News Corp announced yesterday that Chief Operating Officer and Rupert Murdoch’s long-time right-hand man, Peter Chernin, will step down from his role when his contract expires on 30 June this year. Chernin, who joined News Corp in 1989, will launch a Fox-based production company later this year, among other ventures.
Many analysts consider the loss of Chernin to be a significant blow to News Corp. The executive initially oversaw the successful Fox television network, later heading Fox Filmed Entertainment during the time Titanic was released. However, despite his successes, Chernin is believed to have clashed with Murdoch, especially in recent times. Today, Neil Chenoweth noted that Murdoch’s biographer, Michael Wolff, claimed last week that “Chernin had taken to describing… Lachlan, Elisabeth and James [Murdoch] as ‘the cretins’”.
In the past five years, Chernin has been one of the highest paid executives of an Australian-listed company (while News Corp re-domiciled in Delaware in late 2004, it retains an ASX listing), receiving remuneration of more than US$147 million (AUD$226 million). During that time, News Corp shares have slumped by around 55%. In addition, Chernin is able to receive a significant payment from News Corp even in the event of a voluntary resignation.
News Corp’s 2008 Proxy Statement (which was released to the SEC) provides extensive detail of the payments owing to Chernin should he resign from (or be terminated by) News Corp. Given that Chernin is resigning from his role, he will be entitled to a “termination” payment of either:
- US$29.6 million (AUD$45.6 million) if he is deemed to have been an executive resigning “without good reason”; or
- US$90.03 million (AUD$138.6 million) if Chernin is deemed to been an executive resigning with “good reason.”
The Proxy Statement provides that “good reason” includes any material reduction in Chernin’s employee benefits plan or fringe benefits, assignment of Chernin to any duties inconsistent with his status with the company, a change in Chernin’s reporting responsibilities or the replacement of Rupert Murdoch as CEO or Chairman of the company.
While News Corp has not specified the form of Chernin’s retirement, even under a worst case scenario, Chernin will collect US$29.6 million (AUD$45.6 million), largely in deferred compensation, after his departure from News Corp. Inclusive in Chernin’s termination payment is the right to use News Corp’s corporate jet for fifty hours per year (worth US$1.65 million) as well as the use of a vehicle, and possibly secretarial services.
However, not only will Chernin take home cash following his resignation, his employment agreement contains the unusual provision that, should Chernin become a full-time employee of an entity which derives more than 10% of its revenue from film or television production, he may require News Corp to:
Enter into a six-year motion picture agreement and a six year television production agreement with him. The motion picture agreement will provide for the purchase by the Company of at least two motion picture per year, and both the motion picture and television production agreements will contain terms relating to guarantees, fees and compensation at least as favourable as the most favourable agreements entered into by the Company and any other producer prior to August 1, 2004.
…During the term of the production agreements, Mr Chernin’s equity awards under his employment agreement will continue to vest or be paid out on their original schedule and Mr Chernin will continue to receive credit for age and service for the purposes of post-retirement benefits.
Given that Chernin is launching “a Fox-based production company”, he will sell product to News Corp and continue to earn equity awards (further diluting News Corp shareholders’ interest in the company), despite him no longer being an employee.
Last year, in an interview with Glenda Korporaal in The Australian Magazine, Rupert Murdoch stated that he “wouldn’t defend some of [the] obscene payments that have been made [to executives] in the past 12 months.” That is probably just as well. For even Rupert may have difficulty defending giving his COO remuneration of US$147 million, a termination payment of at least US$29 million and a six-year motion picture agreement, while the company last month announced a US$10 billion loss and its shares have dropped to levels last seen in 1993.