Hollywood's Top CEOs See Compensation Fall 5 Percent in 2012
With corporate boards and investors more cautious over executive compensation, the CEOs of many entertainment conglomerates saw declines in the value of their pay packages for the latest year. The drops, which are in contrast to executive compensation in the broader economy, come despite continued improvements in earnings and stock performance among media conglomerates.
According to data compiled by the AFL-CIO, when Apple CEO Tim Cook is stripped from the equation (because he earned $378 million in 2011 but just $4.2 million in 2012), CEO pay at S&P 500 companies rose 5 percent last year. But among the seven media conglomerates (substituting Discovery for Sony, which hasn't yet reported) CEO pay has dropped 5 percent.
The falling compensation among media executives doesn’t surprise some observers, who expect that other industries might follow suit soon enough.
“Boards are becoming more vigilant with pay and trying to do a better job of benchmarking executive pay to relative performance -- not just an increase in performance but increase beyond a benchmark or the market overall," said David Becher, associate professor of finance at Drexel University. "Whether this will translate into lower pay overall, I think is too early to say."
But it means that while earnings and stock prices can be up, companies may not fully hit all targets set by boards as a pay benchmark. Thus, bonuses and stock options granted can be lower than in past years, Becher explained.
That’s the case with Viacom CEO Phillipe Dauman, who earned roughly the same base pay and stock and option compensation in 2012 as in 2011, though overall he made 22 percent less in 2012 largely because a non-equity incentive bonus that was $20 million in 2011 dropped to $11.5 million in 2012. According to a filing, the discrepancy was due to Viacom hitting just 87 percent of the targets of operating income, free cash flow and “qualitative objectives” that it had set out for Dauman, while the year prior the company hit 137 percent of those targets. Viacom's earnings for the fiscal year declined 7 percent but the stock climbed 41 percent, and Dauman was paid $33.5 million.
CBS president and CEO Leslie Moonves was the best-paid industry executive among the major companies in 2012, as was the case the year prior. Also like a year earlier, he was followed in 2012 by Discovery Communications president and CEO David Zaslav.
Moonves' compensation declined 11 percent from $69.9 million in 2011 to $62.2 million and came in ahead of the $57.7 million he had made in 2010. The key driver of the decline in 2012 was several millions of dollars in options he received the year before for a one-time signing bonus. But while Moonves’ compensation shrank, CBS stock rose 42 percent in 2012 and earnings were up 21 percent.
Zaslav made $49.9 million in 2012, slightly below the $52.4 million that he had earned in 2011 amid changes in the value of his stock options, even as the company’s shares rose 55 percent. Discovery’s earnings, though, sunk 17 percent.
Complaints of excessive CEO pay could come up again during annual shareholder meetings in the coming months, but observers don't expect serious challenges. Still, companies have started to offer non-binding say-on-pay votes amid criticism that chief executives make too much. In the media and entertainment world, criticism has focused primarily on companies controlled by the families of founders, such as News Corp’s. Rupert Murdoch and Viacom's and CBS' Sumner Redstone.
Most companies have proposed that the advisory votes on executive pay be held every few years, with Viacom shareholders among those that have voted in favor of such a measure. Nevertheless, proxy advisory firm ISS earlier this year criticized Viacom for some of its compensation practices ahead of its annual meeting and is expected to take others to task as well.
"The continuation of a multitude of poor compensation practices, such as guaranteed targets, goal retesting and the use of similar metrics for annual and long-term awards remains concerning," ISS said in its report on Viacom. "Additionally, although recent pay levels have moderated somewhat, they still appear unreasonable even in light of the company's superior performance."
Whether intentional or not, some observers have noted that the pay cuts of many media-conglomerate CEOs come at a fortuitous time, when several broadcasters – including those in the conglomerates' own news divisions -- have disparaged the gap between rich and poor, in particular the pay scales of rank-and-file workers compared with CEO compensation.
Some of the ammunition for such news stories come from the AFL-CIO, which has authored position papers against massive wage gaps. At its website, it features an ever-changing scroll that compares hourly salaries. On Monday, for example, it pointed out that the average worker in America makes $19.77 an hour, while Disney CEO Robert Iger makes about $13,340 an hour.
Disney’s Iger, though, could be seen as a bargain compared with other CEOs, given his pay rose only 20 percent in fiscal 2012 while the stock surged 76 percent. Disney is also the second most profitable of the entertainment conglomerates, hauling in $5.7 billion last year, up 18 percent from the prior year (Comcast’s profit in 2012 was $6.2 billion).
On a list of the highest paid CEOs among S&P 500 companies, Iger is No. 10, having earned less than both Zaslav (No. 7) and Moonves (No. 3), even though Disney is more profitable and its stock outperformed both.
The two executives who earned more than Moonves in 2012 were Oracle’s Larry Ellison ($96.2 million) and Google’s Eric Schmidt ($101 million).
All the biggest media companies are on the AFL-CIO list: Dauman is No. 19, Murdoch is No. 27, Comcast CEO Brian Roberts is No. 30, and Time Warner CEO Jeff Bewkes is No. 42.
Despite Disney’s success, Iger has his share of detractors who complain his pay is too generous. ISS, for example, continues to push for a shareholders’ say-on-pay and argues that Iger’s contract is such that he’ll still make huge money even if Disney delivers mediocre performance.
Time Warner chairman and CEO Jeff Bewkes, meanwhile, saw his 2012 pay remain virtually unchanged at $25.9 million. The stability of his earnings came despite a stock improvement of 36 percent last year and earnings growth of 5 percent. Bewkes' stock awards amounted to $6.9 million, up from $6.1 million in 2011, but his option awards declined from $3.96 million to $2.96 million.
Of the seven conglomerates, two saw their pay increase (Roberts and Iger), one was stagnant (Bewkes) and three CEOs took pay cuts in 2012 – Dauman, Moonves and Murdoch. Sony has yet to report.
Murdoch earned $30 million in fiscal 2012, down 10 percent from the year prior while the company’s profit fell 57 percent but the stock rose 26 percent.
Like Iger, Roberts is also seen in some circles as a relative bargain. He earned $29.1 million in 2012, up 8 percent from a year before, as profit surged 49 percent and the stock rocketed 61 percent.
Whether some CEOs taking a pay cut in 2012 is a trend that might continue in 2013 remains to be seen. The AFL-CIO and other progressive activists argue they can certainly afford to, given that the average CEO at a Fortune 500 company made $12 million in 2012 while at the seven media conglomerates (again, substituting Discovery for Sony) the average CEO made $38.6 million.
“I don’t read anything into it,” Steven Birenberg of Northlake Capital Management says of pay cuts among media CEOs. “Given the massive pay packages these guys receive, I don’t think losing some millions, even $10 million-plus, means anything. If there is any story, it remains how excessive the pay packages are every year for CEOs, with media CEOs among the most excessive … given the '99 percent,' '1 percent' and '47 percent' stories of the past year, I think a lot of people would agree with me.”
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