Since becoming president and CEO of Discovery Inc. 12 years ago, David Zaslav has consistently ranked near the top among highest-paid CEOs in media and entertainment. In 2014 and again last year, he was the top-paid CEO of a public company in the United States.

His compensation package for 2018 was valued at $129,449,005, a jaw-dropping sum that has drawn outrage at a time when rising income inequality is gaining traction as a political issue, and the decisions of corporate entities like Discovery are under increasing scrutiny from investors, regulators and legislators as well as the public at large.

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As president and CEO, Zaslav has presided over a 15% rise in the compound annual growth rate of Discovery shares and the expansion of its market cap from $5 billion to nearly $22 billion. For the year to date, Discovery shares are up nearly 30% as it harvests returns from its acquisition last year of Scripps Networks Interactive as well as the M&A buzz swirling around content-focused companies.

The vast majority of Zaslav’s 2018 pay package depends on how well Discovery stock performs in the coming years, which means there’s no guarantee he will actually bank the full $129.4 million. Still, how can a board of directors with fiduciary responsibility to shareholders justify that kind of largesse?

“It’s one of the questions that usually ends with ‘Because they can,’” says Rosanna Landis-Weaver, who studies CEO compensation for the Oakland-based nonprofit shareholder-advocacy group As You Sow.

Zaslav has always had a much lower public profile than, say, Bob Iger or Rupert Murdoch. He is, however, a well-respected CEO who has transformed the cable content group. He has expanded linear and digital operations around the world through acquisitions, partnerships, channel launches and a steady stream of makeovers of underperforming assets.

On Zaslav’s watch, Discovery has been innovative in business even as it has been philanthropic and socially conscious as a corporate entity and nimble in the face of enormous change. And he has emerged as the poster CEO for the growing campaign against what investors see as excessive — some call it obscene — levels of pay for C-suite executives, especially for chief executives.

Zaslav may be top of the list by a mile this year, but he’s not alone among his media-CEO peers in reaping gigantic paydays. The subject of CEO remuneration is becoming a target for increasing activism among investor advocates and social-justice activists. No less an iconic leader than Iger saw trims to his compensation plan for 2019 and beyond after pushback from shareholders.

“This is a piece of a bigger story about the economy,” says Landis-Weaver. “We’ve seen increased opposition to pay packages.”

Landis-Weaver cites the shareholder-friendly reforms of the past decade, in the wake of Wall Street’s mortgage meltdown of 2007 and 2008, that require companies to hold nonbinding shareholder advisory votes on CEO compensation — the Say on Pay rule. As of 2017, large public companies are also required to disclose the ratio of CEO pay to that of the median compensation rate for all employees.

“It shows shareholders have more power than they used to on this issue, and they’re using it,” Landis-Weaver says.

Research by Bloomberg, the AFL-CIO and others has calculated a more than 1,000% increase since 1950 in the CEO/average worker pay ratio. In the ’50s, a typical CEO earned about 20 times the paycheck of the company’s average worker. Last year, the pay ratio for CEOs at firms listed on the S&P 500 was about 361 times that of the average daily worker, according to the AFL-CIO. The big gains over that time have largely been driven by the steady growth of the equities market since the 1980s, as stock compensation has become a more common component of CEO paychecks.

Many also point to the laser focus of investors on companies’ quarterly returns as a reason for the exponential increase in CEO compensation. The pressure to deliver consistently high earnings to keep a company’s stock price high becomes an incentive to focus on short-term gains rather than long-term health and R&D. That incentive is magnified by the fact that lofty share prices only add to the value of stock options granted in employment contracts.

Jason Schloetzer, associate professor at Georgetown University’s McDonough School of Business, says that the common factor cited as the driver of increased CEO pay “is the near-ubiquitous emphasis placed on shareholder returns as the only important goal of the executive team.”

Experts say there’s no escaping that the widening income gap creates a politically charged scenario for the economy’s haves and have-nots.

“When CEO salaries grow at double-digit rates annually while rank-and-file workers see pay increases that are less than inflation, the disconnect can only persist for so long until either employees or regulatory agencies will take action,” Schloetzer says.

At Discovery, Zaslav’s compensation was 1,511 times the average median compensation for employees, which stood at $85,704 last year, per Discovery. If the value of long-term stock awards — which represented the bulk of Zaslav’s $129.4 million — were subtracted, his remaining compensation of about $35.5 million would have been 414 times median compensation.

“We know from history and sociology that the income gap gives rise to ill feelings and controversies. It could spill over into lots of different areas — into the [2020] election, into regulation and government mandates on pay practices,” says David Larcker, a professor at Stanford Graduate School of Business. At the same time, he emphasizes, “it’s hard for anyone to say what that [ratio] should be.”

