The influential shareholder proxy advisory firm Institutional Shareholder Services has recommended that Warner Bros. Discovery shareholders reject the golden pay packages for CEO David Zaslav and other top executives at the company, citing the “exceptional” nature of the agreements.
But ISS also urged shareholders to approve the sale of WBD to Paramount Skydance, writing that “the proposed transaction is the result of a competitive sales process and a public bidding war between NFLX and PSKY, providing shareholders with comfort that the proposed transaction is the best deal available.”
With regard to golden parachutes, shareholders have an advisory vote, which means that even if they reject it, payments may still be made. However, companies are often responsive to shareholders’ concerns about pay.
ISS notes that the cash bonuses for senior executives other than Zaslav are “reasonable,” both in size and in the sense that they are “dual,” meaning that two things must happen for them to receive payments: a sale that results in a change in control, and the executive leaving “for good cause” or being terminated without cause.
Instead, ISS is focusing on Zaslav’s potential $886 million in compensation, much of which consists of what ISS calls a “problematic” excise tax total approved by the board last month.
“Total excise taxes represent an extraordinary cost inconsistent with common market practices, and most companies have eliminated these entitlements as a matter of good governance,” ISS wrote in its recommendation. “The value disclosed in CEO Zaslav’s golden parachute table of more than $886 million represents one of the highest golden parachute estimates ever,” although the proxy notes that this value could decline depending on the timing of the merger.
In fact, Zaslav is unlikely to receive this full amount. As shares continue to vest before closing, the value of the total upside will decline, and WBD said that if the deal closes early next year, the total upside will be zero. However, Paramount also agreed to pay a daily “ticking fee” to WBD shareholders if the deal does not close by the end of the third quarter, which could also increase its payout. In total, we expect a payout of close to $600 million, although it is still quite large.
The consulting firm also points out that the vast majority of Zaslav’s shares are also a single operator, meaning he will be paid once there is a change in control.
“Automatic acceleration of unvested shares is not a best practice, and full vesting acceleration of recently vested shares intended to cover several years represents a windfall,” he adds.
ISS is among the most influential advisory firms, with many institutional shareholders following its recommendations, although in high-profile deals like the Paramount deal, those investors may often make their own calls on what gets voted on.
