CEO Pay Raises Mixed In Cable4/25/2009 2:00 AM Eastern
As investors scrutinize the pay of top corporate executives, the cable industry reveals a mixed bunch, with compensation rising for half of the top 10 CEOs and most tying pay to performance.
Five of 10 top cable-industry executives examined received increases in total compensation for the year — the exceptions were Cablevision Systems CEO James Dolan (a 42% decrease) and chairman Charles Dolan (a 13% decrease); Time Warner Cable chairman and CEO Glenn Britt (a 9.8% decrease); News Corp. chairman and CEO Rupert Murdoch (14.3% decrease); and DirecTV CEO Chase Carey (6.5% decrease).
But even those with increases in total compensation — Comcast chairman and CEO Brian Roberts (13.9%); Time Warner Inc. chairman and CEO Jeff Bewkes (1.5%); The Walt Disney Co. CEO Robert Iger (10.5%); Dish Network chairman and CEO Charlie Ergen (3.8%) and Viacom CEO Philippe Dauman (11.6%) — could blame the raises on overinflated values for stock awards and options. Many say that most of the options and stocks awards they received are virtually worthless. One company — Viacom — even went as far to include a separate compensation chart for top executives to illustrate that point.
Even with a separate chart, Viacom CEO Dauman was a standout, receiving total compensation of about $23 million in 2008, an 11.6% increase over the prior year, according to Viacom's proxy statement filed April 17. When the value of those options and stock awards — what the CEO actually took home — are considered, Dauman's compensation falls to $13 million, down 30% from the $20 million he took home in 2007.
Viacom executive vice president of communications Carl Folta said the chart was included mainly to point out the disparity. Viacom is particularly sensitive to pay scrutiny ever since it was lambasted in 2004, when chairman Sumner Redstone earned $56 million in one year and co-CEOs Tom Freston and Les Moonves each took home $52 million. That year, Viacom lost $17.5 billion and its stock price fell 18%, and the outcry forced Redstone to restructure executive pay to be more skewed toward performance goals.
The unpredictability of stock awards has caused some compensation experts to look closer at cash compensation when evaluating executive pay, mainly because it eliminates the volatility of the stock market and looks at compensation that is mostly tied to performance goals.
“Cash compensation is a whole lot more meaningful now,” said Brent Longnecker, chairman and CEO of Longnecker & Associates, a Houston compensation and corporate governance consultant.
Of the 10 executives examined, half received cash-compensation raises, with Iger's increase the smallest — 1.8%, to $15.9 million from $15.7 million in 2007. Murdoch and Roberts came in with increases in the 8% to 9% range. Bewkes, who was named CEO of Time Warner Inc. in 2008 and chairman in 2009, received a 13% increase in cash compensation, most of which was tied to his new position. Dauman's cash compensation rose 15.6% to $10.4 million from $9 million in 2007.
While Dauman's cash-compensation increase wasn't the only one among the top executives, it was the highest in terms of percentage. Meanwhile, Viacom barely hit its performance targets, making its executives eligible for bonus money, as other companies hit their performance targets solidly in the high end of the projected range.
For example, Viacom tied the bonuses of Dauman and other executives to three metrics — operating income, free cash flow and “qualitative objectives” which, according to its proxy statement, included the “furtherance and achievement of strategic initiatives, performance in internal and public financial reporting, budgeting and forecasting processes (including evaluation of return on invested capital), and compliance initiatives, and the commitment to and achievement of inclusion and diversity in our businesses.”
According to the proxy, Viacom's performance range for operating income was between $2.937 billion and $3.759 billion and free cash flow had to come in between $1.245 billion to $2.12 billion in order for executives to be eligible for their bonus. According to its 10-K annual report, Viacom had 2008 operating income of $2.5 billion, far short of the goal. When a $454 million one-time charge — in part due to severance packages paid to laid-off employees — and other timing factors are considered, operating income rose to $2.997 billion, just squeaking by the target. As a result, Dauman and other executives received 83% of their target bonuses.
In contrast, at Disney, executive bonuses were tied to operating income, return on invested capital, free cash flow and earnings per share. In fiscal 2008, company performance was consistently in the high end of the range.
In a research report last week, Pali Research media analyst Richard Greenfield, an outspoken Viacom critic, called the company's pay increases “incredibly demoralizing for employees of Viacom, who have suffered through multiple rounds of layoffs and cost reductions throughout the past year to mitigate the impact of weak network ratings and an eroding ad market.”
While Dauman's pay increase looks on the surface to be out of sync with the rest of the industry, Folta said, it has to be viewed in context. First, Viacom's board of directors voted to increase his base salary in 2007, after it was determined that Dauman's compensation was vastly lower than that of his peers and on the heels of one of Viacom's strongest year's ever — revenue was up 18%, operating income rose 5% and earnings jumped 15.5%. In addition, Viacom's stock rose 6% in 2007, outpacing peers.
And when Viacom's board decided to hike Dauman's base salary to $2.5 million from $2 million and his target bonus to $9.5 million, it was based on recommendations from outside compensation advisers. As part of that review, Redstone, chief financial officer Tom Dooley and executive vice president and general counsel Michael Fricklas all received increases in base salary and target bonus. And even with that increase, Dauman's compensation puts him below other media moguls like Murdoch, Iger and CBS CEO Les Moonves.
Folta added that Dauman has frozen executive salaries for 2009 and that the CEO hasn't received credit for some of the less-flashy moves he has made to strengthen the company.
“We have a fortress balance sheet, we have retired debt. Other companies can't say that,” Folta said. “Yes, we have had ratings problems, but they were here when he got here. It takes a while to turn ratings around and we're working on it.”
Exec Pay Scorecard
Take-home pay ($ in millions):
|SOURCE: Company reports and Multichannel News research|