Rebuking exorbitant chief executive pay is destined to be on the table at next year’s shareholder meetings amid lackluster earnings and a looming recession
Hollywood quietly achieved a record this year when it comes to the lucrative compensation packages awarded to CEOs running all the nation’s major television, movie, and streaming businesses — but it’s becoming clear that come next year, shareholders will take CEOs to task where it really hurts: their paychecks.
Hardly an eyebrow was raised when Warner Bros. Discovery Chief Executive David Zaslav took home $246 million in compensation for 2021, more than six times his 2020 pay (and well above his all-time high of $156.1 million in 2014). It was the most money paid to a studio CEO for one year’s work — and higher than the combined paychecks for the CEOs of Disney, Netflix, Paramount, Comcast, Lionsgate and Fox.
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There’s growing sentiment that shareholders who have been begrudgingly complacent with $20 million to $50 million paydays seen in the past will soon change their tune. Exorbitant pay can be somewhat tolerated for companies making cash hand over fist, but those days might be coming to an end and a day of reckoning approaching.
“Compensation at $246 million is going to be hard to explain regardless of if they are making money,” one top investment executive at a major state pension fund that owns shares of both Disney and Warner Bros. Discovery in its portfolio told TheWrap. “We’ve had to grin and bear it for the most part when the company is making money. But, how do you explain a high compensation level when the company isn’t performing well?”
Managers of most pension funds must adhere to rules over the kind of companies they invest in for the retirement plans of public workers, this exec said, and there are bylaws and mandates about executive compensation levels. For example, a CEO might not surpass a certain amount unless the company is hitting similar performance for revenue and profit.
These institutional investors are the biggest target for shareholders rights groups, who in years past tried to build a coalition of investors for proxy battles on such hot-button issues as executive compensation. Earlier this year, three of those groups — Institutional Shareholder Services, Glass Lewis & Co., and Egan-Jones Proxy Services — recommended that clients reject Discovery’s compensation proposal for Zaslav despite closing the blockbuster $43 billion merger with WarnerMedia.
ISS called out the cable content provider as having “a long history of poor pay practices” and the 2021 amount was “disproportionate to company performance.”
Though all three declined to comment about future actions in the entertainment space, several fund managers told TheWrap they believe the shareholder rights groups will mount an even bigger campaign to curb top execs’ pay packages in 2022. While recent shareholder meetings were held online in abbreviated sessions due to COVID-19, they’re expected to be held in public again next year and that will have a huge impact.
Last week, Netflix’s annual meeting clocked in at 17 minutes and only had three investors take the virtual floor to introduce votes on shareholder proxy proposals. There was also no question and answer time, which can balloon general meetings to all-day affairs.
“Those can be sideshows, but from a financial standpoint we’re still looking in general at media and entertainment companies who have been untethered from reality for the last decade,” LightShed Partners analyst Rich Greenfield said. “They have been unhinged from reality for so long that I’m almost numb to it, it’s in so many ways disturbing but nobody seems to care.”
There’s a perfect storm brewing that could draw attention to how much CEOs are paid, Greenfield said. Stock performance, the future of Hollywood’s streaming ambitions and how much advertising business can be drummed up during an expected downturn in the economy will all factor into how the sector performs. Entertainment conglomerates would be especially hard hit as TV advertisers reduce budgets, families cancel summer vacations to Disney World and Universal studios and more disruption ahead for streaming services.
“It’s about the downturn and how they navigate it,” Greenfield said. “Shareholders want to see returns.”
Wall Street may have more pain in store for the nation’s biggest entertainment players whose stock prices have been pummeled this year. The S&P 500 Media and Entertainment index, a key barometer for the sector, is already down 33% since last August’s all-time high.
Disney stock continues to flounder this year after CEO Bob Chapek came under sharp attack when the company announced his compensation package had doubled to $32.5 million.
This angered investors and employees since Chapek, whom disgruntled Disney staff started to call “Paychek” as a nickname, had made a series of major fumbles over the last year. The missteps ranged from alienating top talent like Scarlett Johansson, who sued the studio over her backend deal for the routed-to-streaming film “Black Widow,” to flubbing the company’s public response to Florida’s so-called “Don’t Say Gay” bill that now has become law. There was even speculation Chapek’s contract wouldn’t be renewed next year, and that former CEO Bob Iger would come back in. The company, and Iger, rejected that speculation.
The Economic Policy Institute reported that the median CEO compensation for U.S. companies reached $20 million in 2021, up 31% from the previous year. Much of that was due to a jump in stock awards and cash bonuses that were activated when the stock market surged.
The amount is a 31% increase from the previous year, and registers at 254 times more than the average worker made last year, according to the Equilar 100, which offers a broad look at CEO compensation among the largest companies by revenue.
Here’s a look at how several of Hollywood’s chief executives fared during 2021.
Sumner Redstone, the media mogul who built an entertainment empire with CBS and Viacom, was an executive known for keeping people guessing (even famously announcing that his daughter Shari Redstone would never succeed him, and then later appointing her to do just that). Paramount Global President and CEO Bob Bakish, who credits Redstone with his success in the media world, must have learned a thing or two about keeping people guessing. This year he’s both hinted the company could be for sale and believes Paramount Global’s content factory makes it a rival to Disney.
Either way, shareholders have to appreciate that Bakish’s compensation of $20 million is among the lowest of Hollywood’s top CEOs. He’s still under pressure to jumpstart the company’s streaming assets for success as a standalone company — or push further into content to make Paramount too hard to pass up for a potential buyer. Shares of the company are down 27% this year, despite billionaire stock picker Warren Buffet’s $2.6 billion investment and reports of a sale.
