It was the worst of occasions (for the world). It was nonetheless a fairly good time (for CEO pay).
Ten high media and leisure CEOs earned a mixed $350 million final yr, buoyed by hefty inventory and possibility grants through the worst financial disruption because the Great Depression.
Members of compensation committees on boards, who set pay, explicitly altered conventional efficiency benchmarks at some corporations in a yr when theme parks, promoting and theatrical income tanked and manufacturing stalled.
The numbers they checked out weren’t revenue and loss columns however somewhat leaned closely on metrics committees referred to as extra “qualitative” than “quantitative,” together with a pivot to streaming. Everyone bought an “A” for effort.
WarnerMedia CEO Jason Kilar’s 2020 Pay Package Totaled $52 Million With Big Stock Award
Case in level: Adam Aron, CEO of struggling theater chain AMC Entertainment, noticed his package deal greater than double to $20.9 million final yr on a $5 million “special incentive bonus.” The inventory fell 70%, the corporate bled money and furloughed all theater employees.
The bonus acknowledged “the extraordinary actions taken by the management team during the Covid-19 pandemic to secure the Company’s survival and preserve stockholder value,” the committee mentioned. AMC’s compensation program is often grounded in “pay-for-performance,” however since poor firm efficiency final yr was “unrelated to the performance by our management” it modified benchmarks, not less than briefly.
“While our response to the Covid-19 pandemic warranted uncommon actions with respect to compensation programs, our underlying philosophy has not been permanently altered or abandoned,” the committee mentioned.
“They never make those statements to the upside. When external events lead to windfalls or high pay, you don’t see companies adjusting for that,” mentioned Rosanna Landis-Weaver, a company governance and compensation professional with As You Sow, a number one shareholder advocacy nonprofit. “They generally only ever make adjustments in one direction.”
Nell Minow, vice chair of ValueEdge Advisors, which guides shareholders on the best way to use their rights to protect portfolio worth and diminish danger — together with danger posed by extreme CEO pay – mentioned, “Everyone agrees that if a company makes a lot of money, the CEO should make a lot of money. But if it was a tough year, they are supposed to feel the consequences. And if they steered the company through, then that will pay off for them later.” As in now, when enterprise is bettering.
Compensation, to make certain, will not be solely a problem in media. The optics of total CEO pay final yr had been so dangerous that President Biden even referenced in his current speech earlier than Congress. He slammed lopsided “pay ratios,” which examine the pay of a chief govt to the typical of a typical employee.
Pay for 2020 is being extensively analyzed and criticized not solely due to the broad financial fallout of Covid, but additionally as a result of CEOs, after the pandemic hit final spring, appeared to need to share the ache by forgoing or decreasing base salaries.
Skeptics back then called the cuts a smokescreen, or what’s referred to as advantage signaling, and predicted minimal influence as a result of base pay has change into the smallest component of compensation. They had been principally proper. Proxy statements filed with the SEC by the tip of April, which listing the pay of a public firm’s high 5 highest-paid executives, confirmed the highest-paid media CEOs had packages of, on common, $35 million every. Six had been up from 2019, 4 had been down. (See charts beneath.)
“There’s a real Marie Antionette aspect to it,” Minow mentioned.
Overall GDP fell by 3.5% for 2020, the biggest decline in 74 years. At its low level within the second quarter, it was down by 34.3%, or $2.15 trillion. More than 20 million jobs had been misplaced to Covid and over 8 million haven’t but returned. “When the stock market took a really bad hit” — which it did briefly final spring — “I immediately got emails from compensation experts asking, ‘How can we prevent the CEOs from suffering?’ ” she mentioned.
Moving goalposts shielded CEOs in ways in which shareholders who took a drubbing, or staff who had been furloughed or fired, weren’t. Minow characterised 2020 packages as: “It’s-been-a-tough-year-and-we-don’t-want-to hurt-your-feelings.”
AT&T’s compensation committee defined that it has discretion to regulate pay and did, “given the impact of Covid-19 on the company’s business and the world.” It mentioned “the original assumptions and performance goals for the 2020 awards were no longer relevant in light of the global pandemic.” AT&T inventory fell 27% final yr.
“The company did have many successes in 2020,” the proxy famous, “including HBO and HBO Max subscribers exceeding their target” after the streamer’s launched in late May of final yr.”
WarnerMedia chief Jason Kilar, who joined May 1, made extra money final yr than anybody at AT&T or on the CEO high 10 listing. (He himself will not be on the listing as a result of he’s a division head.)
Kilar’s debut package deal totaled $52 million as he presided over a extremely controversial resolution to launch Warner Bros’ whole 2021 film slate concurrently on HBO Max and in what theaters had been open with out forewarning Hollywood. It led to lawsuits and sophisticated facet offers to settle contractual points with expertise and reps. His package deal was swelled by an possibility award valued at $48 million. ISS, a leading shareholder advisory service, flagged the magnitude of the grant and the truth that it “lacks performance criteria and vests solely over time” — which means it’s not linked to any particular metrics bettering on the firm.
The inventory models vest over 4 years and payouts will rely upon inventory efficiency. An AT&T rep mentioned Kilar’s “compensation is structured to be consistent with compensation practices in the media and technology industry.”
Shareholders Reject Pay
Kilar’s boss, AT&T CEO John Stankey, earned $21 million final yr, down 6.5%. The firm attributed the decline to a 50% discount in his wage from July 1 by yr finish and a 50% restrict on the payout towards the goal for his short-term award for 2020. The telco’s former CEO Randall Stephenson earned $29 million. Shareholders took umbrage on the trio of huge payouts and socked it to the board on the annual assembly April 30. Less than 49% of stockholder votes had been forged in favor of govt pay, which is a horrible tally. “Under 70% approval is when boards start taking the vote as a strong indictment against them. This is far worse than that,” mentioned Landis-Weaver.
