Posted by: Olga Kharif on July 1, 2009
Despite all the tribulations Sirius XM has gone through in the past year, the company’s board has just voted to extend the contract of CEO Mel Karmazin through 2012. As part of the new package, Karmazin receives a pay increase of $250,000 a year and 120,000 options exercisable at 43 cents a share. The stock is currently trading at 46 cents. It has jumped nearly 7% on the news of Karmazin’s contract renewal.
But shareholders who have seen the stock plummet from $2 a share a year ago might question whether Karmazin deserves the kudos. Yes, he steered the company clear of bankruptcy by securing, earlier this year, a $530 million loan from Liberty Media. But at the same time, Sirius’s performance of late has been nothing to write home about. This spring, the satellite radio provider reported its first-ever subscriber loss. More losses could be in the offing as demand for autos equipped with Sirius radios continues to be slow, and consumers opt for satellite radio alternatives, including Web and high-definition radios and iPods.
Sirius has just lost its executive in charge of music programming to Clear Channel. And even the Liberty Media deal leaves shareholders in the cold. The loan can be converted into equity, which would dilute holdings of existing shareholders; so Liberty Media is expected to grab a huge stake in the business at the expense of existing shareholders. While the investment possibly averted bankruptcy, it was arguably in part Karmazin’s management — for instance, his decision to wait for regulatory approval of Sirius’s merger with XM for more than a year — that brought Sirius close to the brink in the first place. The wait kept Sirius from more aggressively marketing its services. Some analysts also question Karmazin’s decision, post-merger, to slash some of the company’s programming in an effort to cut costs — a decision that turned off some of the service’s long-time users. All together, this seems like the wrong time for dispensing rewards.