Sirius XM Radio (NASDAQ:SIRI) is locking up CEO Mel Karmazin for a few more years, regardless of the sorry performance of the satellite radio provider's stock under his reign.

Sirius XM isn't simply extending Karmazin's contract through the end of 2012. It's also bumping his annual salary 20% higher to $1.5 million and granting him a whopping 120 million options that will begin vesting at the end of next year at a strike price of $0.43 a share.

Shares of Sirius XM closed at $4.72 the day before he was introduced as CEO nearly five years ago. Yesterday's close is 90% lower than Karmazin's starting line at the company. The options can be exercised at a cruel 91% discount to the $4.72 price tag.

In short, if Karmazin is able to elevate Sirius XM's share price simply to where it was when he took over as CEO, he'll be looking at a $514.8 million profit on the options.

It doesn't seem fair, does it? Why are we rewarding failure? He's actually benefitting from the pocket-change price that creates a dirt cheap exercise price on the options, right?

Oh, please.

Karmazin is still the right guy for the job. Can you think of any seasoned radio vet who would have even attempted to merge Sirius with XM? Without the combination, one -- or perhaps both -- of the companies would have probably wiped out common stock investors in a bankruptcy reorganization.

The 90% plunge is painful, but have you scoured the handful of survivors in terrestrial radio? Shares of Cumulus Media (NASDAQ:CMLS) and Entercom (NYSE:ETM) have fallen 94% and 95%, respectively, since Karmazin was tapped to head up Sirius XM.

No, this isn't a good time to be a broadcaster.

Did Sirius overpay for Howard Stern or the NFL? It's debatable, but it's moot. Those deals were struck before Karmazin joined the company. Ultimately, the merger will make it easier to negotiate better content deals. It no longer has to bid against itself for exclusive satellite radio rights.

Did Karmazin fumble the hyped Apple (NASDAQ:AAPL) application? Yes. It's overpriced in the streaming niche, and launching without Howard Stern is a mistake.

Still, who would you prefer running Sirius XM? Former XM chief Hugh Panero? Liberty's (NASDAQ:LCAPA) John Malone, with his 40% stake in the company? Any of Karmazin's cronies from Viacom (NYSE:VIA) or CBS (NYSE:CBS)?

Perish those thoughts. Karmazin's the right man for this turnaround job, especially now that Sirius XM is becoming more of a nitty-gritty operating-margins improvement story than a growth stock.

If Karmazin's able to cash in those options in a few years for hundreds of millions of dollars, there will be plenty of Sirius XM investors who will be too busy counting their own profits to care.

Well played, Sirius XM.

Other ways to slice and dice satellite radio fandom: