David Zaslav WBD-Paramount highlights CEO’s ‘golden parachutes’

Warner Bros. Discovery The potential payout of CEO David Zaslav more than $800 million from the Paramount Skydance deal highlights an obscure tax rule originally intended to limit CEO pay.

According to SEC filings, Zaslav could collect hundreds of millions of dollars in severance pay and other stock awards and payouts following Paramount’s acquisition of WBD. The payouts include about $500 million in stock awards, about $115 million in vested stock awards, and $34 million in cash, according to filings.

The deal also includes up to $335 million in potential payments to Zaslav for what is known as a “golden parachute” excise tax. The tax was originally created by Congress in the 1980s to limit what many saw as huge payments to CEOs when they changed control or sold their companies. The 20% tax kicks in when an executive’s salary exceeds three times the 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 repayment decreases over time and drops to zero if the deal closes in 2027. Paramount said it aims to close the deal, pending regulatory approval, by this fall.

Paramount’s board said the repayment would be made by Paramount, not Warner shareholders.

Without the payment, known as a “gross-up,” “Mr. Zaslav would be at a significant disadvantage in terms of excise tax exposure compared to the previously proposed transaction with Netflix,” which would not have included the golden parachute tax, the board said.

Zaslav’s compensation from the deal is expected to be approximately $667 million, excluding tax.

Rather than capping pay, the golden parachute rules have incentivized CEOs to sell their companies and reap ever-higher bonuses, management experts said. The tax also prompted corporations and their shareholders to spend more to pay special taxes.

“Over time, especially as executive compensation has shifted radically toward stock-based pay, golden parachutes have become increasingly profitable, and platinum in many cases,” Jeffrey Gordon, co-director of the Ira M. Milstein Center for Global Markets and Corporate Ownership at Columbia Law School, said in research. “Even if there is pain among those laid off from their jobs when a company is sold and layoffs occur, there is clearly one winner: the CEO with the golden parachute.”