Viacom CEO suffers 50% pay cut -- to just $43M

One-Percenter of the Week: Even the highest earners sometimes take a hit, but Philippe Dauman will be OK. In 2011, he still collected 4 times the median pay for an S&P 500 CEO.

By MSN Money Partner Feb 3, 2012 5:05PM

By Michael Brush, MSN Money columnist

 

In tough times, a lot of Americans are making due with less -- so it’s good to see some of the highest-paid people in the country have to as well. For example, Viacom (VIAB) CEO Philippe Dauman just took a nearly 50% pay cut.

 

Of course, even after that he’s still one of the highest CEOs in the country.

 

That’s because Viacom has been exceedingly generous with Dauman, even compared to many others atop the 1% of wage earners in the country.

 

Viacom reported earlier this week that Dauman's pay was $43 million in 2011 – actually a little more than half the $84.5 millionViacom CEO Philippe Dauman / © Matthew Staver/Bloomberg via Getty Images he got in 2010, It still put Dauman near the top of the CEO pay hierarchy, at four times the median S&P 500 CEO pay of $10.6 million for 2010 (the latest year available), as calculated by Equilar, an executive compensation research firm.

 

So for still managing to be one of the highest-paid people in the country despite a 50% pay cut, I’m making Philippe Dauman latest One-Percenter of the Week.

 

A Redstone favorite?

How did Dauman pull off such an amazing feat? It probably helps that he is a longtime associate of Sumner Redstone, who along with his family holds a controlling interest in Viacom -- 80% of the voting shares. Redstone is Viacom's executive chairman. He is also executive chairman and founder of CBS, which spun out of Viacom-owned Paramount at the end of 2005.

 

Redstone controls Viacom and its board. So when it comes time for Viacom's board to set Dauman's pay, the CEO knows the right people.

 

In addition to $3.5 million in base salary in 2011, high even by CEO standards, Dauman got a $20 million cash bonus and $19.3 million in stock and options grants. He also got $232,000 worth of personal use of the company jet -- free flights worth more than four times the average household income in the U.S.

 

His pay was $84.5 million the year before largely because of a $70.4 million stock-and-options grant. Dauman has been getting well above-average CEO pay for some time. He got $34 million in 2009 and $27.9 million in 2008.

 

Why high pay matters

So why should we pay attention to deals like these? Two reasons, and neither of them has to do with envy.

 

First, there's a growing wealth divide in our country that has economists worried, and even Republican politicians are making it an issue. Studies show this is contributing to a hollowing-out of the middle class, contributing to economic instability. If people feel like they have less of a shot at joining or staying in the middle class, they get frustrated and possibly drop out of the work force, which doesn’t help anyone.

 

Second, investors should worry because excessive CEO pay is a sign of a weak corporate board that may not be working hard for shareholders. And Viacom's pay levels have come under fire recently.

 

GMI, an independent corporate governance research company, gave Viacom an "F" for corporate governance in 2010 because of "serious and ongoing concern" about executive pay, and the concentration of power in Redstone's hands. ISS Proxy Advisory Services, which advises professional money managers how to vote at annual meetings, also views Dauman's pay as a red flag that signals a lack of board independence and questionable governance at Viacom.

 

Viacom's defense

Viacom responds that almost 90% of Dauman’s compensation is performance-based or in the form of stock, aligning his interests with those of stockholders. So his 2011 compensation reflects the "achievement of outstanding operational and financial results, including double-digit growth in operating income and adjusted net earnings, and significant outperformance of the S&P 500," says Viacom spokesman Jeremy Zweig.

 

Viacom stock has risen 25.5%; it closed Feb. 3 at $48.36, up from around $37 where it was at the end of September 2006, the month that Dauman became CEO. In the same time frame, the S&P 500 has fallen about 7.5%.

 

And in fairness to Dauman, his efforts have pleased TV viewers for years. On Dauman's watch, Viacom has delivered and created many popular shows and networks, from "iCarly," "Jersey Shore" and "SpongeBob SquarePants," to Nickelodeon, Comedy Central, MTV and VH1.

 

Viacom also delivered almost a billion dollars to shareholders in dividends and stock buybacks in 2011, says Zweig. This was a welcome change from recent history, when Viacom was spending extra cash on acquisitions that did not pan out, instead of turning it over to shareholders, says Michael Corty, a Morningstar analyst who follows the company.

 

In other words, shareholders are getting a significant amount of cash out of the company -- as is Dauman. That's a nice plot twist, even if Dauman still gets way more of his company's cash than most CEOs do -- even after his 50% pay cut.

 

At the time of publication, Michael Brush did not own any shares mentioned in this column. Brush is the editor of Brush Up on Stocks, an investment newsletter.