by the sale of a radio business and lower taxes tied in part to Discovery’s investments in solar energy.
ISS was skeptical, citing a “pay-for-performance disconnect.” For example, it noted that “all of the 2016 financial target goals were set below the prior year’s achievement levels.” In addition, Discovery’s pay plan awarded him “guaranteed mega equity grants” that came to $29 million in 2016 which was “more than twice the median total pay of peer group CEOs.”
The board concluded that Discovery “performed at or above the median of the relevant peer group for operational metrics but lagged peers in measures related to stock price.”
Still, directors used the same terms that they used in 2015 to justify Zaslav’s compensation, crediting his “dynamic” leadership and “achieving our overall strong performance.”
Some pay increases are baked into Zaslav’s 2014 contract. For example, it calls for his target bonus to increase by $600,000 a year to 2018. The tally also factors in additional stock awards tied to the future value of Discovery’s shares.
Directors peg half of Zaslav’s bonus to its set quantitative financial targets, with the rest judged by more subjective qualitative ones. And they reached the same conclusion for 2016 that they did in 2015: He met 99.9% of the quantitative goals and 92% of the qualitative ones.
- Out of whack calculation: His $37.2 million in 2016 accounted for about 59% of the $63.1 million that the company paid all five of its top executives. He made 6.6 times as much as the median for his four top associates.
- Returns to shareholders: Stock repurchases: $1.37 billion, +44.5%. Dividends: $0, unchanged.
- Employees: full and part time 7,000, unchanged.
- Board: 10 men, 1 woman. Median age: 66
- ISS QualityScore: 10
- Return on Invested Capital: 6%
5. Rupert Murdoch, Fox, $34.6 million, +24.0% (5-year average: $30.1 million). Yes, we’re looking at CEO compensation, and James Murdoch was CEO of Fox in the fiscal year that ended in June 2016 while his brother Lachlan served as co-Executive Chairman with their father Rupert. But whatever the formal titles say, the compensation numbers show that this is still Rupert’s company.
The board left Rupert’s CEO package intact since he “continues to play an important leadership role in each of the Company’s key strategic initiatives,” the proxy says. Meanwhile James and Lauchlan received “identical compensatory arrangements” because they “share responsibility for the management and leadership of the company.”
Rupert’s base salary, at $7.1 million, is more than twice as big as his sons’, at $3 million. He’s also entitled to a maximum of $21 million bonus vs $16 million for each of the kids.
James and Lachlan received slightly more performance based long term equity awards ($9.0 million apiece vs Rupert’s $5.7 million). Since Rupert’s a big shareholder “his interests are already aligned with stockholders’ interests,” the board decided. Even so, it gave Rupert a big award because the Compensation Committee “believes in providing the same type of incentive compensation opportunities to each of the [top] executive officers who are responsible for the Company’s overall operations.”
The problem with the arrangements, shareholder advisory service Glass Lewis says, is that the structures do too little to link pay with performance. The base salaries are paid no matter how well Fox does. That “may serve as a crutch when performance has fallen below expectations,” the firm says. And it can have a ripple effect: Short- and long-term incentives often are calculated as a multiple of the salary.
All told, in a year when total shareholder return fell nearly 16% Rupert’s compensation improved to $34.6 million vs. James’ $26.4 million (up 75.2% with his promotion) and Lachlan’s $23.7 million (with no comparison number because he wasn’t at Fox in 2015). The difference between James and Lachlan’s compensation is mostly due to the disparity in the estimated change in the value of their pensions.
- Out of whack calculation: With three highly paid Murdochs in the top five, Rupert accounted for 27.5% of the $126.0 million total, which was up 51.8%. His package was 1.4 times bigger than the median for his closest colleagues, down from 2.4 in 2015.
- Returns to shareholders: Stock repurchases: $4.9 billion, -17.4%. Dividends: $821.0 million, -6.5%
- Employees: full time 21,500, +4.9
- Board: 12 men, 1 women. Median age: 55
- ISS QualityScore: 10
- Return on Invested Capital: 8%
6. Brian Roberts, Comcast, $33.0 million, -9.1% (5-year average: $32.5 million): Roberts controls a third of the cable giant’s voting shares, making him the clear leader of the company his father founded.
Even so, the board insists that it “maintains an objective stance” about his pay.