Interest in CEO comp has increased for investors because the tougher disclosure rules offer a look at what a company’s board of directors values in CEO performance, Larcker says. “It’s one place where you have a window into what the board is actually doing,” he explains. “You don’t see the precise process, but you see the outcome and you can make a judgment on whether the board is doing the right or wrong thing. It’s one of the few places where you get real information about the governance of the organization.”

Companies are required to hold Say on Pay votes every three years. The rule was implemented in 2013, and the nonbinding results mean investors can’t block a board’s compensation decision. But the votes have become a marker for companies, such as Disney, looking to have squeaky-clean images for investors as well as consumers. A consistently high rate of opposition from shareholders in Say on Pay to a board’s recommended CEO compensation package is becoming a tarnish that could affect a company’s bond rating, among other financial considerations.

Just before Disney’s annual meeting on March 7, Iger agreed to reduce his salary for fiscal 2019 by $500,000 (to $3 million) and to cut another $13 million out of his potential bonuses. The board also revised his contract to raise the performance standard for him to receive a $100 million stock grant in 2021, the year he’s set to step down as CEO. The move by the Disney board came after 52% of shareholders voting at the company’s 2018 annual meeting came out against Iger’s previous pay package of $65.6 million. At last month’s Disney meeting, the exec’s revised pay plan for 2019 was again approved by 52% of shareholders who voted. In a statement last month, Iger called the changes to his compensation plan “in the best interest of the company.”

Movement on CEO compensation by a Fortune 100 company with the size and scope of Disney is heartening to investors.

“There is a wide range of even conventional asset managers looking at the quality of corporate governance,” says Pat Miguel Tomaino, director of socially responsible investing for Boston-based Zevin Asset Management. “There is a focus on whether or not investors are getting the performance out of the CEO that is in line with what the CEO is paid. That is a major concern for investors.”

While Zaslav may be the highest-paid CEO of any company in America, by contrast, the most well-compensated among leaders of Detroit’s Big Three automakers, Mary Barra, earned $21.9 million for heading General Motors in 2018. That’s less than any chief executive at a traditional media conglomerate other than Viacom’s Bob Bakish (who took in $20 million in 2018) and Lionsgate’s Jon Feltheimer ($14.4 million).

Media and entertainment executives have enjoyed high salaries in part because of the parochial nature of the barons that have long ruled the industry. Moguls such as Sumner Redstone, Murdoch, John Malone and Brian Roberts have controlling stakes in their companies — or great sway in the boardroom in Malone’s case — and thus aren’t as vulnerable to pressure from outside investors. The now-deposed leaders of Redstone’s empire, Viacom CEO Philippe Dauman and CBS CEO Leslie Moonves, consistently received sky-high pay packages during their respective tenures. Research by CNBC found that Dauman took in a whopping $425 million in salary, bonuses and stock awards from 2011 to 2015, a period when Viacom’s share price fell 15% and the company struggled to adapt to the changing TV landscape. Dauman left Viacom with another $72 million in severance pay in 2016.

“The income gap gives rise to ill feelings and controversies. It could spill over into lots of different areas — into the [2020] election, into regulation and government mandates on pay practices.”

David Larcker, Stanford professor

In the case of Viacom, the discordance between the company’s performance and Dauman’s paycheck was a sign of negligence by the board members responsible for monitoring the company’s health.

“The compensation issue was symbolic of the biggest issue at the time with Viacom, which was that it was a rudderless company where you had a board that was captive to Philippe Dauman,” says Eric Jackson, founder and president of Toronto-based EMJ Capital. Jackson was formerly an activist investor who was vocal about what he saw as outsize compensation packages for CEOs of troubled companies including Viacom during Dauman’s era and Yahoo while Marissa Mayer was at the helm.

“The rubber-stamping of high compensation was an afterthought for the board,” Jackson says. “I saw no evidence the company was taking the necessary steps for long-term health.”

By objective measures, Discovery under Zaslav is a world apart from Dauman’s last years at Viacom. Zaslav is described by friends and associates as “always in motion” in expanding the company’s reach, developing new ventures and fixing problems. He’s never been shy about making strategic shifts when necessary.

As the linear-cable programming business in the U.S. has flagged in recent years, Zaslav has moved to bolster the company’s brands and IP resources through the $14.8 billion acquisition of Food Network and HGTV parent Scripps Networks Interactive. He has vastly expanded Discovery’s global digital footprint with big-bet investments in sports in Europe, via the Eurosport digital and linear channels, and a partnership with golf’s PGA to launch a high-end golf streaming service outside the U.S. Zaslav has taken aim at car enthusiasts in setting a partnership with Motor Trend and rebranding its Velocity arm as the MotorTrend Network.

