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Power Sheet – May 3, 2016

Our topic this morning is how much CEOs are worth, which is in the news and will be more so as proxy season progresses. Most noted was Friday’s SEC filing by Yahoo reporting that CEO Marissa Mayer would get a $55 million package if she is ousted as a result of Yahoo’s operating businesses being bought in the coming year. That golden parachute, combined with her reported pay packages of $14 million last year and $42 million the year before, struck many people as a bit much considering that she was brought in to turn Yahoo around and hasn’t done it.

We have to dig deeper to find an entirely different example. Weekend box office data show that Walt Disney’s The Jungle Book was the No. 1 movie in America for a third consecutive week; total worldwide box office is a staggering $685 million so far. That means Disney has two mammoth hits this year, and it’s only May 3; the other is Zootopia, released two months ago, with $933 million worldwide so far. We know Jungle Book won’t dominate again next weekend because it and all other movies in North America will be overwhelmed by Captain America: Civil War, which many analysts think may be the top movie of 2016. And who made that one? Disney again.

If you don’t recall howls of outrage when Disney reported that CEO Bob Iger’s 2015 pay package was worth $43.5 million, you can understand why. The board has signed him to a contract until 2018, when he’ll be 67, and some Wall Street analysts think the board may ask him to stay longer. He’s getting paid a ton, but it isn’t a lot if he’s worth it.

Which brings us to another high-profile pay package of the moment, that of Expedia CEO Dara Khosrowshahi. At a valuation of $94.6 million, it makes him the highest paid CEO in the S&P 500 among companies that have reported. Except – is that what he really got paid? The headlines all say so. But it isn’t true. To see why, do something that hardly anyone does, which is read the SEC filing that reports his compensation. We find that $90.8 million of that huge reported figure is in the form of stock options that he hasn’t actually received yet and may never receive. Even if he does receive them, he may not make a dime from them. Some of the options cannot be given to him before September 2020, and even then he would get them only if Expedia stock had risen by 81%. In that case those options would be worth $82.5 million to him on the day he got them – a lot of money, but shareholders would have gained $14 billion. If they gained only, say, $13 billion, he won’t get those options at all. Now maybe the board could have driven a harder bargain with Khosrowshahi, but this doesn’t seem like a bad deal for the shareholders.

Iger’s pay package also consisted mostly of stock-based awards that may pay a lot, or a little, or nothing at all over a period of years. This is almost always the case when you see huge pay numbers reported. What you rarely see reported are the details that make all the difference. It’s the time of year for wailing and gnashing of teeth over excessive CEO pay, and sometimes it is definitely justified. But before you launch into a rage over the latest editorial, you might consider visiting, reading the actual numbers, and deciding for yourself.

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What We’re Reading Today

Sumner Redstone to testify in competency trial  

Los Angeles County Superior Court Judge David Cowan said that Redstone must provide 15-30 minutes of testimony, recorded from his home. It’s a ruling that could spur both sides to resume settlement discussions to prevent Redstone from having to speak on camera; he reportedly struggles to talk. His health is at the center of a competency trial brought by his former companion Manuela Herzer, but Viacom and CBS investors have also kept a close watch since Redstone’s National Amusements owns about 80% of the voting shares of the companies.  Los Angeles Times

Johnson & Johnson loses second talc trial

It’s the second time in a row that J&J has lost a trial focused on talc products; this time the victim was awarded $55 million. Alex Gorsky‘s company faces 1,200 lawsuits centered around the use of talc products. The former customers claim that J&J didn’t adequately warn them about the dangers of such products. J&J said it would appeal the ruling. Fortune

Spain dissolves Parliament…

…and will hold new elections on June 26. King Felipe VI signed the decree after deputies from Spain’s political parties couldn’t agree on a new prime minister. Four parties have been trying to maneuver a majority since December, when elections left no single faction with a clear majority. The People’s Party leader Mariano Rajoy has been serving as Prime Minister since the elections, but no consensus was formed. AP

Trump hopes to seal the deal tonight

Donald Trump says that if he wins in Indiana on Tuesday, the Republican primary is over. There are 57 delegates up for grabs in the state. Ted Cruz‘s popularity in Indiana appears to be flagging, and he trails Trump by double digits in polls, leaving him answering more questions about his candidacy’s viability. Washington Post

Building a Better Leader

A new era of corporate activism is underway…  

…and the CEO leading the charge is Salesforce’s Marc Benioff. Companies are telling states, like North Carolina, to change their social laws or lose out on their business. WSJ

In times of economic trouble… 

…it’s still possible to get funded. You have to find an idea that shows opportunity and investors who can provide quality capital (not quantity capital). Fortune

Companies sent $221 billion to “special purpose entities”

…located in areas with low taxes, like Netherlands and Luxembourg, in 2015, according to the UN. Offshore financial hubs, like the Cayman Islands, received $72 billion. Reuters

Worth Considering

Aeropostale set to file for bankruptcy 

The retailer is expected to file for Chapter 11 bankruptcy protection later this week and close over 100 stores. Julian Geiger‘s company will be the latest in a long line of retailers in the past 16 months to use bankruptcy as a way to reorganize, as customers move away from branded clothing. Fortune

Hulu considers expansion 

The streaming service is considering streaming entire cable channels for a higher monthly fee. For Mike Hopkins‘ company, it would be a drastic change, as it primarily distributes re-runs of cable shows and offers some original content. It would bundle channels owned by 21st Century Fox, the Walt Disney Company, and NBCUniversal—which all co-own Hulu—for a fee, but it isn’t expected to be offered until next year. NYT

Obama goes local with Supreme Court fight 

In an effort to apply pressure to Republican senators in their home states, President Barack Obama has turned to local television. He provided six interviews to local stations in six states, to discuss Merrick Garland‘s Supreme Court nomination bid, which has stalled. The six states chosen also happen to have a GOP senator up for reelection. Republicans have said they won’t consider Obama’s nominee. USA Today

Up or Out

Ferrari has named Sergio Marchionne CEO. He will also continue in his role as CEO of Fiat Chrysler. Car and Driver

Greg Butterfield will step down as CEO of Vivint Solar. David Bywater will step up as interim CEO until a permanent replacement is found. Fortune

Jacques Brand is stepping away as Deutsche Bank’s head of North American operations. NYT

Fortune Reads and Videos

The big mistake of the Halliburton-Baker Hughes deal… 

…was that executives fell for the idea that mergers are a replacement for growth. It’s becoming a common trend, but the failed deal looks particularly bad for Halliburton. Fortune

Tim Cook turned to television to defend Apple’s stock

The problems he cited—strong dollar, weak China, and a slowdown in iPhone upgrades—are all temporary, Cook claims. Fortune

At 5,000-to-1 odds…  

…Leicester City’s unlikely win of the English Premier League has soccer fans and experts flabbergasted. Fortune

Fairway grocery stores files for bankruptcy

It hasn’t posted a profit in a single quarter since going public in 2013. Fortune

Quote of the Day

“His appearance is of the utmost significance…. He is not a peripheral witness.” —Los Angeles County Superior Court Judge David Cowan discussing his ruling that will require Sumner Redstone to testify in his competency case.  Los Angeles Times

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Produced by Ryan Derousseau