Warner Bros. Discovery has tweaked its CEO’s employment contract, granting a bigger pot of restricted stock units but linking them to free cash flow targets.
David Zaslav, who is currently entitled to receive annual performance-related restricted stock (PRSU) awards with an initial value of $12 million, could now double the number of shares underlying that if the company meets certain targets. And he’s also eligible to receive an additional PRSU award valued at $11.5 million a year.
In an SEC filing today, WBD said it is also setting aside another $27 million worth of PRSUs for top executives and other employees. The company called this “an incremental incentive compensation program that is designed to promote and reward achievement of the Company’s initiatives with regard to increasing free cash flow and reducing leverage.”
Free cash flow, the amount a company generates after accounting for all capital expenditures, is a key metric, allowing companies to pay down debt and reduce leverage — a ratio of debt to equity. That’s a major focus for WBD, whose debt stood at nearly $50 billion at year end.
Zaslav has frequently been among the highest paid CEOS in media, and across all sectors. His total compensation last year came to $276 million, inflated by a $202 million stock option grant when his contract was extended ahead of the Discovery-Warner Media merger. The options do require the stock to hit certain metrics staggered over seven years before they’re in the money.
Executive pay is complicated, with PRSUs only one element of a total package. Zaslav’s annual grants have been (and the enhanced grant still will be) based 75% on so-called “qualitative” performance measures, which vary from company to company but are less specific and more subjective (leadership qualities, effort, strategic pivots) and 25% on “quantitative” criteria, or hard numbers, which will now mean free cash flow. The new additional grant will be entirely based on free cash flow. Details of the pay and targets will be included in the company’s proxy filing.
The expanded grant program comes as WBD has laid off employees across divisions and shelved all kinds of content to reduce costs since the merger closed just over a year ago.
The named executives eligible for initial, special PRSU grants worth a combined $9.5 million this year include: chief revenue and strategy officer Bruce Campbell; CFO Gunnar Widenfels; CEO of global streaming and games, JB Perette; President, International Gerhard Zeiler; chief people and culture officer Adria Alpert Romm; and Savalle Sims, EVP and general counsel.
The PRSU grants to these execs and others across the company will be one-time events this year. Zaslav’s enhanced grant as well as his additional grant are now set for three years, 2023, 2024 and 2025, under an amended employment agreement. (The amended employment agreement also sets Zaslav’s annual cash bonus for 2024 and later years based on 70% quantitative and 30% qualitative goals.)
“The changes to the Warner Bros. Discovery executive compensation program are designed to further incentivize Company employees, including members of its leadership team and others whose efforts are critical to achieving the key near-term financial objectives of increased free cash flow and reduced leverage,” said WBD board chairman Samuel A. Di Piazza, Jr. “The WBD Board is confident that these additional incentives offer a more competitive package against the backdrop of ongoing industry-wide transformation and economic headwinds, and better position the company to advance core drivers of shareholder value.”
The number of Zaslav’s annual PRSUs as well as the additional PRSUs for the 2023 awards will be determined based on WBD’s closing stock price on February 28 of $15.62.
Zaslav’s amended contract, as per the filing, also updates the terms of PRSU-related payouts if there’s a “termination event” or a “change in control termination” during 2023-2025 – meaning what he’d be entitled to if he is let go by the company without cause, or decides to leave in the case of a “majority board change”.
He’d receive “a cash payment for each of the 2023-2025 Annual PRSU awards and each Additional PRSU award that has not been granted equal to twice the specified cash value of any such award (e.g., $12 million in respect of any 2023-2025 Annual PRSUs, $11.5 million in respect of any Additional PRSUs)” — guarantees that appear to be rather “sweet,” according to one compensation expert Deadline queried.
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