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5 months ago
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It was a year of pain for the entertainment industry and shareholders of (many) media companies with brutal months-long Hollywood strikes, and layoffs. Linear television continued to decline and a nascent theatrical recovery went sideways. Most CEOs saw pay packages rise in 2023, some by big multiples.
“The pay is egregious, but it is something we have learned to accept,” says one longtime entertainment analyst.
Irritants cited: CEOs rewarded for deals before its clear how they pan out; CEOs who should looking for growth but keep cutting; CEO pay packages that feel disproportionate to the size of the company. Paramount Global’s (now ex) CEO Bob Bakish saw compensation of $31 million, a hair lower than Disney’s Bob Iger, in his first year back as chief executive. (See CEO pay chart at right.)
Bakish may also be entitled to severance in the neighborhood of $48.5 million after being ejected earlier this week, according to a “termination scenario” in the company’s proxy. The actual amount isn’t yet public. Par put the new severance plans for top executives in place last November.
Proxy statements are annual company reports filed with the SEC that list, among other things, pay for top five highest-paid executive.
Topping 2023 is Charter Communications CEO Chris Winfrey, who was named CEO in December of 2022 with a package worth $89 million, the bulk from option awards valued at $75M.
The SEC requires equity awards be valued at the time they are granted.
Companies note that options vest over years and can remain “under water” depending on the stock price. However, pay consultants say, grants reflect the amount companies would like to pay their CEOs. “My experience is that for companies of this size of these sizes, usually, more often than not, the the value of the options will be greater than the value in the proxy statement. It might take five years, and not for everybody, but in general,” says James Reda of Gallagher’s compensation consultancy.
Rosanna Landis-Weaver, a pay expert and consultant with nonprofit As You Sow, notes that the strike price for some of Winfrey’s options is $387, well below where the stock was trading a few years ago. “It’s an alignment thing. The idea behind this is to [give CEOs] the same perspective as shareholders. But a shareholder who bought at $600 is not going to be happy to see stock options with [that] strike price for the CEO. The CEO will make money even if the stock only gets part of the way back.”
Generally speaking, “Giving options granted at the bottom of the market can result in huge windfalls. And shareholders don’t just buy at the bottom of the market, they buy all the time,” she says.
Under Winfrey, Charter notes in the proxy, the company expanded its network, launched its Xumo platform, grew in mobile. In September, it the nation’s second largest cabler clinched a landmark carriage deal with Disney. Charter dropped some smaller networks. Among other points, the new contract offers the Disney+ ad-supported tier to Spectrum TV Select subscribers. The stock was volatile last year, ending 2023 up 14% at $388. It closed Wed. at $261.50.
Big proxy advisory service ISS weighed in on the package ahead of the annual meeting, noting “a front-loaded equity grant, the aggregate magnitude of which is considered excessive.”
Zas on third
The executive whose been a poster child for high CEO pay — literally, his 2021 package worth $246 million was among those plastered on WGA and SAG-AFTRA picket signs — was No. 3 this year after Winfrey and Ari Emanuel.
That package for 2021 was inflated by a $200+ million option grant (for renewing his contract through 2027) and was also awarded a special $4.4 million cash bonus that year (on top of a $22 million cash bonus) mostly for closing the Warner Media-Discovery merger. It came down to earth in 2022 and 2023, were it stood as $49M.
WBD (like Netflix) had tangled with shareholders over compensation and shifted is plans. It now focuses more on free cash flow, less on stock price. FCF is cash generated after operating expenses, including capital investment. It’s important because it allows WBD to pay down debt. The stock ended 2023 up 20% for the year at over $11. It’s back down under $8.
WBD’s proxy say Zaslav’s package was tied to his “exceptional leadership” int he face of many difficulties, including a “once-in-a-generation work stoppage in our industry during 2023 as both WGA and SAG-AFTRA went out on strike for several months.”
Strikes were sweeping the nation last year year, from actors to auto workers. Sarah Anderson, an executive compensation analyst at the progressive Institute for Policy Studies, says Ford employees felt equally miffed when they saw their chief executive’s pay. “I know that the people who had been striking were like, ‘Look, they dragged out that strike this long, quibbling … and look what” the CEO made.
WBD noted shifting ad spend, continued weakness in linear television viewing, increased competition from both traditional media companies and big tech players in the media space as well as the lingering effects of Covid on movie theater attendance, and general macroeconomic conditions.
It’s true that media business is impossibly complicated right now for most players. “If you’re going to get the person that you want to lead the company through all this change, you’re going to have to pay them … to overpay. Because it’s a really big job navigating these companies through all these changes without any guarantee of success,” Reda says.
“If you have the wrong strategy, you could be extinct in three years.”
He said the proxies in so far across industries show median CEO pay up about 10%. According to an ISS-Corporate analysis of 343 large-cap companies, median pay so far for 2023 is about $15.7 million (the median being the point where half earn more and half less).
Netflix reacts
Netflix has two CEOs, an expensive proposition. But it made some changes after shareholders scorched the company at last year’s say-on-pay vote, with less than 30% approving compensation (the average across industries is about 90%, Landis says). Shareholders vote for or against pay at annual meetings. The votes are not binding but a low number is not a good look.
The company now requiring CEOs to take at least 50% of their compensation in stock. Before, they could choose the mix themselves (resulting in some very high cash salaries for Sarandos). “That was an important change. That was a rather radical change. They didn’t make it because they saw the errors of their ways, but because shareholders demanded it,” said Landis-Weaver. The company also pushed out the vesting time for options to three years from one.
“If anyone in the business deserves it, it’s the Netflix guys. The stock has performed and it’s the best positioned of all media companies today,” says one Wall Streeter.
Ari Emanuel was no. 2 with $89 million as CEO of Endeavor and of TKO Group. Comcast’s Brian Roberts, Nexstar CEO Perry Sook, Roku’s Anthony Wood and Adam Aron, CEO of AMC Networks are up there, as is AMC Entertainment chief executive Adam Aron are inthe top ten (the latter raising some eyebrows with a package worth $25 million, although he is managing to keep the company afloat).
Not all companies have calendar years. The figures for Lionsgate, whose fiscal year ends in March, and Fox’s, which ends in June, are the latest. Disney’s fiscal year ends in September.
Flying high
A big thing, this year and always — corporate aircraft, which lives in the “other compensation” line for CEOs. It’s prominent across sectors, very much including media. Jet love jumped into view when Endeavor said that both CEO Emanuel and executive chair Patrick Whitesell will receive one of Endeavor’s private plane as the company goes private. A Wall Street Journal story this week looked at this, calculating that amounts listed for the cost of trips are sometimes well below what they should be.
When setting pay, media companies “consider the ability to attract and retain executives.” They look at compensation across their peer group. Says Anderson: It’s the ‘Lake Wobegon’ effect, every child is above average.”
