Karmazin To Stay At Viacom
Viacom Inc. president and chief operating officer Mel Karmazin announced Thursday he will stay at the media giant for another three years, ending months of speculation about his future and sending the company's stock up sharply.
Analysts questioned, however, how secure Karmazin's future was, noting the terms of his new contract considerably rein in his powers and could make him more vulnerable should the composition of Viacom's board change.
Still, Wall Street was pleased with the news, a reflection of the widespread belief that Karmazin is key to the success of Viacom. Shares of Viacom, which owns CBS, Showtime and numerous other media assets, closed up $1.94, or 5 percent, at $40.84 on the New York Stock Exchange.
The stock had suffered in recent months amid reports of increased tensions between Karmazin and company chairman and chief executive Sumner Redstone in recent months. Viacom's board was eager to keep Karmazin — whose contract was set to expire at the end of the year — aboard, but Redstone reportedly had concerns that Karmazin was becoming too powerful.
Karmazin will receive a base salary of $1 million per year, according to documents Viacom filed Thursday with the Securities and Exchange Commission. He will receive a bonus expected to be $6.65 million this year with a bonus for each subsequent year of at least 10 percent more than for the preceding year.
The new contract, however, gives Redstone more say-so in Karmazin's decisions than before.
Redstone will have full and final decision-making power over corporate policy and strategy including acquisitions, partnerships and ventures. He can overrule Karmazin's decision on operating issues only after prior consultations with the board at a special meeting. But Karmazin can also leave the company if his decision on operating matters is overruled.
Previously, operating matters were at Karmazin's discretion.
In the event that Redstone is no longer chief executive and Viacom does not name Karmazin as his successor, Karmazin can leave the company. Under the old contract, Karmazin automatically became CEO.
Furthermore, Karmazin reports directly to Redstone and the firing or the hiring of replacements for certain senior executives must be agreed upon between him and Redstone. Previously, Karmazin had free rein in that area.
Finally, under the new contract, Karmazin can be fired by a majority of the board. The old contract required a supermajority — 14 of 18 votes.
"Should a handful of the old CBS directors decide to step down, then the power would clearly shift back to CEO Sumner Redstone and the former Viacom executives," Prudential Securities analyst Katherine Styponias said in a research note. "This more than anything could affect the balance of power between Sumner and Mel, above and beyond what is stipulated in the new contract."
Redstone has been Viacom's chairman since 1987. Prior to the 2000 merger between Viacom and CBS, Karmazin was president and chief executive officer of CBS.
Also Thursday, Viacom announced a new contract for Redstone, which does not have an expiration date. Redstone will receive the same base salary as Karmazin, with a bonus also expected to be $6.65 million. For each calendar year thereafter, his bonus will at least equal that of Karmazin.
Both will receive deferred compensation this year of $2.99 million, with increases throughout the length of the contract. Both will also receive no less than $5 million of term life insurance.
According to SEC's most recent filing on compensation, both Redstone and Karmazin, earned a base salary of $3.3 million and a bonus of $12 million in 2001. In 2000, base salary for both executives was $2.02 million and bonus was $15 million.
In a statement Thursday, Redstone warmly praised Karmazin.
"I am very pleased that Viacom will continue to benefit from Mel's leadership and talent. The CBS merger brought many great assets together under the Viacom name, and Mel has done a masterful job of integrating those businesses and operating them at peak performance. I look forward to continuing our successful partnership and taking Viacom to new heights in the years to come."
Karmazin returned the favor in the company news release, calling Redstone a great visionary.
New York-based Viacom had 2002 profits of $726 million on $24.6 billion in revenues, reversing a $224 million loss in 2001.
Last month, executives predicted they would deliver mid-single digit revenue growth and mid-teen growth in earnings per share in 2003. The forecast reflects the anticipated costs of war coverage, and the effects a conflict might have on advertising revenues.
Viacom is the parent company of CBSNews.com.