Why Sumner Redstone’s men — Leslie Moonves and Philippe Dauman — made a king’s ransom

When it comes to executive compensation, few corporate chieftains have soared to the sky-high levels enjoyed by Sumner Redstone and his top lieutenants, Leslie Moonves and Philippe Dauman.

CBS Corp. Chief Executive Moonves and Viacom CEO Dauman are the second and third highest- paid executives, respectively, among publicly traded U.S. companies, according to the latest survey from data firm Equilar Inc.

Moonves pulled in $56.4 million in compensation last year, Equilar said, and Dauman was right behind at $54.1 million.

Both men earn far more than their peers who command much bigger media companies. Walt Disney Co. CEO Robert Iger made $43.5 million last year, and he runs a corporate empire with more than $52 billion in annual revenue, or nearly four times the size of either CBS or Viacom. Comcast Chief Executive Brian Roberts collected $27.5 million in 2015, and his realm, which includes media company NBCUniversal, generated nearly $75 billion in revenue.

What’s more, Dauman’s pay jumped 22% in fiscal 2015 — even though Viacom’s stock plummeted 40% during that same period, according to Equilar.

Dauman’s big bump was powered by a $17-million signing bonus for renewing his employment agreement. Without that, his pay package would have been $37 million, about 16% lower than the previous year, but that’s still substantially more than what most CEOs make.

Why are the packages so rich? Mostly it reflects the style of Sumner Redstone, who has long run his $40-billion media empire like a private fiefdom and believes in awarding whopping pay packages to the bosses — himself included.

Until this year, Redstone, 93, collected pay from both Viacom and CBS — raking in annual salary, bonuses and stock awards valued at more than $350 million since 2006, the year he split his vast empire into the two companies.

“Sumner has always been willing to pay top-dollar for his executives … but the performance just hasn’t been there at Viacom,” said Eric Jackson, managing director of SpringOwl Asset Management, which has agitated for changes at Viacom. “The board of Viacom has been hands-off when it comes to Philippe.”

Representatives for Dauman and Moonves declined to comment.

Until recently, Dauman, 62, was widely considered to be Redstone’s heir apparent. “He was Sumner’s consigliere for the past 30 years,” said Porter Bibb, managing partner of Mediatech Capital Partners in New York.

No more. Tensions between the ailing Redstone and Dauman came to the surface after Redstone’s former companion, Manuela Herzer, sued to have her status overseeing Redstone’s healthcare restored. Herzer lost, but the case put a spotlight on Redstone’s mental competence — and in the run-up to the trial, Redstone stepped down as executive chairman of CBS and Viacom, putting Moonves and Dauman in charge of their companies.

While Redstone and Dauman were allies against Herzer, they became at odds over Dauman’s decision, shortly after becoming Viacom’s chairman, to sell a stake in Paramount Pictures movie studio. Redstone and daughter Shari Redstone, who has been a fierce critic of Dauman, are expected to push for new board members who will remove Dauman from his executive suite. Viacom has Comedy Central, Nickelodeon, MTV and other cable channels.

“When you are working in a family business, blood is a lot thicker than water,” said William Klepper, a management professor at the Columbia Business School. “Just when Philippe thought he was blood, he found out that he really wasn’t.”

If Dauman ends up getting pushed out of Viacom, he won’t go empty-handed: His contract calls for him to get a golden parachute with a payout that includes triple his bonus, which was $14 million last year, and three times his $4 million annual salary, as well as vested stock and options.

Moonves since 2006 has received annual packages that add up to more than $500 million, according to CBS’ filings with the Securities and Exchange Commission. But Bibb and others say Moonves, 66, has done an admirable job keeping CBS at the top of the network heap, and that has he been aggressive in making CBS programming available on digital platforms.

Last year, Moonves and Dauman’s compensation packages were eclipsed only by Expedia CEO Dara Khosrowshahi, whose $94.6-million compensation was boosted by a one-time stock award.

Some shareholders have complained, to little effect. The Redstone family owns nearly 80% of the voting stock in the two companies, so no one had the power to object. Viacom and CBS have two classes of stock, and investors who own Viacom’s Class B common shares or CBS Class B common shares have no vote.

“Dual class stock means there is no accountability to other investors,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “The accountability is to the controlling shareholder.” And that’s Redstone.

The outsize compensation has dented the bottom line for both companies. Over the last decade, Viacom and CBS allocated salaries, stock awards, options, bonuses and other benefits valued at the time at $1.6 billion for just four men: Moonves, Dauman, Sumner Redstone and Viacom Chief Operating Officer Thomas Dooley, according to company filings.

To be sure, the current value of some those holdings are considerably less because of the dramatic fall in the value of Viacom shares since 2014; but had the stock risen, the amount could have been more.

On Monday, Viacom shares closed down 1.9%, or 78 cents, to $41.24. CBS shares were off 1.2%, or 62 cents, to $52.11.

CBS stock is up 10% since January while Viacom is basically flat.

Since 2006 when he became CEO, Dauman has collected compensation that, at the time, totaled more than $380 million, according to Viacom filings. But with so many stock options underwater and a decline in value of other equity-based compensation, more than $73 million in value was erased.

The high pay, particularly for Dauman, has drawn scrutiny from some investors. BTIG Research media analyst Richard Greenfield has referred to the executive compensation provided to the Viacom executive as “egregious,” in light of Viacom’s recent struggles, and said the core problem was lack of board oversight.

Viacom’s 11-member board includes several longtime friends of Redstone.

“It’s just a simple failure of the board,” Greenfield said.

MORE:

Battle for Viacom control flares up; Paramount sale could falter

Viacom CEO says fight with Redstones has slowed the company’s Paramount Pictures sale

Sumner Redstone’s attorneys say he removed key lieutenants from trust over Paramount sale

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