NEW YORK — A soft economy and an ugly stock market eroded CEO pay overall last year, and showbiz honchos shared the pain — with some (Eisner, Diller) hit harder than others (Redstone, Karmazin, Chernin).
Salaries flattened, bonuses shrank or disappeared, increasingly controversial option grants slowed and options floundered as stocks fell.
Experts are calling 2001 a historic year as boards of directors shifted to so-called “pay for performance” criteria, away from “pay because it’s a bull market” or “pay because we’re all friends.”
Across all industries, CEO base salaries rose 4.7%, still up but by less than in previous years. Bonuses fell 13.5% and net income dropped 17.8%, according to Mercer Human Resource Consulting.
“This is the closest relationship we’ve seen between annual performance and annual incentives,” says Mercer’s head of U.S. compensation consulting, Peter Chingos.
But put away the handkerchiefs; pay cuts are a relative concept.
While shareholders lost billions, showbiz CEOs — among corporate America’s highest-paid execs — made a few fewer millions.
And, as one compensation expert put it, the AOL Time Warner deal looked like “King Kong meets Godzilla. The highly paid meet the very highly paid.”
Last year, outgoing AOL TW chief exec Gerald Levin had to make due with a $1 million salary — without a bonus. Walt Disney’s Michael Eisner also earned $1million, and USA Networks’ Barry Diller took home $500,000.
Neither Eisner nor Diller received bonuses or new option grants, since the companies didn’t meet financial targets, according to year-end proxy statements.
But the year before, Eisner took home an $8.3 million bonus while Levin’s was a hefty $10 million — for orchestrating the merger that subsequently decimated his stock options (and everyone else’s at Time Warner). For 2001, Levin was awarded 4 million new stock options with exercise prices ranging from $48.96 to $73.44. AOL TW shares have fallen from about $60 to less than $20 over the past year.
“Time Warner hitched their wagon to big Internet-style stock option grants, and the stock price promptly declined,” says one pay consultant, noting, “Hollywood guys are well known for their love of cash compensation.”
Meanwhile, although he received no new options in 2001, Diller did exercise some old ones, realizing a gain of $52 million.
Viacom chairman Sumner Redstone and chief operating officer Mel Karmazin both landed impressive showbiz pay packages, as did News Corp. CEO Peter Chernin.
The Viacom execs each took home $3.3 million in base pay, $12 million bonuses and 750,000 stock options. The salaries were higher and the bonuses and option grants lower than the year before. The new options have a strike price of $57.10 — about $10 above where the stock now trades.
Chernin’s $7 million salary and $8.5 million bonus were capped by a grant of 1 million new options — down from 11.8 million options for 2000. Chairman Rupert Murdoch took home $4.4 million in salary, a $3 million bonus and 7.5 million options.