Discovery Communications

Annual Meeting: May 19, 2016

I was not planning to write about Discovery Communications this morning. But yesterday, shortly after 4 o’clock the company filed with the SEC an 8-k announcing that it would be making “personnel adjustments.” In other words, buyouts and layoffs, described in a letter to employees as “cost-reduction efforts.”

The company moved up my priority list. CEO David Zaslav of Discovery Communications was Number 1 in our list of overpaid CEOs in our report released in February. The headline practically writes itself, “Most overpaid CEO in America announces job cuts.”
Zaslav’s total disclosed compensation of $156,077,912 for 2014 included estimated excess compensation $142 million based on the regression analysis.

For 2015, his reported pay fell because the amount of stock options and awards fell. However, it remains over $32 million. Zaslav is tremendously overpaid, with a salary last year of over $3.1 million and a cash bonus of over $6.9 million. The CtW Investment Group, in a filing advocating a vote against two directors, writes that,

“According to compensation research firm, Equilar, the firm’s executive compensation tool ranks the pay-for-performance failure at Discovery worse than 92 percent of companies in the R3000: while three-year TSR is at the bottom of the peer group (9th percentile), three-year CEO target pay is at the 84th percentile. The compensation plan has the following negative attributes: a hefty annual salary of $3M that is guaranteed until 2019, largely subjective annual bonuses, outsized equity awards, risky pay-for-failure severance arrangements, and excessive perquisites including tax gross-ups on aircraft use by family members.”

This letter, which also details the incestuous nature of the board is worth reading in its entirety.

In addition to pay reported in the summary compensation table, Zaslav realized $24.6 million through the exercise of stock, and another $34 million through shares acquired on vesting.

All of this while the stock price is down – over 30% since August 2014.

Discovery Communications was such a stand out last year, that I was asked how the company could justify the excessive pay to the shareholders. My quick answer was that because of the vote structure and ownership the company doesn’t particularly have to. It has a complicated stock structure with Series A, B, & C common stock and series A & C preferred stock. Each share of Series B common stock – owned almost entirely by John Malone – gets ten votes.

There are three tranches of directors elected by difference combinations of stock. Directors are extremely well paid, each earning more than $200,000. Board members are paid extra for serving on committees and even more for chairing them, and the company notes that expenses for attending meetings including airfare will be reimbursed “whether by commercial aircraft or private plane.”

Given that these directors are in an industry that is going through tectonic changes, I was interested in noting that four of the five directors up for election this year were born in 1950 or earlier.

Board members are insulated and entrenched. Millions of families – including mine – are debating cutting the cable cord. Cost cutting has begun.

Zaslav’s letter to employees concludes, “Through this process, it will be more critical than ever to work together with the respect, encouragement and forward-looking approach.”

Perhaps one way to Zaslav could exhibit respect and encouragement would be to revisit the absurdly high level of his own pay.