Well, this year escalated quickly. It has only been four months since Disney CEO Bob Chapek was embroiled in multiple controversies at once: backlash over Florida’s “Don’t Say Gay” bill, backlash after coming against the “Don’t Say Gay” bill from Gov. Ron DeSantis, backlash from LGBTQ employees and groups upset he didn’t do enough. With all this backlash, about his $32.5 million 2021 payday, calls for his firing resulted in a very combative first full year as CEO since Iger retired.
The noise has quieted down, but Chapek faces a pretty tough end of the year. Disney has already warned that its next two quarters will come in lower than expectations (the first half did better than the company expected, leaving the back half more uncertain). It will also be a tough slog for Chapek to collect a big compensation package for 2022 considering the stock price is down 40% in the past year, a stunning drop for a Dow Jones industrial average component.
Lionsgate Entertainment CEO Jon Feltheimer has some big decisions to make in the next year that will have huge ramifications for Lionsgate, which observers believe can’t survive Hollywood’s streaming shakeout as a standalone company. The company already is set to spin off its Starz streaming channel by the end of the summer as a way to generate some quick cash at a market peak for all things streaming. Roku (if the streaming aggregator isn’t bought by Netflix) and Vivendi are reportedly among the buyers in contention.
Investors still pine for the days of “Hunger Games” and “Twilight,” the two powerhouse film hits that at one point drove the company’s value to about $8 billion. So there was some good news recently when the company announced upcoing “Hunger Games” prequels and new installments of “Expendables” and “John Wick.” The stock price is still down about 50% on the year.
Netflix co-CEOs Reed Hastings and Ted Sarandos were present last Thursday for Netflix’s annual shareholders meeting, along with three of their top lieutenants and another six board members. They outnumbered shareholders who spoke at the virtual event by more than 3-to-1. None of the execs said a word.
That’s probably a good thing after Netflix turned in atrocious first-quarter numbers, including a shocking 200,000 loss of subscribers and a projected dip by another 2 million in Q2. The stock price has been in a state of free fall, losing every cent of gains made during the pandemic, and the company has cut both film and TV projects as well as headcount. In a recent interview with the New York Times, Sarandos insisted that he would pass the company’s infamous “keeper test” used on employees despite the company’s recent struggles.
The company has been criticized for allowing employees to choose if they want their compensation mainly in stock or in cash. Sarandos picked cash ($20 million salary, with the rest in stock), Hastings chose shares ($650,000 annual salary and the rest in stock). Most companies do a combination of both. Either way, Hastings has a lot riding on getting the stock price up if he continues the equity-based compensation next year — or else shareholders might have a few words.
Fox CEO Lachlan Murdoch, who took over the family business when Rupert Murdoch sold the film division to Disney in 2018, seems to be coming into his own during the past year. He’s led the company away from the rest of Hollywood’s pursuit of the streaming video on demand (SVOD) business and instead focused on the lucrative cable sports and news franchises that power earnings every quarter. “We’ve been very happily on the sidelines watching this sort of bloodbath, which is going on in the SVOD market,” he said in May.
And that decision seemed like a good one this year as many of the company’s rivals were hurt on Wall Street as subscriber numbers dropped and called into question the entire strategy. Instead of trying to pump up streaming during the company’s latest earnings call, Murdoch instead doubled down on what’s ahead for sports — even breaking news that star quarterback Tom Brady is joining as a Fox Sports analyst. (Well, once Brady retires from the NFL.) Someone who hasn’t mentioned retirement is Rupert Murdoch, who in 2021 received a $31.1 million compensation package for his role as Fox’s executive chairman. Lachlan made slightly less at $27.7 million.
Comcast Chairman, President and CEO Brian Roberts has some big decisions to make this year when it comes to the future of the cable giant’s entertainment division, which centers on NBCUniversal and the growth of streaming service Peacock. Some of that relies on how the company resolves its relationship with Disney over Hulu, in which Comcast still holds a minority stake. NBCUniversal recently reclaimed its content from Hulu earlier this year to run exclusively on Peacock, which the company said has helped push “significant growth in monthly active accounts and revenue.”
Peacock should also benefit from Universal’s shortening of its theatrical window for new films to stream around 45 days after they hit theaters. That gives NBCUniversal chief Jeff Shell, whose compensation in 2021 rose 30% to $21.6 million, a strategically important role to play in the next year. Roberts made $34 million in compensation for 2021, whereas the stock is down 24%.
Warner Bros. Discovery President and CEO David Zaslav has wasted no time making changes at his newly merged company, scrapping the CNN+ streaming channel launched just weeks earlier. He’s weighed in on content choices, what kind of DC movies he wants in theaters, pushed out executives, and still has thousands of jobs to cut in a reorganization of Hollywood’s second-biggest player (after Disney).
Zaslav has long been one of the industry’s top paid executives, with a pay dwarfing that of bigger, more profitable companies (credit John Malone, a mentor and billionaire stakeholder in Discovery). And in 2021, it was goosed by $203 million in stock option awards from the WarnerMedia deal. His previous record-high compensation was $129.4 million in 2018 after Discovery snapped up rival Scripps Networks. But can he keep that up? “He can if he can keep performing, but this is a different set of investors now,” Greenfield said. “But, that may be hard to do when you look at the kind of economic conditions ahead.”