The recent denial of CEO David Zaslav's $52 million pay package by shareholders of Warner Bros. Discovery could indicate that investors are paying more attention to executive compensation. As the fear of stags, recessions and armed conflicts grows overseas, investors are reluctant to reward CEOs who have generated overwhelming returns with generous wage packages over the past few years. Board members who approve increased compensation for poorly performed management teams in the current economic environment are at risk for the credibility of investors and shareholder litigation in future investments.
Zaslav's refusal to pay package is split into two parts: Warner Bros. Discovery, in the process of splitting the company into two parts, and will split it into two parts: Streaming & Studios Company, including Warner Bros. Television, Warner Bros. Motion Picture Group, DC Studios, HBO MAX, and global network companies that include sports, sports and news such as CNN, TNT and Discument Channels. In a statement, Warner Bros Discovery Chairman Samuel A. Dipiazza Jr. said the split “reflects the ongoing efforts of the board to assess and pursue opportunities to increase shareholder value.” Unfortunately, shareholders don't seem to be convinced. This is because splitting the company will reverse some of what was achieved in the April 2022 merger.
Warner Bros Discovery's stock price has fallen about 60% since the merger, according to news reports. The company also handles approximately $38 billion in debt, much of which is loaded into global network entities. Its boring performance has led to 59% of shareholders vote for CEO Zaslav's wage package. This is a clear message that investors want improvements before paying current executives a raise.
The Warner Bros Discovery Committee approved the breakup and encouraged shareholders to approve the executive compensation plan, giving the impression that it would be okay to increase the compensation of the company's stellar, low-performing managers. The board is responsible for what happens from this point onwards. Under these circumstances, directors may wish to consider:
•The board may need to review compensation metrics with shareholders. Since shareholders have rejected the current compensation plan, it is important for the board to understand why. Was the decline in stock price performance a major concern, or was there another aspect of how compensation was structured when shareholders voted against the plan? Additionally, since the board will establish two new companies, it is important for shareholders to agree on how the CEOs and executive teams of both companies will be compensated.
•The board may need to reestablish credibility with shareholders. The board has not been publicly condemned for the company's LAX performance, but votes against the compensation plan could also represent similar complaints about the board's leadership. The board must engage key stakeholders to determine whether shareholders may vote against other initiatives they propose in the future. The board must also confirm that key shareholders approve plans to split the company into two. The company can't afford a negative surprise as it begins this complicated process.
Board members must determine whether they want to remain part of the board after the breakup. Given that the company has lost 60% of its stock price over the past three years, it may be time to consider leaving the board of directors to what can be interpreted as a high memo. The director may want to think about whether their contributions benefited the company as much as they might have hoped for. Leaving during the transition could be a good way to round out your board appointments with respect instead of continuing with a board that faces important challenges while operating in a highly unpredictable economic environment. If things don't improve anytime soon, reelection of supervisors to the board may be questionable.
