Discovery Communications

Proxy published: 4/3/2015

Annual meeting: 5/20/2015

—- UPDATE—-

As discussed on this blog before, sometimes a small figure in the footnotes can be symbolic and important. After I posted the original blog post I noted another unusual feature: the reimbursement for an executive and his family to come home early from a vacation.  This piece was picked up by the Wall Street Journal, which covered it here: http://www.wsj.com/articles/unusual-perk-62-000-bill-for-a-curtailed-vacation-1428687069.  If you have time to read the comments, it is an interesting discussion on the institutional weaknesses that can be revealed in such a relatively small perk.

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The highest compensation for any CEO this proxy season was reported last week for Discovery Communications’ CEO David Zaslav: $156,077,912.  This amount is approximately equal to the combined two highest paid CEOs last year (Oracle and Nabors), and nearly twice the second highest payment thus far for 2014 (Microsoft).  In fact, it is the highest CEO pay reported since Timothy Cook’s 2011 package at Apple.

It is particularly astonishing in light of recent stock performance, with one year TSR down 27.8%.  Only one of the 25 S&P 500 companies with one- year-TSR decline of 20% or greater, has disclosed pay that reaches even one tenth of Zaslav’s package (most are well under $15 million).

This complete pay for performance disconnect has many components, some of which – including salary of $3 million — were guaranteed in the 2014 renewal of Zaslav’s employment agreement. This figure includes stock awards valued at $94.5 million and options valued at over $50 million.  A portion of these awards are provided under the agreement, which extends his employment through 2019. Under the agreement he received 224,845 performance-based restricted stock units based that vested if he remained employed at the company through 2014 and met other undisclosed metrics. According to the proxy statement, “In February 2015, the Compensation Committee determined that the performance metrics had been achieved in full and the Sign-On PRSUs vested at 100%. The Sign-On PRSUs were paid out in shares 50% in 2015 and the balance will be paid out 25% in each of 2016 and 2017.”

In addition to compensation reported in the summary compensation table, Zaslav acquired 1.9 million shares on the exercise of Series A stock options realizing $81 million dollars in value. In addition, he acquired 314,258 stock awards on vesting, realizing an additional $26 million in value.

What insulates an executive with this sort of pay package? Well, it helps to have a billionaire on the board, and a complicated ownership and voting structure.  In Discovery’s case, billionaire John Malone controls 28.7% of the vote.  Zaslav and Malone recently signed an agreement that gives Zaslav the exclusive right to negotiate and purchase Malone’s shares should Malone choose to sell his stake in the company.  Given this, it is almost impossible for the say on pay vote to fail, but shareholders can still register their concerns.