Discovery awarded CEO David Zaslav nearly 14.8 million stock options on Sunday, the day before the company unveiled plans to merge with AT&T’s WarnerMedia.
That’s sure to be the biggest chunk of Zaslav’s executive pay under a contract extension through 2027 that was announced Tuesday but without any financial details. Those should be forthcoming in a subsequent filing with the Securities & Exchange Commission.
However, in a separate SEC filing, the company detailed ten tranches of option awards exercisable on dates starting in May of 2022 through December of 2027. Conversion prices run from $35.65 for options that vest first, to $43.33 for the last batch. Discovery shares are changing hands today at about $32.
A Discovery rep declined to comment on the value of the option grants — which will be included in the SEC filing with specifics of Zaslav’s contract — but the Wall Street Journal pegged it at about $190 million. The value is based on a complex formula that looks at share price volatility and potential price appreciation.
The options expire in May of 2028.
An option gives its holder the right to purchase a share for a specified conversion price any time between the exercisable date and the expiration date. If the share price is higher than the conversion price, they pocket the difference. If the price is lower, they can’t exercise the options and get nothing.
Option awards have become the biggest element of CEO pay and companies defend them because they’re granted at an estimated value, so are in fact “at risk” if the share price falls. However, compensation experts have noted that this risk rarely materializes. For much of the last decade, due to an extended bull market, the original estimated value has ended up being too low compared with where the stock is trading when the grants are ultimately cashed in. Even in a pandemic year like 2020, for instance, after a short, sharp blip, the overall market surged and its overall momentum continues.
Zaslav has been a highly paid executive among a sea of high paid executives in media and entertainment. He earned $37.7 million in 2020, $46 million in 2019 and in 2018 his pay was $129 million, inflated by a massive option grant valued at the time at $102 million.