Topper will take options over cash

Viacom is cutting chairman Sumner Redstone’s cash salary and bonus but paying him more in stock options linked to Viacom’s share price.

A new employment agreement between Redstone and the company he owns aligns his pay more closely with the interests of shareholders. It echoes packages granted this month to Viacom’s two new top execs, Philippe Dauman and Thomas Dooley.

It also comes after a Gotham judge ruled in June that a shareholder lawsuit slamming Viacom’s rich 2004 pay packages could proceed to trial.

In 2007 Redstone’s salary will be cut to $1 million from $1.75 million a year. He’ll forgo $1.3 million in so-called deferred compensation. His target bonus will be cut to $3.5 million from $6.1 million, the company said.

He’ll receive a separate pay package as chairman of CBS Corp.

Forbes magazine recently estimated Redstone’s net worth at $7.7 billion.

Viacom split in half early this year. Leslie Moonves is chief exec of CBS Corp; Redstone fired Viacom CEO Tom Freston three weeks ago, replacing him with Dauman.

Under the new ’07 agreement, Redstone will get an annual stock option award with a grant-date value of $3 million, plus an annual award of so-called performance share units with a grant-date target value of $3 million.

The value of the units will depend on the return of Viacom’s stock compared with the S&P 500 index over a certain period, usually three years, Viacom said. Earnings per share also will be taken into account.

The shareholder lawsuit focuses on 2004, when Viacom paid Redstone a cash salary near $5 million plus a $16.5 million bonus. Freston got a $4.2 million salary and a $16 million bonus. Moonves took home a $5.8 million salary and $14 million bonus. All got stock option packages as well.

That same year, Viacom’s stock fell and it reported a record loss.

The new deals for Redstone, Dauman and Dooley “signal a new direction in Viacom’s strategy for compensating its senior executives,” said Robert Kraft, chairman of the compensation committee of Viacom’s board.

For years, Redstone took no salary. He started taking a salary after Mel Karmazin came on board as his No. 2 after the CBS merger. The two men had identical, and hefty, pay packages for several years until Karmazin left.

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