That’s important because directors are responsible for determining a lot of his annual compensation — unlike many of his company-controlling colleagues in Silicon Valley who make almost all of their money from their big stock holdings.
And 2016 was a good year for him. The board increased his base salary by 3%, gave him 118% of his target cash bonus, and raised its contribution to his deferred compensation account by 5% (to $4.0 million).
That deferred account is Comcast’s main retirement program for top execs and one of its juiciest perks. In addition to the funds the company contributes to their accounts, it guarantees interest rates unavailable to most families: 12% a year for amounts made before 2014, and 9% for those made afterward.
Roberts made $7.3 million from the interest payments last year — although Comcast only includes in its competition tally interest that’s “in excess of 120% of the long-term applicable federal rate.”
His total was down from last year only because of the change in the value of his pension; during the year he withdrew $66 million from his deferred compensation account.
Also worth noting: Roberts wasn’t the highest paid Comcast exec last year. That distinction goes to NBCUniversal CEO Steve Burke with $46.1 million. That includes stock options valued at $10 million — although they don’t fully vest until mid 2023 — as part of a contract renewal designed to keep him through August 2020.
Directors justify the grant by saying its needed “to incent him to continue to make decisions that build long term value for NBCUniversal” — something the company assumes lower level employees will do simply to keep their jobs.
But the total doesn’t include all of the $11 million in interest he made last year from the $106.6 million he has stashed in the company’s deferred compensation program.
- Out of whack calculation: Roberts accounted for 22.3% of the $148.0 million in Comcast’s total for the top five. The total was down 16.2% vs 2015. His package was 1.3 times bigger than the median for his closest colleagues, up from 1.2 in 2015.
- Returns to shareholders: Stock repurchases: $5.0 billion, -25.9%. Dividends: $2.6 billion, +6.7%
- Employees: 159,000, +3.9%
- Board: 9 men, 1 woman, Median age: 62
- ISS QualityScore: 10
- Return on Invested Capital: 7.7%
7. Jeff Bewkes, Time Warner, $32.6 million, +3.6% (5-year average: $31.1 million): We’ll go out on a limb with a prediction: Next year AT&T’s board will find several reasons to give CEO Randall Stephenson and his colleagues huge raises.
The telco will have to do so to protect their egos — and the company pecking order — after it acquires Time Warner. The entertainment company’s five top execs last year collectively made 12% more than their telco counterparts even though Turner, HBO and Warner Bros will account for less than 14% of AT&T’s revenues and profits.
Bewkes made 15% more than his soon-to-be boss, Stephenson.
Some, but not all, of the imbalance is due to one-time bumps that the Time Warner brass — except Bewkes — collected last year to keep them in their jobs through AT&T’s planned $85 billion acquisition.
Still, Bewkes will be well cared for this year, and beyond. He received $32 million worth of restricted stock units after the 2016 numbers were tallied. His contract renewal last year, which runs to the end of 2020, targets his compensation at $32 million a year.
Last year Time Warner directors determined that Bewkes deserved 147% of his target bonus of $10 million: Some 70% is tied to the company’s performance. They figured it achieved 145% of the goals vs 133% in 2015. For the remainder, tied to Bewkes’ individual performance, the board credited him with achieving 150% of his goals, up from 135%.
- Out of whack calculation: Bewkes accounted for 39.1% of the $83.2 million in Time Warner’s total for the top five. The total was up 33.9% vs 2015. His package was 2.8 times the median for his closest colleagues, down from 4.3 times in 2015.
- Returns to shareholders: Stock repurchases: $2.3 billion, -36.1%. Dividends: $1.3 billion, +10.3%
- Employees: 25,000, +0.8%
- Board: 7 men, 2 women, Median age: 64
- ISS QualityScore: 1
- Return on Invested Capital: 16.1%
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 and annual reports 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 2016 compensation as disclosed in the company proxy for its fiscal year, and the percent change from 2015. For perspective, we’ve added the exec’s average annual compensation over the last five years.
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.
Our numbers about the Board members and ages come from company proxies and reflect the status as of the reports.
The “ISS Governance QualityScore” 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.
Our “Return on Invested Capital” numbers also come from ISS. This is a popular metric for investors who want to know how effectively companies make use of their funds.