CBS

Annual meeting: May 19

Leslie Moonves from CBS was the number one overpaid CEO on our list in our most recently published report. The regression analysis by HIP Investor showed an excess pay of over nearly $42 million in 2015. Moonves was also among the top five in both 2013 and 2014.

That was last year. The proxy published in 2017 shows that Moonves’ pay increased $12 million in one year for a total of $69.55 million in total disclosed pay. An unusually high percentage of this pay was in cash. His 2016 bonus was $32 million, on top of his $3.5 million salary. It is aligned in no way with the interests of shareholders.

I expect that most pension funds and mutual funds holding the stock would vote against the pay package if they could vote.  However, nearly 90% of CBS shares –369,984,335 of Class B Stock – are “non-voting shares.” There are 37,598,604 shares of Class A Common Stock that can vote. However, 79.5% are owned by Sumner Redstone and his family.

Non-voting shares are in the news lately due to the Snapchat IPO and subsequent stock price tumble. After its first earnings reports since IPO was released on May 11, Snapchat’s stock price fell 25%. Of the $2.2 billion in disclosed losses, $2 billion was from expenses related to stock based compensation. As reported by Dow Jones, “Snap’s $2 billion payout surpassed its annual revenue by a wide margin.”

What recourse to Snap’s shareholders have? None, other than hoping there’s a greater fool waiting to buy the stock. They can’t vote directors off the board. They can’t vote on the pay package.

Snapchat and CBS are not the only companies with highly paid CEOs insulated from the will of shareholders. Bloomberg recently came out with a list of the highest paid CEOs of 2016. A quick glance at the list and I realized many were dual-class companies.

In addition to CBS, there are six other companies of the ten that have shares with multiple voting rights and/or non-voting shares. Some (including Gamco & Google) have a similar form to CBS, with certain shares getting 10 votes each. Apple has a tri-class structure. Evercore Partners’ voting structure is so complicated a diagram is required to show the structure Class A units, Class E units, Class G interests, Class H interests and Class I-P units.

What do we make of this fact? The next question I looked into was how the percentage of dual-class companies compares to the larger pool. As far as I can tell, using data from CII, there are 26 dual-class companies in the S&P 500. Just a bit more than 5% of S&P 500 companies have dual class shares, but 70% of the highest pay do.

I wondered if this statistic might have something to do with Dodd-Frank’s provision that allowed shareholders to vote on pay.  What were the stats 10 years ago before the practice was adopted? To find out I quickly found a list of the highest paid CEOs from 2006. I then looked at 2007 proxies for each of these companies – which included familiar names like Lehman Brothers and Countrywide Financial – to see how many had dual class stock. The answer: none.

In the 10 highest paid of 2016, two of the three that did not have dual class voting structures have considerable insider control. At Walmart U.S. e-Commerce CEO Mark Lore received over $236 million in compensation, mostly connected to Walmart’s purchase of Jet.com which he had founded. If every single non-Walton family shareholder voted against pay this year the extraordinary package would still receive majority support. Elon Musk’s share of Tesla is not as dominant, but he controls over 20% of the vote.

In fact, looking at all ten of the companies, it appears that IBM – with a compensation package I wrote about earlier this spring —  is the only one without either dual class shares or significant insider ownership.  At the vote on pay at the company this spring 46% voted against the pay package, an unusually high percentage.

To me this is a hopeful sign. Advisory votes on pay may be working to hold in check the worst impulses of overpay. We are not anywhere near normal or appropriate CEO pay, but it appears that shareholders are having an effect. Voting is a powerful tool, but it has to be exercised.