Discovery Board Decides for “Bad Management” in CEO Remuneration by Shareholder Advisory Firm

The ISS, an influential shareholder advisor, recommended “withdrawing” the votes of Discovery’s three directors, who should be reelected at its annual meeting in April, as compensation for “bad custody”.

It raises long-standing concerns about the company’s paycheck, which recently included a “troubled” termination deal and a $200 million participation grant to CEO David Zaslav’s most recent employment contract. “Based on the estimated cost, the specifics of the plan, and the evaluation of grant implementation, supporting a capital plan proposal is not justified,” the ISS said.

Zaslav’s total payout package was more than $246 million in 2021, inflated by grants awarded last year for a new contract option that will extend itself into 2027. But the ISS disputed most elements of your compensation.

ISS is a dummy consulting firm: puppets that are documents, companies send annually to shareholders for management compensation, board members for elections, and other company proposals to be voted on at the annual meeting. Discovery is scheduled for April 8th. (Earlier this month, it held a special shareholders meeting to vote on its future merger with WarnerMedia.)

The ISS analyzes publicly available data, evaluates companies based on various metrics, and makes recommendations. On a scale of one to 10, it rated Discovery’s board of directors structure, compensation, shareholder rights and control, and risk oversight in the top ten for the highest risk. As compensation, the ISS calculated that Zaslav’s three-year average was $125.4 million, or 6.7 times the CEO’s peer group. His total three-year salary was $376.2 million.

As Discovery’s trustees point out, writing stock options is not effective. They come in slices and want the share price to reach certain meters within seven years before it goes into cash. The strike price for the first slice is $35.65. That was the price last year when Zaslav’s new employment contract was approved. The stock has since plummeted and today it was trading at a low of around $26.

Discovery doesn’t supposedly get the vote at this meeting, so shareholders can’t directly weigh executive compensation. Therefore, the ISS recommends that shareholders vote differently for the re-election of Kenneth Lowe, Daniel Sanchez and Paul Gould. It’s somewhat controversial, because three Warner Bros. Discovery’s new board is expected to be ready by next month as soon as the merger is complete. Discovery has six appointed board members and seven AT&T.

The ISS also opposed the termination provisions of Zaslav’s new contract, which gave him a monetary termination if he resigned for a while after a change of control, with or without good reason. “Survival clauses that allow the manager to unilaterally terminate the business and agree to the dismissal put the Compensation Committee at a disadvantage in future negotiations. Modified one-time termination agreements are not a market norm and are a problematic pricing practice,” ISS said.

The contract also provides for automatic expediting of capital rewards after a control change. “Such a single veterinarian can cause financial loss for the manager without accompanying termination of employment,” the ISS said.