Tuesday, September 26, 2006

Redstone to the Grindstone

So it’s all over today’s business pages that Viacom Inc. (VIA) Chairman Sumner Redstone will take a “pay cut” next year. This announcement, fortuitously combined with the box-office success of Jackass: Number Two (from Viacom's MTV Films unit), drove up the company's share price.

Here’s what Redstone's deal boils down to: salary cut from $1.75 million to 1 million; bonus down from 6.1 to 3.5 million; 1.3 million in deferred compensation eliminated and another 9.4 million in deferred comp converted to "stock option equivalents." As consolation, Redstone got new options and performance units worth 6 million at grant.

The press coverage, for the most part, echoed the company's PR that Redstone's compensation is now subject to “pay for performance” standards. With less cash and more stock-based compensation, the theory goes, he'll be inspired to bust his butt to get the price up, the shareholders will benefit, and everyone will live happily ever after.

Come on. You lop 3 million bucks off the pay of a guy who’s already worth 7.5 billion and throw a touch more equity at him when he already owns millions of shares. Have you "incentivized" this 83-year-old captain of industry to work harder? Common sense - banned in Proxyland - says no.

In Proxyland it’s all about pretending. So let’s all pretend that Viacom, as its press release boasts, has adopted a "shareholder-friendly compensation structure." And let’s not listen to the respected compensation mavens at The Corporate Counsel, who urge lawyers to admit that in many cases - Redstone being an apt poster child - annual stock option grants are driven purely by compensation surveys and have nothing to do with motivation. At some firms, they dare to suggest, "the CEO… has received so much equity already that there is no reason for more."

What, no more options? No more performance units? I hear Jackass Two is full of profanity and violence. The kind of behavior you'll find in some plush offices if anyone dares whisper this idea.

Viacom's compensation "revamp" was likely inspired by a pending lawsuit claiming the board breached its fiduciary duty by paying a total of $160 million to its top three execs (including about $50 million to Redstone) in 2004, a year when the company lost money. Early this summer the judge refused to dismiss the suit, so the embarrassment will continue.

No comments: