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WarnerMedia’s leading man springs a pay trap

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Reuters
Reuters
 23 days ago
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NEW YORK (Reuters Breakingviews) - AT&T may rue its generosity. The package it awarded Jason Kilar last May to run its media division was too handsome and one reason why shareholders voted to reject the U.S. telecom’s compensation plan at its annual meeting last month. Now that the company is merging Kilar’s empire with rival Discovery, the two firms will need to decide what to do with their leading man. All options could prove costly, in different ways. Kilar got $48 million in shares in return for restructuring WarnerMedia and shepherding the launch of HBO Max, the streaming service that competes with Netflix. That was egregiously generous even for an executive with impressive credentials, including stints at Hulu and Amazon.com. His awards for 2020 as WarnerMedia chief executive were more than twice that of his boss John Stankey, who started two months later. Unlike Stankey, Kilar gets his payout over four years, regardless of performance. The on-demand TV hotshot might roll his sweet deal over into the new company. But Discovery already has a CEO: David Zaslav, whose pay puts Kilar’s in the shade and who just signed on to stay in his role until 2027. Discovery paid Zaslav $213 million over the last three years. Kilar has more streaming experience and could demand even more than his current package, forcing the new company to double down on AT&T’s largesse. Alternatively, he could quit. That might mean giving up $36 million of unvested awards. But it would leave AT&T scrambling to find a new leader while the merger is being engineered, which could take more than a year. That’s a long time in the cut-throat world of video streaming, where rivals are engaged in a fierce land-grab. If AT&T thought Kilar merited such a high sum to start with, it follows that without him, WarnerMedia’s value could deteriorate. Whatever happens to Kilar, Discovery faces a potential pay showdown. In 2019, its compensation practices got a thumbs down from 39% of votes cast at the annual meeting, even though 46% of the company’s total votes are held by insiders with supervoting shares. After the WarnerMedia merger is done, that protective phalanx will fade away, leaving the company more exposed to shareholder discontent and would-be activists. That sets this merger up for a tense second season.

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CONTEXT NEWS

- AT&T said on May 17 that it planned to merge its TV and film business WarnerMedia with listed rival Discovery, in return for 71% of the new company and a package of cash and debt securities worth $43 billion. The merger is expected to close in mid-2022.

- David Zaslav, chief executive of Discovery, will lead the new company and has extended his contract until 2027.

- Executives said on a call with reporters that details, such as the future role of WarnerMedia Chief Executive Jason Kilar, had yet to be worked out.

- Kilar joined AT&T in May 2020 and was granted $48 million of shares as a retention bonus, payable over four years in equal-sized tranches. At the company’s annual meeting on April 30, some 51% of shareholders rejected the company’s pay plan in a non-binding vote.

- For previous columns by the author, Reuters customers can click on [FOLEY/]