After a brutal year marked by thousands of layoffs and camp fights, Warner Bros. Discovery extended financial incentives to its CEO David Zaslav and created a new cash pool to pay bonuses to its top executives.
In a regulatory filing filed Monday, the company said it has amended Zaslav’s contract to double the number of performance shares for which he is eligible. Under the new agreement, Zaslav could be eligible to receive at least $12 million in stock awards in addition to his salary and other benefits in 2023, 2024 and 2025, the filing said.
Zaslav has long been among America’s highest-paid CEOs, even when he ran the relatively small cable programming company Discovery. The 63-year-old executive’s pay packages have long been laced with lavish stock incentives, which he traditionally took advantage of when his company’s stock price skyrocketed.
Last year, Zaslav’s total compensation package was more than $250 million — nearly three-quarters of that amount, or $202 million — came from stock options he received under a new deal pending the merger between WarnerMedia and Discovery. . He didn’t realize, however, that that amount was a warning sign of Warner Bros.’s weak stock price. Discovery.
In addition, a $27 million pool was set aside for paying bonuses to other employees. Nearly half of that amount is earmarked for business and finance leaders with cash flow and debt management responsibilities, including Zaslav’s top lieutenants such as Chief Revenue Officer Bruce Campbell, CFO Gunnar Wiedenfels and Global Streaming CEO JB Perrette.
These three managers are each entitled to $2 million.
The contract changes and bonus pool come before the first anniversary of the rocky union between Discovery and WarnerMedia, the latter of which was previously owned by AT&T. The merger left the combined company with more than $50 billion in debt.
Since the merger, Warner Bros. Discovery faced a more challenging business environment and laid off several thousand employees at HBO, the Warner Bros. film and television studio and Turner networks, including CNN. It has canceled movies like Batgirl and TV shows to cut costs and qualify for tax write-offs. This reduced the number of “Sesame Street” episodes available to stream on HBO Max.
The company also quickly pulled the plug on CNN +, a streaming service of the previous government.
The motivation for Monday’s potential compensation increase, according to the regulatory filing, was “to encourage and reward the realization of the company’s initiatives related to increasing free cash flow and reducing debt.”
The stock options, which are a large part of Zaslav’s compensation package, are under water because of Warner Bros.’s weak Discovery stock price.
Warner Bros. Discovery shares fell last summer as part of an industry-wide shift as Wall Street worried media companies were spending too much on building robust streaming services to compete with Netflix in the streaming wars.
Also Warner Bros. Discovery was saddled with a mountain of debt. As part of the merger, he was required to pay a special dividend of $43 billion to AT&T last April.
Shares of the company have gained ground in recent months, trading at nearly $16 a share on Monday. However, that’s well below $24 per share as of when the new company was formed.
Zaslav’s stock options were tied to a stock price of $35 per share last year.
Rather than focusing primarily on equity valuation, the company has shifted its compensation focus to encourage key employees to find ways to pay down debt and generate free cash flow. The new incentives are linked to these statistics.
“The changes to Warner Bros. Discovery’s executive compensation programs are designed to reward Company employees, including members of the executive team and others, whose efforts are critical to achieving important short-term financial goals, namely increased free cash flow and reduced leverage,” said Chief Executive Samuel A. Di Piazza Jr. in a statement.
“The WBD Board is confident that against the backdrop of continued industry-wide transformation and economic headwinds, these additional incentives provide a more competitive package and better position the company to drive key drivers of shareholder value,” said DiPiazza.
Last fall, Warner Bros. Discovery investors that the cost of the downsizing will exceed $1 billion, due in part to severance payments. The company’s goal was to find more than $3 billion in cost savings.
Discovery said on its recent conference call that cost cutting could help it improve its financial position faster than expected.
Anyway, the company took out a new loan to pay off some of its existing debt.
“The company remains heavily indebted and as such is ill-positioned for its current credit rating,” Moody’s said in a credit report, which left the company’s credit rating at Baa3. “The stable outlook reflects Moody’s expectations that subscriber growth will be driven by domestic and international expansion of the [direct-to-consumer] Streaming platforms will eventually be able to offset the global pressure.”
Source: LA Times