CBS Corp. (CBS:US) paid Chief Executive Officer Leslie Moonves $32 million in cash last year, 19 times higher than what compensation expert Graef Crystal says a CEO running that size company should receive, according to a study he conducted.
Moonves’s cash bonus last year included $20 million for “the successes in his role as president and chief executive officer” and $8.5 million tied to his “leadership in connection with the creation of premium content,” New York-based CBS said in its proxy statement this year. He also received a salary of $3.51 million. Moonves’s cash pay was the most out of 317 chiefs listed in Crystal’s study.
The CBS chief’s pay shows how some companies make compensation decisions based on peers that are larger and have many times the revenue, skewing pay higher than what Crystal calculates they deserve -- what he calls their “going rate.” That’s what each of the CEOs in Crystal’s study should be paid based on his or her company’s 2013 sales.
“The single most predictive factor in CEO pay is the size of the company,” Crystal said in an e-mail, and CBS’s peers are “much larger” when measured by revenue, he said.
CBS uses Hewlett-Packard Co., Verizon Communications Inc., AT&T Inc. and General Electric Co. in what it calls a “competitive assessment” on pay, according to its proxy statement. Each of those companies had 2013 revenue that was at least seven times the $15.3 billion CBS reported for last year, according to data compiled by Bloomberg. Eighteen of CBS’s 22 publicly traded competitors reported greater revenue in 2013.
Crystal’s study uses summary compensation data filed with the U.S. Securities and Exchange Commission by 287 companies in the Standard & Poor’s 500 Index. (SPX) The study uses data disclosed under the “salary” and “bonus” columns of the table. Some executives decide to defer their bonus or salary until later years, Crystal said. He entered the CEOs into his model to find the going rates for cash pay.
Companies need to be cautious of size differential in choosing their peers, said Ron Bottano, a vice president at Farient Advisors, a compensation consulting firm. A company double the size of another often has total compensation that’s 25 percent to 30 percent higher, he said in a phone interview.
“If you can only find peers that are larger than you -- which happens -- or smaller, then you should argue you should be adjusting your pay for that size differential,” Bottano said.
Moonves received $66.9 million in total pay last year, as reported in CBS’s summary compensation table. That’s almost five-fold what Crystal calculates as his going rate, which for total pay was calculated using 2013 revenue, last year’s return versus the S&P 500 and the CEO’s tenure. Data in the summary compensation table includes awards that can be restricted or that vest over time, as well as changes in pension and the value of perks.
CBS’s competitive assessment includes companies “engaged in similar business activities” as well as those with which it competes for talent. Sumner Redstone, CBS’s chairman, was paid $57.2 million last year, including a $10 million cash bonus, according to the company’s proxy.
If the peer group is “balanced, then I can explain, ‘Look, it kind of works this way -- there are some big people in my business and there are some small ones,’” said Rose Marie Orens, a senior partner at Compensation Advisory Partners.
General Electric, which was among CBS’s competitor group, paid Chairman and CEO Jeffrey Immelt $19.8 million in 2013, including $8.47 million in cash, according to the company’s proxy statement. AT&T awarded Chairman and CEO Randall Stephenson $23.2 million in 2013, including $1.63 million in cash. Verizon Chairman and CEO Lowell C. McAdam received $15.8 million, including $1.48 million in cash.
“This is the fifth consecutive year that the company’s performance significantly exceeded the S&P 500, including a period during which CBS stock appreciated by more than 20 times,” Dana McClintock, a spokesman for the company, said in an e-mailed statement. “The company’s content once again performed at the top of the industry in 2013, and CBS continued to find new, incremental means of monetizing that content for the benefit of its shareholders.”
Crystal’s study includes CEOs with a tenure of one year or more and a fiscal year-end of Dec. 31, 2013. The companies examined have filed proxies for 2013 as of May 5. Crystal, a former Bloomberg News columnist, worked as a pay consultant for about 20 years, advising companies including American Express Co. and Bank of America Corp., as well as the SEC and the Financial Accounting Standards Board.
Discovery Communications Inc. (DISCA:US) also used companies with annual revenue multiple times its own in its peer analysis to determine 2013 pay. Discovery, run by CEO David Zaslav, reported 2013 revenue of $5.54 billion and used companies including CBS and Time Warner Cable Inc., which had 2013 revenue of $22.1 billion, according to its proxy. Discovery has since decided to remove Time Warner Cable and DISH Network Corp., “both of which had revenue in excess of twice the company’s revenue,” it said in its proxy.
Catherine Frymark, a spokeswoman for Silver Spring, Maryland-based Discovery, said the company doesn’t comment on executive compensation.
Discovery paid Zaslav $3 million in cash last year, more than double what Crystal calculated as his going rate, based on sales of $5.54 billion.
“It’s very difficult in the $5 billion to $10 billion category; there are a lot of companies, but a lot of times there aren’t a lot like you,” Orens said. “It’s sometimes very difficult to develop a peer group because of that.”
CBS and Discovery both outpaced (CBS:US) returns of the S&P 500 last year, by 37 points and 10 points, respectively. Moonves received an annual equity award of $15.3 million last year, and Zaslav was paid $22.5 million in options.
Discovery has jumped five-fold since 2008. Zaslav stands to make more than $110 million in pay in 2014, the first year of a new contract that keeps him at the cable network through 2019. That includes a $3 million salary, $6.6 million in potential bonuses and more than 1 million performance-based restricted stock units.
“Revenue is one proxy, performance is one proxy, and then I think business model is also important -- but then also scale and complexity,” Farient’s Bottano said. “Size is really a proxy for scale and complexity of the business.”
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