Blame it on the complex formulas used to determine bonuses and other compensation, which are frequently tied to qualitative and sometimes subjective measures that aren't aligned with shareholder interests.
Only Walt Disney gets high marks for a "shareholder friendly" compensation plan tied partly to stock performance relative to the S&P and quantifiable assessments of return on invested capital (ROIC) which its media peers should consider adopting, according to an annual media CEO report card from Bernstein Research (not available online).
"By tying executive pay in the media sector, management teams stop to consider the negative impact of an ill-timed, dilutive deal like News Corp.-Dow Jones or CBS-CNET before jumping in," concludes Bernstein analyst Michael Nathanson.
The comparative analysis concluded that the overall compensation of media CEOs hasn't been restrained by the recession or the turnover of high-priced veteran executives.
Disney CEO Bob Iger (with $51 million in total compensation) and News chairman and CEO Rupert Murdoch (with $30 million in total compensation) were among the top 10 best paid CEOs among all U.S. corporations in 2008, according to information services firm Equilar.
Departing News president and COO Peter Chernin (with a combined $19 million salary and bonus in fiscal 2008) was succeeded by Chase Carey, who will receive at least $23 million in base salary and bonuses in fiscal 2010, according to the report. Carey, a veteran of News and its previously owned DirecTV, also received a $10 million signing bonus and a minimum bonus guarantee of $5 million on top of a $8.1 million base salary.
That's right up there with his boss, Rupert Murdoch, who received nearly $26 million in salary and bonus based on predefined ranges of annual EPS growth. Some news organizations suggest Carey could receive as much as $43 million in combined compensation this year as he transitions from DirecTV to News.
Although average media CEO compensation fell three percent in 2008, average cash compensation (base salary plus bonus) grew by eight percent at all media conglomerates except for CBS. CBS CEO Les Moonves' contract was drastically restructured in October 2007 to reduce fixed compensation and shift it more toward equity. All the other Big Media CEOs -- Philippe Dauman at Viacom, Jeff Bewkes at Time Warner, Iger at Disney and Murdoch at News -- took home more cash in 2008 than the prior year "while equity shareholders felt the pain of the value destruction," the report states.
With media earnings cratering due to the recession and the digital tsunami, Bernstein is right to call for Big Media to "re-think" and "re-work" CEO compensation structures. About 42 percent of CEO compensation is driven by bonus plans, which are mostly cash payments, and base salary accounts for only 13 percent. The remaining compensation is a combination of options, pension, long-term incentives, grants and other perks.
While it is no easy task scouring SEC document footnotes and other materials where the skinny on executive rewards is buried, here is how Bernstein breaks down media CEO cash compensation for 2008:
- Disney's use of multiple quantifiable factors (including EPS targets, operating income growth, ROIC and after-tax free cash flow targets) afforded Iger a two percent increase in cash compensation to $16 million. Disney stock declined 10 percent in 2008.
- Time Warner, which ties compensation to adjusted EBITDA growth and free cash flow, handed Bewkes a 13.3 percent gain in cash compensation to $9.4 million. The company's stock declined 38 percent in 2008.
- Viacom's reliance on operating income growth, operating cash flow minus capital expenditures and other quantifying factors gave Dauman a 15 percent raise to $10.4 million even as Viacom stock plunged 56.6 percent in 2008.
- Using only one quantifiable metric, EPS growth, Murdoch received a seven percent raise to $26 million. Murdoch's $8 million base salary is more than three times higher than his peers' average of $2.4 million. News stock declined 29 percent in 2008.
- CBS' Moonves took the only hit -- a 45 percent decline in cash compensation to $13 million, from $23.8 million in 2007. His $5.6 million base salary in 2006 was the highest of some 542 US CEOs managing companies with at least a $3 billion market cap. CBS stock plunged 67 percent in 2008.