CBS Corporation could be forced to pay CEO Les Moonves upwards of $200 million if he leaves before the end of his contract in 2021. Moonves took home nearly $70 million in cash and stock in each of the past two years, and would be entitled to millions more if he leaves without "cause."
Recent allegations of sexual assault and misconduct against Moonves have raised the question of whether he'll ultimately exit. The CBS board of directors has hired two law firms to investigate the claims, and has not made any statements regarding Moonves' employment status.
Moonves, 68, signed a 75-page contract in May 2017 to remain in place through June 2021. Company filings with the Securities and Exchange Commission, which include the contract, show that it provides for a generous severance package worth nearly $180 million if removed without cause.
That package includes three years' worth of salary and bonus; substantial amounts of company stock; health, life insurance and pension benefits and several one-time cash payouts.
Here's how it breaks down:
- $92.5 million in cash
- Company stock worth $57.4 million at recent market value
- Health and life insurance benefits worth $877,102
- A pension benefit worth $998,692
He would also be allowed to remain as an adviser and producer at CBS after his official employment ends. The contract provides for an additional payout of up to $25 million if he chooses not to do so.
In addition to financial compensation, CBS would also provide Moonves with office space and a personal secretary through the end of his contract.
In a regulatory filing, CBS Corp. put the total cost of severance at $184 million as of the end of last year. Since that time, CBS stock has dropped 11.6 percent, bringing the stock portion of the package from $64.6 million down to $57.4 million.
As a result, the total value of the package stands at about $176 million.
That figure assumes CBS fires Moonves without a reason (it has the right to do so, per the contract.) Moonves can also choose to leave if the company gives him "good reason" to do so; in that case, his cash severance would be reduced by $2 million and all else would stay the same.
"Good reason," in the contract, includes Moonves not being reelected to the board; having his salary reduced or his "target bonus" fall below $20 million; being required to live anywhere except New York or Los Angeles or having his job duties substantially changed.
One possible reason CBS' board did not suspend Moonves during the investigation could be to avoid giving him "good reason" to depart, said Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management.
"If he were smart ... he should take a suspension and then use that as a legal argument to say diminution of responsibilities and then claim the $180 million severance package," Sonnenfeld said.
Asked whether the board considered Moonves' employment contract in its decision not to suspend him, a spokesperson declined to answer.
But if the CBS board decided to terminate Moonves for cause, he would receive no severance. The contract lists several triggers: a felony conviction, disclosure of confidential material that harms the company, fraud, failing to fully cooperate with a company investigation and "violation of any policy of the Company … including, but not limited to, policies concerning insider trading or sexual harassment." (However, Moonves would still be entitled to any bonus and stock that had already vested if fired for cause.)
Moonves would likely end up contesting a for-cause termination, according to Mary-Hunter McDonnell, an assistant professor of management at the Wharton School of Business. Corporate boards often prefer to pay up and move on rather than risk drawn-out litigation that could expose confidential information.
"Once there's litigation, everything that the board is using to instruct their decision is going to come out in discovery," McDonnell said. "Oftentimes in a case like this there's a lot of negative information, the board just wants to move on – they might let go of the CEO and pay the higher golden parachute."
If Moonves successfully challenges a for-cause termination, CBS would be responsible for his legal costs under the terms of his contract. It also requires that disputes be settled in arbitration, a legal process that is usually cheaper, and less public, than a jury trial.
Moonves' potential payout is unusually large, even for a CEO. According to a 2015 study by Meridian Compensation Partners, only about 10 percent of CEOs could expect three times their pay upon leaving their company. That raises the stakes of any separation decision, said Scott Spector, chair of the executive compensation division at Fenwick & West.
"You won't find packages like this," Spector said of Moonves' contract. "You see one-times salary, that's your typical these days. This is extremely rich."