Zaslav has initiated top-to-bottom rebrands of all of Discovery’s 12 U.S. cable channels except for the flagship Discovery channel since he took the helm in 2007. The biggest success stories have been OWN, the partnership with Oprah Winfrey that replaced Discovery Health in 2011, and Investigation Discovery, which took over Discovery Times in 2008. Both OWN and Investigation Discovery now rank in cable’s top 10 among female viewers.

Discovery declined to respond to criticism of Zaslav’s 2018 compensation package. In the SEC disclosure filing, the company noted that the vast majority of his compensation was considered “at risk,” meaning that Discovery has to achieve aggressive performance targets in the years ahead for him to earn that windfall. Discovery’s share price has to climb steadily for the next four years, or as the company described it, achieve “substantial and sustained stock price growth.”

“We’re more than just our 12 cable channels coming together with [Scripps’] six channels,” Zaslav told Variety in November about the Scripps merger. “We are a global IP company that is about unscripted and sports. We can take our menu of content around the world.”

Zaslav’s nine-figure compensation haul was fueled by nearly $117 million in stock options and awards granted through a new employment contract signed last July that will keep the CEO at the helm of Discovery until 2023. Last year, he also took in $3 million in salary and a $9 million bonus.

In reality, Zaslav’s take-home pay last year was nowhere near $129.4 million. But per SEC rules, the stock options and awards he was granted in 2018 have to be accounted for in Discovery’s annual corporate officer compensation disclosures as if they were valued in present-day dollars, even though the performance of those shares is unknown, since Zaslav won’t be able to claim all of them until 2023. Zaslav may make a fortune on those options, or he may not, depending on how high or low the stock goes relative to the various option prices he’s been granted for shares that vest in years to come.

Zaslav’s comp package comes on the heels of his receiving $156 million in 2014, again fueled by stock options and awards from a new employment contract. But he is understood to have pocketed less than half of that 2014 windfall because so many of the options were worthless at the time they vested, after Discovery’s stock price fell in 2016 and 2017.

Lynn Whitfield and Keith David star in OWN drama “Greenleaf.” Zaslav rebranded Discovery Health as Oprah Winfrey’s network and met with big success.

Courtesy of Own

“It can end up being worth a lot, or it can end up worth zero. It’s risky,” says Stanford’s Larcker.

Nonetheless, the potential for a CEO to take in more than $400 million in a five-year period evokes a Gilded Age imbalance between the captains of industry and their troops. Experts who study the impact of the pay gap in countries around the world say nations with freely elected governments are typically less stable the wider the gulf between the top echelon and the bottom half of wage earners. “There’s so much data showing that the level of income inequality we have now is potentially destructive to democracy and not sustainable,” says Landis-Weaver.

As successful as Zaslav has been in taking Discovery to new heights, nine-figure packages in the media and tech sector (Google CEO Sundar Pichai received a stunning $199 million in 2016) are bringing more pressure on corporate boards to justify compensation formulas. Annual proxy statements for the largest public companies now have page after page detailing the reasoning behind the formulas and protocols for corporate bonuses and stock grants for top officers.

“As much as possible, we want to see compensation given in a form that vests in the future only if the company has performed well,” says Zevin Asset’s Tomaino. “You’re seeing more investors trying to make sure that boards of directors have options to claw back certain kinds of compensation if a CEO’s major gambits or strategies have not paid off.”

Experts say the cottage industry of corporate compensation consultants and board members who may be too friendly with the CEO are often to blame for pay inflation at companies that are laying off workers or freezing wages down the chain. Companies are also encouraged to look at the pay scales at rival businesses deemed to be peers — another factor that keeps Big Media paychecks so fat.

“Consultants don’t get rehired by coming in and saying, ‘Everyone here needs to be paid less,’ ” says Landis-Weaver.

In media and entertainment, Zaslav’s payday also stands out in part because of Discovery’s smaller size relative to its larger competitors. Those who have worked with the executive say he has integrity as a business leader and is affable and generous as a person. But even his admirers question how much is too much, and whether a Brinks truck’s worth of cash and stock is the best motivator for CEOs who are already extremely wealthy.

“At the end of the day it’s the board and the shareholders who have to judge for themselves whether they think a particular person is going to be correctly incentivized,” says EMJ Capital’s Jackson, who is not an investor in Discovery. “It’s not the options and grants in and of themselves that are going to make someone a good CEO or a bad CEO.”

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