My Dad Was in the Newspaper! [Archive] - MercuryMarauder.net Forums

martyo

10-26-2006, 06:23 AM

I got a title to a story and one sentence but it asks to log in for the rest.

Part One:

Diller Takes the Prize for Highest Paid
By GERALDINE FABRIKANT
Who is the highest-paid chief executive in America?

Every spring, not long after the Academy Awards, the business media tear open their own envelopes to announce who has won the pay title for the previous year.

But for all the spotlights focused on the issue of executive pay — with regulators demanding more transparency and investors crying foul about runaway compensation — it is possible for some executives to remain in the shadows.

Like this year’s winner: Barry Diller, chairman and chief executive of IAC/Interactive, the Internet retailing and home-shopping-channel company. Mr. Diller was not on the lists earlier this year because his company filed its proxy after most of the initial surveys, based on samples of a few hundred companies, were done.

But one recent study that looked at a broader universe of companies estimated his total compensation last year at $295 million, while another recent survey — using a different calculation — figured he was paid $85 million.

Both concluded that he was the highest paid, according to respective measures they used, and both were critical of his pay relative to the company’s performance.

Regardless of the number, Mr. Diller said his compensation was appropriate, considering “the wealth created for shareholders over the last 11 years, me certainly among them.”

As executive pay has become a hot-button issue, how it is calculated — and how much has to be disclosed — has become a focus of greater scrutiny. Critics complain about the difficulty of calculating compensation packages, prompting the Securities and Exchange Commission to adopt new rules this year requiring more extensive disclosure.

Mr. Diller’s salary at IAC/Interactive last year was a relatively modest $726,115. But his package totaled $295 million in 2005, almost all from stock options, making him by far the highest-paid executive among 1,400 companies studied by the Corporate Library, a research firm that studies corporate boards and chief executives. (Richard Fairbank of Capital One Financial, the credit card company, was the runner-up, with $249 million).

A second study of 2,400 companies by Glass Lewis & Company, a research firm that advises big investors on shareholder issues, used a different approach.

Rather than count the value of old options that Mr. Diller exercised last year, it counted the value of a new grant of 3.8 million options that he received in 2005. Based on how those options are likely to grow in value, it said they were worth $80 million. His salary, bonus and other compensation were worth an additional $5 million, according to the Glass Lewis report.

Both studies said his company’s performance did not merit such high pay.

Stock in IAC/Interactive declined 7.7 percent in 2005; in the three years ended in December 2005, it rose 11 percent. Last year, the company spun off Expedia, its online travel business, making it a separate public company.

“By any objective measure, Barry Diller is grossly overpaid,” said Jonathan Weil, managing director of Glass Lewis.

Mr. Diller’s pay package goes beyond even the larger number of $295 million in the Corporate Library report, when his additional compensation at Expedia is included.

In the spinoff, some of his original options in Interactive converted to options in Expedia. He exercised options for an additional payoff of $173 million last year.

In all, Mr. Diller reaped $469.7 million last year from salary, bonus, other perks and the exercise of existing stock options at IAC/Interactive and Expedia.

IAC/Interactive also gave Mr. Diller 3.8 million new options in Expedia last year so that he actually received 7.6 million new options.

In a statement, Mr. Diller said he was “proud of his work at IAC and Expedia,” and he added that more than 95 percent of the compensation he received over that period came from a 1995 stock option grant he received when he joined the company, at a time when it was much smaller and had lost $70 million in the previous year.

He noted that the company had grown under him — IAC and Expedia together have operating cash flow of $1.4 billion and a market value of more than $14 billion.

He said that he still held the shares he received from exercising the 1995 options, save for the ones he cashed in to pay his tax bill.

Spokesmen for Mr. Diller also noted that he did not draw a salary or receive a bonus in some of the early years of the company.

Over the last three years, Mr. Diller, who is 64, has exercised $441 million worth of options at IAC/Interactive. He still has another $167 million of value in other stock options that he could cash in if he chose to.

The two studies considered only Mr. Diller’s compensation at IAC/Interactive, and they did not include his pay from Expedia in their calculations.

Another way Glass Lewis measured Mr. Diller’s compensation, relative to other chief executives, was to calculate his pay as a percentage of the company’s total profits. IAC/Interactive earned $868.2 million last year, so Mr. Diller’s compensation of $85 million represented 9.8 percent of those profits.

That figure compared with the average of 6.4 percent for the 25 most-overpaid chief executives — based on pay and company performance — that Glass Lewis found in a more narrow survey of executive compensation packages for the Standard & Poor’s 500 companies.

In companies where Glass Lewis found that executive pay was low relative to good performance, chief executive pay was just 0.2 percent of net income.

“When compared with net income,” Mr. Weil said, “his compensation package last year was an outlier — even by the standards of the worst of the worst companies in our annual pay-for-performance ratings.”

The Corporate Library report criticized the decision by IAC/Interactive’s board to give Mr. Diller his new grant of 3.8 million options last year.

