MGM's $260 Million Payout: Making Sense of CEO Gary Barber's Eye-Popping Exit

MGM Exec Comp - iStock - H 2018
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The exec could have led a hostile takeover if his board hadn't bought back his lucrative ownership stake in the storied studio.

In the late 1980s, desperate to resuscitate a floundering studio that had veered off-course under the leadership of Chariots of Fire producer David Puttnam, Sony Corp. made a move for the big time.

Having newly purchased Columbia Pictures from the Coca-Cola Co., Sony offered the posts of chairman and CEO to the double act of Jon Peters and Peter Guber, producers of such blockbusters as Batman and Rain Man. Then the new owner discovered that the partners were still under contract to Warner Bros., which had no intention of letting them go.

By the time a deal was done, Sony had agreed to buy Guber and Peters' company for $200 million and pay Warners some $500 million in assets, on top of the $3.4 billion it had already paid for Columbia. Five years later, both execs were gone after a dismal run and Sony was forced to take a $2.7 billion write-down.

No Hollywood executive deal has ever been that rich or that controversial. But June 14's news that MGM would buy out its former chairman Gary Barber's fully vested shares worth $260 million as part of his exit arrangement, following his abrupt firing in March, comes close. The deal includes 274,392 shares of common stock and 3,883,529 stock options, and Barber agreed to have no connection to MGM for three years.

Was this just the latest salvo in an epidemic of increasing executive fees and exit payments? Or was it somehow justifiable? The answer is both.

Even as Hollywood has reined in the exorbitant sums it pays stars, it has continued to boost the salaries of superstar executives who are in fresh demand thanks to swelling competition from the likes of Netflix, Amazon and Apple. Landing a top executive usually means factoring in a generous golden parachute for the inevitable moment when he or she leaves.

Historically, such parachutes were rare or limited to six figures along with a production deal. In 1973, when Kirk Kerkorian fired Barber's long-ago predecessor James Aubrey from MGM, Aubrey walked away with nothing as he had no signed contract. All this shifted in the 1980s, when corporations consolidated their hold on the studios and impacted the way Hollywood did business. That's when ever-bigger salaries and settlements began to become the norm.

Jeffrey Katzenberg received at least $280 million from The Walt Disney Co. when he left the company in 1994 after chairman Michael Eisner refused to promote him, though that financial settlement followed a protracted legal battle. Two years later, Disney president Michael Ovitz received some $140 million after he was dismissed by Eisner.

Still, such massive numbers remained infrequent until the past decade, when Viacom, in particular, saw a host of top executives leave, each with a multimillion-dollar payday. In 2016, chairman and CEO Philippe Dauman was granted $72 million when he stepped down, not too long after COO Tom Dooley left with a potential $63 million settlement. Both sums were in line with the $85 million Tom Freston was granted when he departed Viacom in 2006.

In this context, Barber's deal hardly seems astonishing, with one notable caveat: It is vast in relation to the relatively small size of MGM. (The company is thinly traded over the counter but is valued at $4.3 billion, according to Yahoo Finance.) The executive, who joined the studio in 2010, oversaw the past two James Bond films, Skyfall and Spectre, which collectively grossed more than $1.9 billion at the global box office. He also brought in super-producer Mark Burnett to lead MGM's TV group, which produces the Emmy-winning drama The Handmaid's Tale for Hulu.

Unlike Dauman and other top executives, however, Barber was not being paid merely for his hurt feelings; MGM's board made a calculated move to buy back his ownership stake in order to prevent him from moving forward with a rumored hostile takeover. Purchasing his shares, rather than just giving him a golden parachute, "is an important and valid distinction," notes analyst Hal Vogel. MGM declined to comment.

While Vogel is skeptical of the merits of share buybacks, he notes they can have possible advantages to a company, not just in ridding it of a potential predator but also in increasing the earnings of current shareholders and easing the path to a future sale — though MGM says it has no plans to sell.

Eyebrow-raising as it is, the Barber deal may be just one of several megapayouts in the next few months. Now that AT&T has merged with Time Warner, insiders expect Time Warner chairman and CEO Jeffrey Bewkes to exit with more than $100 million. And if CBS chairman Leslie Moonves fails in his battle of wills with the network's largest shareholder, Shari Redstone, that could result in a parting payment that makes her father Sumner's farewell gifts to Dauman and Freston look like a handout.

This story first appeared in the June 20 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.