Head of troubled gaming studio has a cushy contract as Microsoft swoops in with $68.7 billion cash acquisition
Activision Blizzard will soon have a new owner, Microsoft, but the same CEO, Bobby Kotick. That second part is kind of surprising to anyone who has been following the legal and PR nightmare surrounding the “frat house”-environment saga at the game studio behind “Call of Duty,” “Overwatch” and “Candy Crush.”
One reason that the embattled Kotick may still be on board may be found in the company’s 2021 proxy filing, which shows that Kotick could be due a golden parachute worth almost $293 million if terminated due to a “change in control.”
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If Kotick were terminated “for cause,” he’d be entitled to continuing benefits worth just $264,524, according to the document, which is filed annually with the SEC. Had he been terminated “without cause,” or had Kotick ended his own employment “for good reason,” the CEO would be due a whopping $265.2 million.
Pretty big difference there.
If Kotick were terminated without cause (or he chose to left for good reason) “following a change of control,” he’d be due $270.9 million in equity plus $4.4 million in salary-based severance plus $17.4 million in bonus-based severance and the $264,000 (and change) in continuing benefits.
And that’s how you get to a $293 million golden parachute. Big bucks, until you consider Microsoft is paying $68.7 billion — in cash — for Activision Blizzard. Read more about the megadeal here.
To help clarify some of the terminology here: If someone gets fired “for cause,” the company ends an individual’s employment for a specific reason. You can terminate your own employment “for good reason” if an you elect to leave in a manner that is constructive to the company. Generally speaking, those terms would be defined in an employment agreement. “Good reason” is the term an employee who leaves voluntarily would use to argue why they are allowed to leave but still collect all of their severance.
And yes, the company’s sale to Microsoft constitutes a “change of control,” per Kotick’s employment agreement.
According to the June 14, 2021 Activision Blizzard proxy filing, under Kotick’s employment agreement, being fired “for cause” includes five possibilities, as decided on by the Activision Blizzard board:
1. Kotick engaged in an act of fraud or embezzlement in respect of us or our funds, properties, or assets.
2. Kotick was convicted of, or pled guilty or nolocontendere to, a felony under the laws of the United States or any state thereof.
3. Kotick engaged in willful misconduct or gross negligence in connection with the performance of his duties that has caused or is highly likely to cause severe harm to us.
4. Kotick was intentionally dishonest in the performance of his duties under his employment agreement and such dishonesty had a material adverse effect on us.
5. Kotick materially breached his material obligations under his employment agreement.
With the culture problems plaguing Activision Blizzard over the past six months, it seems that option No. 3 might be the closest to an “out” the companies could exercise to remove Kotick against his will. It may not have been enough, however.
As it is, Kotick is currently expected to continue to serve as CEO of Activision Blizzard, reporting to Phil Spencer, the CEO of Microsoft Gaming.
Reps for Activision Blizzard and Microsoft did not immediately respond to TheWrap’s request for comment on this story.
Activision Blizzard has been under fire over internal reports of sexual misconduct and harassment. In July, the studio was hit with a civil lawsuit from California’s Department of Fair Employment and Housing, claiming the company was “akin to working in a frat house.” The alleged sexual harassment included inappropriate comments about women’s bodies, rape jokes and unsolicited touching of female employees. The company dismissed the claims and said in part in a statement to NPR, “The DFEH includes distorted, and in many cases false, descriptions of Blizzard’s past.”
Last October, Kotick announced a “zero-tolerance policy” for abusive behavior along with a series of reform policies, including a pledge to increase the number of female and nonbinary employees at the company by 50%, waiving arbitration for any employee filing a harassment or discrimination claim, and slashing his own pay to the minimum annual salary of $62,500 required by California law.
But the following month, the heat was turned up on Kotick again after a Wall Street Journal report revealed his direct involvement in the harassment of women at Activision Blizzard, specifically threatening in a 2006 voicemail to have a female employee killed and threatening to “destroy” a private jet flight attendant who sued him for sexual harassment committed by his jet’s pilot.
After more than 1,200 employees signed a petition demanding his resignation, Kotick met with executives at Blizzard, saying he will consider leaving if issues of sexual misconduct and harassment are not resolved “with speed,” according to the Wall Street Journal. In a separate meeting with Activision executives, Kotick said he was “ashamed of some of the incidents that had happened on his watch and apologized for how he has handled the unfolding problems,” but was told by executives that some employees would only be satisfied by his departure.
Still, Kotick is expected to remain in charge even as Microsoft becomes the world’s third-largest gaming company by revenue, behind only Tencent and Sony. The Seattle-based tech giant will soon have 30 studios in house. The Activision Blizzard acquisition, which has been approved by both boards but is still subject to typical regulatory review, is expected to close in fiscal year 2023.
With the acquisition of Activision Blizzard, Microsoft not only gets control of some of the most popular gaming franchises on its Xbox platform, like “Call of Duty” and “Overwatch,” it also makes a huge splash into mobile gaming, where a whopping 95% of the gaming marketplace exists these days.