Annual Meeting: June 11, 2020

Robert A. Kotick, CEO of Activision, received $30,122,896 in compensation in 2019, over twice what the median S&P 500 CEO made. This did not go unnoticed.

CtW Investment Group submitted an SEC filing urging investors to vote no on the company’s “Say-on-Pay” proposal. CtW notes that over the last four years “Kotick has received over $20 million in combined stock/option equity per year. These equity grants have consistently been larger than the total pay (the sum of base salary, annual bonus, and equity pay) of CEO peers at similar companies.” CtW calculates that during the same period, Kotick received a total of $96.5 million in equity awards. In 2019 alone, he received over $28 million in equity grants, primarily consisting of over $20 million in options.

“While equity grants that exceed the total pay of peer companies would be objectionable in most circumstances,” CtW notes, “it is of special concern in this case because Activision Blizzard employees face job insecurity following layoffs of 800 employees in 2019, and typically earn less than 1/3 of 1% of the CEO’s earnings, with some employees, such as Junior Developers, making less than $40,000 a year while living in high-cost areas such as southern California.”

CtW also argued that the structure of Kotick’s employment agreement is “antithetical to pay for performance” because it allows “’multiple bites at the apple’ for past unearned equity, as well as acceleration of equity that hasn’t yet vested.” After reviewing the many additional incentives in the agreement, they had this to say on “Transformative Action” awards: “There is no justification for providing an executive with additional incentives to pursue a merger or similar strategic transaction when that executive has already accumulated substantial holdings through equity grants.” If a CEO needs this much incentive to simply do their job, maybe they shouldn’t be in the position?

CtW cited Institutional Shareholder Services’ (ISS) analysis of Activision’s equity compensation plan in its filing: “ISS points out that financial targets were set below the prior year's goal targets and actual results without a corresponding reduction in payout opportunities.”

Activision submitted a filing in response to ISS’ analysis and argued that it was faulty largely because of the peer groups it selected. Activision focused specifically on the omission of Netflix, “Our Compensation Committee does, however, consider a company like Netflix, to be a key comparator since Activision Blizzard and Netflix are both in the business of creating and distributing digital entertainment and, in fact, we compete and have competed with Netflix for key executive talent, including a previous NEO.”

I wrote about the many issues with Netflix’ CEO compensation in a previous blog: “In late 2017 Netflix became the poster child for high cash compensation when it announced that it would respond to changes in the tax code (section 162m) by moving to extraordinarily high cash compensation. The salary of the Chief Content Officer increased from $1 million to $18 million. In 2017, over 95% of shareholders had supported Netflix compensation, the next year that level of support fell to 61%. Over 34% of shareholders voted against the plan, making their objections very clear. Netflix did not listen and in 2019, 50% of shareholders voted against the package.” I also warned that “One problem with these extreme payments is that they pave the way for others to ratchet up compensation.” ISS rightly sees Activision’s choice for Netflix as a peer company is problematic here.

Activision workers make a median pay of $94,308 per employee; the pay ratio of CEO to employee is 319:1.