Shareholder votes on compensation are referred to as “Say On Pay” and are required by legislation not less than as soon as each three years, although many corporations maintain them yearly. They are non-binding, however rejection appears dangerous. Annual conferences are unspooling now by July for corporations with a calendar year-end. So far, shareholders at a file variety of corporations throughout industries from Starbucks to GE to IBM have defied 2020 pay packages.
In an announcement after the AT&T annual assembly, board chair William Kennard mentioned that, “Over the years, shareholder feedback has helped us design a compensation program that pays for performance, is competitive for key talent, and aligns the interests of executives and stockholders. As we further engage with our owners on this important topic, the Board will carefully consider today’s advisory vote to ensure that our approach to compensation continues to reflect these principles.”
At Discovery, the compensation committee additionally famous tweaks to the 2020 pay system: “As management had no influence over these macro-economic events and they were not anticipated or considered at the time the 2020 performance goals are set, the Committee felt it was appropriate to adjust performances for the impact of these unforeseen events.”
CEO David Zaslav (who earned $37.7 million) bought a shout-out for transitioning staff to distant work, instituting security protocols, slicing prices, conserving money and protecting the enterprise working amid challenges. Also, “Mr. Zaslav provided exceptional leadership with respect to the expansion of our direct-to-consumer business and the successful launch of Discovery+.” The streaming service launched on January 4, 2021. Discovery shares had been down 6% final yr.
An organization spokesperson famous that the altered metrics “applied equally to bonus eligible rank-and-file employees, who benefited from the adjustment.”
Likewise, the ViacomCBS committee acknowledged that whereas it believes long-term efficiency incentives must be essentially the most significant part of compensation, it restricted that final yr “given the uncertain environment when the awards were granted.” The committee set “the weighting at 25% with the intent to increase it in future years once the market stabilizes.”
Achievements for CEO Bob Bakish in 2020 (he earned $39.97 million) included “positioning us for the future” when CBS All Access would rebrand as Paramount+ and launch in March 2021. Bakish additionally realized Viacom-CBS merger synergies, offered belongings and “continued to provide strategic leadership and management for our company during a uniquely challenging time of uncertainty and transition.” Viacom shares dipped 8% in 2020.
If HBO Max, Paramount+ and Discovery+ had been nonetheless works in progress in 2020, longtime pure-play streaming frontrunner Netflix was in a really completely different place and had an enormous benefit when theaters closed and most manufacturing ceased, feasting on a stay-at-home viewers and including a file 37 million new subscribers for the yr. The inventory surged 63%. Co-CEOs Reed Hastings and Ted Sarandos earned, respectively, $43.2 million and $39.3 million.
At Disney, 2020 compensation mirrored partly shareholder pushback from earlier years and CEO Bob Chapek’s package deal got here in at $14.2 million. He began the job in February and there’s no year-earlier determine to check. But the compensation committee mentioned it “considered investor feedback when making executive compensation decisions. As a new CEO, Mr. Chapek’s target compensation was set significantly lower than prior CEO target compensation, below the median for our Media and General Industry Peers.”
Executive chairman and former CEO Bob Iger, who left day-to-day operations to concentrate on content material, earned $21 million final yr, down 55% from the yr earlier than.
The spectacular rollout of Disney+, which led Disney shares to a 24% acquire for the yr, overshadowed devastation at theme parks — the hardest-hit leisure enterprise together with film theaters and stay occasions — which took a $6.9 billion hit for the corporate’s 2020 fiscal yr led to September.
“Mr. Iger did a tremendous job of overseeing the creative output of the Company to help fuel the successful launch of Disney+ and to position our DTC platform for future success,” the committee mentioned. Chapek “adeptly managed the enormous disruption to the Company’s business, while at the same time restructuring Disney’s media and entertainment businesses to fuel the long-term creative and financial growth of the Company.”
Yet 31% of stockholders nonetheless voted towards compensation at Disney’s annual assembly in March.
Companies defend pay packages by mentioning that inventory and possibility awards, that are granted at an estimated worth, are “at risk” if the share value falls. However, that danger has not often materialized, fairly the other. For a lot of the final decade, on account of an prolonged bull market, the unique estimate has ended up being too low in contrast with the place the inventory is buying and selling when the grants are in the end cashed in. Even in a yr like 2020, after a brief, sharp blip, the general market surged and its momentum continues.
Experts additionally level out that CEOs can reap windfalls past annual pay packages by exercising inventory choices that had been granted beforehand. Charter Communications CEO Tom Rutledge, for example, realized $224 million in 2020 from beforehand granted possibility awards. Those awards had been included in his pay tally when first granted so will not be a part of his 2020 compensation — which might be double counting. Charter shares rose 33% final yr. Rutledge didn’t promote shares besides what was wanted to cowl taxes.
The quantity was a lot larger than his precise 2020 pay package deal of $39 million, which was up 344% from 2019, swelled by an possibility grant associated to renewing his contract final yr.
Why grant new inventory and possibility awards when there are already so many excellent?
Every proxy makes it clear why. Compensation committees say they should preserve pay aggressive to draw and retain the very best expertise. And they are saying their very own CEO’s pay should to be aligned with a “peer group” of different corporations, which they listing within the proxy. Since all of them listing one another it’s a tough cycle to interrupt, with Disney maybe the primary.
“It’s like Lake Wobegone, where all the children are above average,” Minow joked.
Media and leisure’s highest-paid public firm CEOs and different executives