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Viacom stock continues run

Redstone may retain chairmanship after stepping down as CEO

Still riding the good will of a strong second-quarter earnings release and reassurances of a smooth management succession plan, Viacom extended its stock gains to Friday, gaining 21¢ to close at $35.14 on a trading day when almost every other entertainment company lost ground.

In fact, Viacom seems well on its way to becoming the media poster child for good corporate governance, as it formally mapped out parameters for the transfer of power to one of the company’s new co-president-chief operating officers, Tom Freston or Leslie Moonves, when chair-CEO Sumner Redstone steps down on or before the end of 2007.

In new employment contracts filed with the Securities and Exchange Commission last week, board sought to ensure an orderly shift by an unusual requirement that the runner-up (who would be appointed sole president-COO) remain with the company for 18 months after his rival is appointed to the CEO throne.

Former MTV topper Freston and CBS chief Les Moonves may quit with salary and benefits if the company does not name a CEO by the end of 2007 or Redstone refuses to relinquish the reins.

Redstone may still retain the chairmanship after he steps down as CEO.

Wording of contract also makes it unlikely that Redstone’s daughter Shari will succeed her father, analysts said — though technically it is not impossible that a different CEO candidate could be appointed.

Lack of clear succession plans tends to weigh down company stock, as evidenced by the many questions surrounding Michael Eisner’s fate at Disney.

Redstone’s new employment contract calls for $3.5 million in base salary plus $2 million in deferred compensation, which represents an effective $500,000 pay increase over 2003.

Freston and Moonves have contracts that run through June 30, 2009, and both receive an annual salary of $3 million plus $2 million in deferred compensation. Both will be eligible for bonuses worth up to 200% of their $5 million salaries plus 1.5 million class B stock option grants.

By Hollywood standards, analysts said they were not particularly concerned with the salary and bonus levels (up to $15 million), particularly if the men perform well. One admitted he was far more appalled by the hefty severance payments to former prexy Mel Karmazin ($35 million) and Paramount head Jonathan Dolgen ($20 million) than by the amounts that Freston and Moonves stand to gain.

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