The company last year achieved a fivefold rise in net income, with about 40 percent of that increase coming from an asset sale. Still, Wall Street analysts expressed concern that the Expedia division was losing market share to rivals and that Home Shopping Network continued to face intense competition from its rival QVC.

Financial analysts say that IAC/Interactive’s performance, beyond its stock price, is less than stellar. For example, they note that the company is earning less than half as much on its capital as it is paying to borrow it.

“Returns are now improving, but it is like a dredging exercise,” said Bennett Stewart, chief executive of EVA Dimensions, a financial research firm. “You’re pulling the boat out but it is still underwater.”

Although stock options are often granted to chief executives as an incentive to spur better performance, Paul Hodgson, senior research analyst at the Corporate Library, said, “There has already been enough compensation delivered to Mr. Diller over the years, so it is unnecessary to deliver any more."

Andrea Riggs, an IAC/Interactive spokeswoman, said that none of the new options would vest unless Mr. Diller stayed at IAC for five years and that he would get no new options for another five years.

The grant “provides a significant retention incentive to Mr. Diller,” she said, adding that the grant to Mr. Diller will pay off in a meaningful way only if he stays at the company and its stock does well.

In company documents, IAC/Interactive said it gave Mr. Diller the new grant of 3.8 million stock options last year to “align and motivate Mr. Diller for the future.”

Mr. Hodgson, however, pointed out that Mr. Diller already controls IAC/Interactive. He owns 2 percent of the company because of his 5.6 million shares. And because of the way the company is structured, he effectively controls 56 percent of the voting rights to determine the future of the company.

“His alignment with stockholders could hardly need further enhancement,” Mr. Hodgson wrote.

The two board members who ran the compensation committee when the new grants were approved were Marie Josee Kravis, a senior fellow at the Hudson Institute, and Edgar Bronfman Jr., the chief executive of Warner Music. Both declined to comment through spokesmen.

The structure of IAC/Interactive, with a powerful single shareholder, affords Mr. Diller unusual leverage, as the company’s own documents note.

“Mr. Diller is effectively able to control the outcome of all matters submitted to a vote or for the consent of IAC’s stockholders,” the company’s proxy said.

To Mr. Hodgson, that puts Mr. Diller in a special category. “At other companies, boards are elected by the shareholders,” he said. “At a controlled company, electing a board member whom Mr. Diller does not approve of is virtually impossible.”

martyo

10-26-2006, 06:23 AM

Part Two:

Ms. Riggs, the company spokeswoman, also defended Mr. Diller’s new option package by noting that the options can be cashed in only if the stock rises, in one case, at least 30 percent, and in another case, 75 percent, over the price at which they were granted. “By definition, he cannot cash out without shareholders receiving more value,” she said.

But Mr. Hodgson of Corporate Library dismissed the importance of the premium pricing because Mr. Diller had already taken home so much money. He also noted that the grant represented 100 percent of all the options that the company gave out. Some executives received restricted stock awards.

In an interview, Mr. Diller said that until last year, he had received only two stock option grants — in 1995 and 1997 — in the time he had run the company now known as IAC/Interactive. He noted that the 1995 grant expired last year, prompting him to exercise those options.

Mr. Diller’s career has spanned old media and new. He first rose to prominence at ABC, where he created its successful “Movie of the Week” franchise. He then took over Paramount Pictures as chairman and chief executive in 1974.

Over the following decade, the studio, under Mr. Diller, produced a number of hit movies and television shows, including “Laverne & Shirley.” He went on to run Fox, the parent company of 20th Century Fox, starting in 1984.

Mr. Diller was among the first of the old-line media executives to see the potential of interactive television and the Internet.

Mr. Diller bought a 25 percent stake in QVC in 1992, the home-shopping channel, after learning about it from Diane von Furstenberg, who is now his wife. His fascination with interactive television was eclipsed by his interest in the Internet, and he invested in Hotels.com and a host of Web sites to build IAC/Interactive, as well as the Home Shopping Network.

Though he was early into those businesses, two pivotal divisions, Expedia and HSN, have come under intense pressure.

Nearly two years ago, Mr. Diller first announced plans for a spinoff of Expedia from the rest of IAC/Interactive’s retailing businesses. At the time Mr. Diller said that he wanted to simplify a company that owned more than three dozen discrete businesses.

Analysts also noted that Expedia’s business faced growing competition, as airline and hotel businesses have been creating their own Web sites to compete with Expedia. Since the spinoff on July 21, 2005, Expedia’s stock has fallen about 31 percent.

Last year, he agreed to cut his salary in half, to $465,000, when he split the company. But the compensation committee doubled his bonus at IAC to $3.2 million, citing the spinoff, the sale of the joint venture with Vivendi Universal Entertainment to NBC Universal last year and the purchase of AskJeeves.com for $1.85 billion as the reasons for the higher bonus.

To be sure, Mr. Diller is now running two public companies. But they are the same businesses that were under the IAC/Interactive umbrella two years ago.