I suppose it's the sheer magnitude of dollars involved that gives me pause. I'm talking about Tuesday's announcement that Sirius Satellite Radio (Nasdaq: SIRI) had bestowed a stock bonus worth $83 million on shock jock Howard Stern a little more than a year after he'd been lured to the company by a five-year, $500 million deal.
So Stern's effective pay for his first year with Sirius was ... well, you can do the math. It appears that the bonus was agreed upon when the ribald Stern signed on with the company. Sirius then had roughly 600,000 subscribers, and analysts had predicted that its audience would expand to 3.5 million by the end of 2006. The company and Stern agreed to an extraordinary bonus should the actual count exceed that prognostication by at least 2 million subscribers. It further appears that Stern's deal includes additional stock-based bonus opportunities, although the "bogeys" for realizing those payments reportedly are progressively steeper and more difficult to achieve.
Sirius, like its head-to-head competitor XM Satellite Radio (Nasdaq: XMSR), is growing but unprofitable. Both companies are spending actively to improve their technologies and sign other big entertainment names such as Oprah Winfrey and Martha Stewart. Sirius said that Stern's bonus would not increase its diluted share count, and that expenses associated with the payment have been accrued throughout the past year.
What should we take away from the bonus payment? Perhaps nothing. But at the same time, it's a possibly outlandish payment to an individual by a still-struggling corporation whose shareholders have watched their stock price cut nearly in half over the past year. And while Stern is an entertainer, not an executive -- a talent, in the vernacular -- his bonus nevertheless comes against a backdrop of growing concern about exorbitant executive compensation.
That subject, which now has Congressman Barney Frank (D-MA) sponsoring a bill that would require shareholder approval in the awarding of executive pay packages, was covered admirably in a piece earlier this week by my Foolish colleague Rich Duprey.
Rich's mention of Home Depot's (NYSE: HD) former CEO Bob Nardelli still carries news immediacy. But the departure of KB Home's (NYSE: KBH) longtime CEO Bruce Karatz, a distant 60 days in the past, is less prominent. Karatz was forced to walk away from that company -- with a reported $175 million -- following the disclosure of "errors in the reporting of stock option grants."
I don't mean to imply that there is the slightest smell of malfeasance associated with Stern's bonus. It's simply a numbers thing: In a world where workers' pay barely matches the upward march of the cost of living, some top executives' compensation packages just seem out of whack at first glance. Case in point: former ExxonMobil (NYSE: XOM) CEO Lee Raymond, whose (planned) departure from that company found him lugging several hundred million dollars out the door.
This clearly is an issue with legs, and as Rich notes, one that demands attention from corporations and their boards. With Congressman Frank already on the case, I don't want to imagine the ramifications of further federal oversight on anyone's pay.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your comments or questions.
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