Clash with the boss and you can quit—with a multimillion payout. That's the deal Viacom President and COO Mel Karmazin cut last week in exchange for ceding some power to Chairman and CEO Sumner Redstone. The deal ends months of speculation about Karmazin's future at the company but is no surefire cure for the friction between the two men.
Karmazin's new deal substantially narrows the latitude Viacom granted when the then-CEO of CBS agreed to sell the broadcaster and stay on at Viacom.
The new three-year contract leaves all of Viacom's division heads reporting to Karmazin. But a new clause emphasizes that "full and final decision-making authority over corporate policy and strategy shall reside in the Chairman and CEO." That's Redstone, whose own new contract gives him much clearer authority over the company, including acquisitions, shareholder issues and entry into, or exit from, new business lines.
Karmazin has "full authority over the operations of Viacom," a more limited task. Before, Karmazin could be fired only by three-quarters of the board of directors. Now Redstone can fire him without board approval.
However, that's tempered by the conditions under which Karmazin can quit and still get paid two year's worth of compensation. Usually, such a senior executive can quit mainly if his duties are materially diminished or he's forced to relocate.
But one of the "good reasons" for Karmazin to terminate his three-year contract is "being overruled by the board or the chairman and CEO on any decision which is within the authority given to you" or the board or Redstone's making some major move "despite your bona fide objection."
"It's the 'screw-you' clause," said one Viacom executive. "The check on Sumner is that Mel can leave and scare Wall Street again."
One headhunter well-schooled in both media- and corporate-giant hirings had never seen anything close to Karmazin's exit clause. "This is unbelievable. It's quirky."
It's unlikely to become a trend in employment deals, though, because the friction at Viacom is a fairly unusual situation. In virtually every other company, such a clash would send one of the senior executives packing. "It's certainly a custom-made suit," the executive recruiter said.
Since Karmazin owns $400 million worth of Viacom stock, compensation is less important than power. His new deal guarantees him $11 million in salary, bonus and deferred compensation. But Viacom has been performing so well that his bonuses alone in the last two years were $12 million to $15 million.
Concern that Karmazin would exit has been depressing Viacom's stock price for a year. Wall Street regards Karmazin as a tough boss with a particular skill for motivating sales forces, developed from his days running Infinity Radio, which was later acquired by CBS.
Redstone is widely respected as a dealmaker and strategist, but he's 79 years old. Despite his protestations that he'll never die, investors want a clear successor.
Viacom's stock ticked up 5% on the news of the deal, closing at $40.84 per share Thursday, as the lifting of the Karmazin cloud was tempered by the United States' attack on Iraq. Despite a 33% drop over the past 18 months, Viacom has been among the strongest media stocks, dodging the battering the recession has delivered to others dependent on ad sales.