April proxy season, which just ended, is an annual rite that lifts the curtain on CEO salaries for the previous year ahead of shareholder meetings in May and June. For 2019, big entertainment companies are showcasing habitually hefty paydays even as millions of Americans lose their jobs each week and the business sees huge pandemic-related losses.
But in 2020 nothing is routine, certainly not pay. Facing unprecedented mass furloughs and volatile markets, showbiz CEOs are doing something equally unusual — taking voluntary salary cuts for the current year. However, is it too little, too late to preempt a fresh outcry over high pay packages as annual meetings loom?
It may be, for a few reasons: a recession is here and will be one for the history books with sectors that may never completely recover; the sacrificial base salary is the smallest component of CEO compensation; and activism has been on the rise since the last downturn. Media and entertainment companies have had a particularly hard time convincing shareholders that chief executives deserve their packages.
Disney executive chairman Bob Iger agreed to relinquish 100% of his base salary and CEO Bob Chapek took a 50% cut until the company foresees a substantive recovery in its business. Comcast CEO Brian Roberts is donating his base salary to COVID-19 relief charities for the duration of the crisis. Fox CEO and its chairman, Lachlan Murdoch and Rupert Murdoch, respectively, are forgoing salary from April 22 to September 30.
Adam Aron and Mark Zoradi, CEOs of the two biggest theater chains, AMC Entertainment and Cinemark, are not drawing salaries. Neither is CEO Michael Rapino of Live Nation Entertainment, nor Robert Pittman of iHeartMedia.
“I’ve never seen this. I’ve been working in executive compensation since the mid-1980s and there have been four or five recessions since then,” says James Reda, National Managing Director of the Executive Compensation Practice at consulting firm Gallagher. CEO pay “is basically ‘to be determined’.”
It’s so unusual that Gallagher is tracking it. Of 151 companies that announced executive pay cuts as of April 16, 1 in 8, or 12%, are in media and entertainment, according to their study.
This new play on pay comes as advertising is crippled, live events canceled, and theme parks, movie theaters and film and television production shuttered, contributing to an historic spike in new unemployment claims – over 30 million in six weeks, according to the Department of Labor. GDP shrank by 4.8% last quarter, which only included several weeks of pandemic-related loss. It’s the sharpest drop since the fourth quarter of 2008, the last recession.
“Nobody has seen it like this. In 2008 there was revenue, now there is not,” says Bertha Masuda of Compensation Advisory Partners.
CEO pay was a flashpoint before COVID-19. Shareholders have voted in significant numbers in recent years against executive pay packages at companies from Disney to Netflix.
The average compensation for CEOs of Disney, Discovery, Fox, Netflix, ViacomCBS, Comcast and AT&T – a good sample group because of their size, cloud and salary history – was close to $40 million last year. That’s about flat from the year before but masks some big gyrations. Discovery, Inc. CEO David Zaslav’s package fell by 64% to $46 million, from $129 million in 2018 when he received a massive stock grant related to a new contract. ViacomCBS CEO Bob Bakish saw his salary rise 84% to $36 million as he took the reins of the merged company in December.
Compensation linked to stock is meant to align the interests of executives with that of shareholders and companies note that stock and option awards are “at risk.” Some of them may be since the direction of the stock price determines the payout. But they are granted with an estimated value – what shows up in the proxy pay table. For much of the last decade, due to an extended bull market, that estimate has ended up being too low compared with where the stock is trading when the grants are ultimately cashed in, says Rosanna Landis-Weaver, program manager at shareholder advocacy group As You Sow.
The jaw-dropper for 2019 isn’t even a current CEO but former CBS chief Joseph Ianiello, who earned $125 million, also inflated by a one-time grant, before leaving ViacomCBS early this year.
Fox’s Rupert Murdoch and Lachlan Murdoch got multi-part awards totaling, respectively, $28 million and $15 million, in fiscal 2019 with the sale of 21st Century Fox entertainment assets to Disney. (But the proxy noted that the figures aren’t “representative of the ongoing compensation established by the [new] company.”)
That was last year.
Today, forgoing base salary “is an appropriate thing to do,” says Landis-Weaver. The rub is that usually “it’s the smallest component of their pay.”
It’s impossible to say, based on proxies for 2019, how the pandemic will impact 2020 salaries beyond these voluntary cuts.
“The proxies we are looking now at seem like a message from a time capsule. They don’t seem to have a lot of relevance,” says Nell Minow, vice chair of ValueEdge Advisors, a corporate governance advisory firm for institutional investors. “But I am very concerned about what’s happening now.”
She’s focused on potentially “big grants and option awards when the market is low” as part of 2020 compensation packages. Companies can make the grants periodically during the year. Gains realized later are often attributable to the overall market, not the performance of the individual company, she says.
Minow thinks options should be indexed, so executives only benefit if a company’s share price outperforms its peer group or the overall market. “There is no reason they should get paid just because the whole market swings back – in other words, for a return to normal.”
Shareholders don’t get to make up their losses with new grants, she notes.
Reda anticipates growing shareholder pressure on boards.
“Even if the stock market recovers to some degree, a lot companies won’t have recovered, so there will be a lot of upset investors, and that puts pressure on companies,” he says. Bonuses may be compromised. Boards will “revisit the 2020 bonus situation sometime in August and do whatever makes sense,” he adds.
“Right now goal setting is too difficult so we are expecting that it will be judged at the end of the year. Boards will use their discretion,” says CAP’s Masuda.
