Warner Bros. Discovery CEO David Zaslav's potential payout of more than $800 million from the Paramount Skydance deal highlights an obscure tax rule originally designed to limit CEO pay.
According to SEC filings, Zaslav could collect hundreds of millions of dollars in severance and other stock awards and payments following Paramount's acquisition of WBD. The payments include about $500 million in stock awards, about $115 million in vested stock awards and $34 million in cash, according to the filings.
The deal also includes up to $335 million in potential payments to Zaslav for what is known as the “golden parachute” excise tax. The tax was originally created by Congress in the 1980s to limit what many considered outsized payments to CEOs in the event of a change of control or sale of their companies. The tax, 20%, takes effect when an executive's pay exceeds three times his or her typical base salary and target annual bonus.
As part of the acquisition, Paramount agreed to pay Zaslav's excise tax if his other payments trigger the tax. The reimbursement declines over time and drops to zero if the deal closes in 2027. Paramount has said it aims to close the deal, pending regulatory approval, by this fall.
Paramount's board said the refund would be paid by Paramount, not Warner shareholders.
Without the payment, known as a “gros-up,” the board said “Mr. Zaslav would be at a substantial disadvantage in terms of excise tax exposure in connection with the previously proposed transaction with netflix,” which would not have involved a golden parachute tax.
Zaslav's payment from the deal is expected to be around $667 million before taxes.
Management experts have said that rather than capping salaries, the golden parachute rules have incentivized CEOs to sell their companies and reap ever-increasing rewards. The tax has also led companies and their shareholders to spend even more to pay the excise taxes.
“Over time, especially as executive compensation has shifted radically toward stock-based compensation, golden parachutes have become increasingly lucrative, platinum in many cases,” Jeffrey Gordon, co-director of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, wrote in an article. “Even if there is pain among those who are laid off when the company is sold and layoffs occur, there is clearly a winner: the CEO with a golden parachute.”
Correction: Paramount Skydance is acquiring Warner Bros. Discovery. An earlier version of this story mischaracterized the deal.
