Warner Bros. Discovery is shifting its corporate focus to generating free cash flow and reducing its debt load, and it wants its top executives on the same page.
The company on Monday said it will be tweaking its compensation packages for top executives, offering bonuses in the form of performance stock units based on their success in generating cash and helping the company reduce its leverage.
“The changes to the Warner Bros. Discovery executive compensation program are designed to further incentivize Company employees, including members of its leadership team and others whose efforts are critical to achieving the key near-term financial objectives of increased free cash flow and reduced leverage,” said WBD board chairman Samuel A. Di Piazza Jr. in a statement to The Hollywood Reporter. “The WBD board is confident that these additional incentives offer a more competitive package against the backdrop of ongoing industry-wide transformation and economic headwinds, and better position the company to advance core drivers of shareholder value.”
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That includes WBD CEO David Zaslav, who will see his 2023 performance restricted stock units (PRSUs) tied to free cash flow. Those PRSUs have a target value of $12 million, but if the company overdelivers on its cash flow effort, it could be doubled. He will also be eligible for a separate $11.5 million block of PRSUs, which will also be tied to cash flow performance, and which could also be doubled if the company overdelivers.
Zaslav’s total compensation was $246 million in 2021, tied to the merger of WarnerMedia and Discovery. Of course, much of that compensation will depend on performance (specifically on share price, a metric that few media or entertainment companies have been able to deliver on recently). His 2022 compensation will be disclosed in the coming weeks.
The company has also set aside another $27 million in PRSUs for WBD executives and employees, with chief revenue and strategy officer Bruce Campbell, CFO Gunnar Weidenfels and head of global streaming and games JB Perrette securing $2 million in PRSUs each (again, tied to deleveraging and free cash flow), international chief Gerhard Zeiler securing $1.5 million, and chief people and culture officer Adria Alpert Romm and general counsel Savalle Sims securing $1 million in PRSUs each.
There will also be a pot of $15 million in RSUs “to recognize other employees throughout the organization, whose retention and efforts are also important to the success of our initiatives with respect to free cash flow and leverage reduction,” the company said in a regulatory filing Monday.
“Last year was a year of restructuring. 2023 will be a year of building. And off we go,” Zaslav had told analysts during the company’s latest earnings conference call. “We have a great hand, and we are doing a lot right. That said, there is still more that we need to get right, and we are hard at work.”
A key focus will be on strong free cash flow production to aggressively reduce debt leverage in 2023 and 2024, management has also said.
WBD specifically told analysts on its last earnings call that it is on track to go from five-times leverage at the end of last year to four times by the end of 2024, and reaffirmed that by the end of 2024 it will be in the 2.5- to three-times range. In order to do that, however, it needs cash to pay down that debt, hence the fresh focus on free cash flow.
WBD made aggressive moves to reduce costs last year, including layoffs (tied to the merger) as well as taking $3.5 billion in content write-downs. The goal is to bring its streaming services to profitability, which will help the company deliver free cash flow. The legacy cable channels are already generating tons of cash, though with the pay TV business declining, the need to make streaming work as a business model is only growing.