Leading proxy advisory firms ISS and Glass Lewis, which recommend how shareholders vote at annual meetings on issues including executive compensation, have warned companies that they are watching.
“The stark reality is that for many workers, including executives, they should not expect to be worth as much as they were before the crisis,” Glass Lewis said. “Trying to make executives whole is … an open invitation for activists and lawsuits onto a company’s back for years to come.”
ISS urged boards to “provide contemporaneous disclosure to shareholders of their rationale” if they change performance metrics used for short-term compensation, even though they are not required to describe all the details of 2020 pay until the 2021 proxies to be filed a year from now.
Shareholders have one shot to formally opine on compensation – a non-binding vote at the annual meeting mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Companies don’t have to change anything based on so-called say-on-pay — it’s just an “advisory” vote — but boards take it seriously. Media and entertainment companies have a poor record on these votes, Weaver says.
On average, S&P 500 companies get the support of about 95% of shareholders on pay, she says. At Disney’s 2019 annual meeting in March, only 53% of shareholders approved executive compensation and that was after investor pressure clipped Iger’s compensation plan in November of 2018 and March of 2019.
At Netflix, the last say-on-pay proposal received 49.8% approval. Its 2020 annual meeting is set for June 4.
Among other media companies, AMC Networks’ CEO Josh Sapan earned $20 million last year. Nexstar Media CEO Perry Sook earned $16 million. Liberty Media CEO Greg Maffei’s compensation package doubled to $44 million related to a contract renewal.
“We will hear a lot of CEOs going forward this year and next saying, ‘This surprised us. It’s not our fault,’ ” says Landis-Weaver. But, “I never saw a proxy statement where someone said they benefited from external factors that were beyond their control so they shouldn’t get as much. Shareholders will push back, but it will be next year’s proxy season.”
COMPENSATION FOR TOP MEDIA/ENTERTAINMENT CEOs IN 2019
Total compensation with percentage change from 2018 and major components. (Non-equity incentive plan compensation is a cash payment pegged to performance targets. Deferred compensation is set aside to be paid later.)
DISNEY
Former CEO/current Executive Chairman Robert Iger: $47.5 million (down 27%)
$3M salary
$10M stock awards
$9.6M option awards
$21.75M non-equity incentive plan compensation
$1.9M change in pension value and deferred compensation earnings
$1.1M other
(Iger stepped down as CEO in February to become executive chairman. The terms of his employment agreement, which runs through the end of 2021, remain the same. Current CEO Bob Chapeck’s new contract calls for compensation of about $25 million annually, including a base salary of $2.5 million, target bonus of $7.5 million, and annual long-term incentive grant of $15 million.)
DISCOVERY
CEO David Zaslav: $45.8 million (down 64%)
$3M salary
$13.5M stock awards
$6.9M option awards
$21.8M non-equity incentive plan compensation
FOX CORP
Executive Chairman/CEO Lachlan Murdoch: $42.11 million (down 17%)
$3M salary
$1.7M bonus
$23M stock awards
$4.9M option awards
$ 5.7M non-equity incentive plan compensation
$3.3M change in pension value and deferred compensation earnings
Chairman Rupert Murdoch: $42.16 million (down 14%)
$6.5M salary
$1.7M bonus
$12.6M stock awards
$2.5M option awards
$ 7.5M non-equity incentive plan compensation
$11.1M change in pension value and deferred compensation earnings
(Fox’s fiscal year ended in June, three months after selling its entertainment assets to Disney. The proxy said they will earn more like $24 million and $29 million annually, respectively, going forward.)
NETFLIX
Chairman-CEO Reed Hastings: $38.58 – up 7%
$700,000 salary
$37.4M option awards
Chief Content Officer Ted Sarandos: $34.67 million (up 17%)
$18M salary
$16.6M option awards
(Netflix said Hastings will earn $34.6 million – a $650,000 base salary and $34 million in annual stock options – in 2020. Sarandos will also earn $34.6 million but with $20 million cash salary and $14.6 million in options. Netflix executives can choose how to split their pay between cash salary and options. Option awards are granted on the first trading day of each month.)
VIACOMCBS
CEO Bob Bakish: $36.57 million (up 84%)
$3.1M salary
$12.4M bonus
$16M equity awards
$5M one-time RSU (restricted stock unit) grant
(Former Viacom chief Bakish assumed the CEO post of ViacomCBS when the merger closed December 4. The company said his target pay this year is $31.5 million – same as above but excluding the $5 million grant.)
COMCAST
Chairman-CEO Brian Roberts: $36.37 million (up 3.8%)
$3.3M salary
$5.3M stock awards
$5.3M option awards
$9.9M non-equity incentive plan compensation
$7.6M change in pension value and nonqualified deferred compensation earnings
$4.9M other
AT&T
Outgoing CEO Randall Stephenson: $32 million (up 10%)
$1.8M salary
$19.8M stock awards
$5.28M non-equity incentive plan compensation
$3.58M change in pension value and nonqualified deferred compensation earnings
$1.5M other
Incoming CEO John Stankey: $22.47 million (up 36%)
$2.9M salary
$9.5M stock awards
$7.6M non-equity incentive plan compensation
$2.1M change in pension value and nonqualified deferred compensation earnings
(Stephenson, who shepherded the telco company through the purchase of Time Warner, announced his resignation last week, passing the baton to COO and former WarnerMedia CEO Stankey.)