Saturday, April 16, 2005

Is Avarice a Crime?

Viacom Inc. disclosed the pay packages for its top three executives, and I think they are offensive, although certainly not criminal because the company's board approved them and the information has been properly disclosed. The company's proxy statement, filed yesterday with the SEC (available here), discloses that Sumner Redstone, the CEO and controlling shareholder (he owns 71% of the Class A shares), and co-presidents Tom Freston and Leslie Moonves, received the following compensation in 2004 (amounts rounded):

Redstone:  Salary $5m, Bonus $16.5m, and Stock Options $34.5m = $56 million

Freston:  Salary $4.2m, Bonus $16m, and Stock Options $32.1m = $52 million

Moonves:  Salary $5.7m, Bonus $14m, and Stock Options $32.1m = $52 million

These payments came during a year when Viacom's stock price declined over 15%, and the company's market capitalization dropped $17.5 billion.  The company stated that executive compensation is not tied to the stock price, a measure that led executives at other companies to pump up their earnings to inflate their stock price.  That said, it's hard to figure out the basis for such generous compensation, especially when Freston and Moonves are sharing a job previously held by Mel Karmazin alone.  Just to add fuel to the fire, Freston and Moonves were reimbursed by the company for the amount it would have cost to put them up in hotels while staying at homes they own in Los Angeles and New York, respectively.  There's nothing like getting paid to sleep in your own house.  The members of Viacom's compensation committee are: Robert D. Walter (Chair), Jan Leschly, Frederic V. Salerno, and William Schwartz. No, avarice is not a crime, although it can certainly lead to it. (ph)

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