In these times of major label mergers, downsizing,
slashing of label rosters, and thousands of record company jobs being lost over last three years--not to mention enormous sea change and seismic shifts that technology has wrought--comes one of most disturbing reports we have come across. It further reveals just how profoundly out-of-touch certain companies TRULY are when addressing problems within their own record divisions. The Financial Times reported 'Warner Music paid its top five executives more than $21m in salary and bonuses following last year's $2.6bn acquisition of US music group by a private equity consortium.' The article points out that Edgar Bronfman Jr, Chairman who led last year's buy-out, received a $1M salary and $5.25M bonus. Lyor Cohen, head of US recorded music business, received $1M and $5.24M in salary and bonus, respectively. Paul Rene Albertini, head of Warner's international operations, was paid $1.25M in salary and a $3.15M bonus. Departing Warner/Chappell CEO, Les Bider, received a $2.44M total payment.
These payouts include further guaranteed bonuses or change of control payments. According to documents filed with U.S. Securities and Exchange Commission, last year's total executive remuneration was more than three times higher than Warner Music's $7M operating income for 10 months to September 30th. The management payments reflect Warner's success in cutting costs following last year's sale of Music Group by Time Warner. The company expects to deliver $250M of annualized savings by May this year, achieved mainly through 1,600 job losses.
What is so truly disturbing here is that it speaks volumes about value system of an owner of a company that would pay its top-five Record Executives more than three times amount of operating income for a ten-month period while dismissing 1,600 employees.
What article failed to mention was that in addition to employee layoffs, Warner Music Group also dropped 93 of 193 artists signed to Warner Labels in US, approximately 47% of artist roster during this same period. If financial health of a company is truly so dire that it calls for these kind of dramatic and severe cuts for financial well being of company, how does one justify kind of staggering bonus payouts to top five executives in company? Don't get us wrong, we have no problem with executive compensation when it's tied to actually rewarding performance, but in this case, one is truly hard pressed to grasp or to understand what is actually being rewarded. The claim that Warner Music Group will save $250M of annualized savings mainly through decimation of 1,600 jobs is not something that we think should be financially rewarded.
On Feb 11th at Grammy Foundation Entertainment Law Initiative luncheon in Los Angeles, WMG Chairman Edgar Bronfman spoke to 460 attendees of luncheon, "We must employ our creative imagination - and we must resist temptation to conduct business as we always have - by experimenting with new approaches, new structures and new relationships, so that we can move more quickly and appropriately respond to ever-changing marketplace."
He went on to request that music attorneys bring a new level of creativity to deals they forge. "Your willingness to join with us is critical to success of our industry."
If only he had "resisted temptation to conduct business like we always have" and not given so much to so few while so many went without. In business, as in life, you lead through example. Mr. Bronfman, with all due respect, you need to have to have your own house in order before you have credibility to make a request like that to creative and legal communities.
In an open letter to Warner Music Chairman Edgar Bronfman, Carlos Anaia, a five-year Warner Music Group employee in London who was leaving company wrote, "We understand that you took on a huge task to turn around ailing, forgotten division of AOL Time Warner, but informing already morale-drained staff (via a third party - The Financial Times) that salary and bonuses that top five executives took individually equal more than 20 times my total lifetime salaried income (assuming I started at 18 and retired at 60), is somewhat more than insensitive. If you want to make us feel like maggots, you succeeded. Paul-Rene Albertini gets paid $4 MILLION in total? Hello!!? The only deals we are all aware of have all LOST money. Walt Disney Records? It's still more than $15 million unrecouped. Milan Records? A French turkey. Need I go on? What deals has this guy done that actually MADE money?"
Throughout my own career in music business, and especially in last ten years, I've always been fascinated by extremely disproportionate amount of money paid to CEOs in Entertainment Business. Being in music business for twenty-five years, we've seen Major Label CEO salaries/benefit packages go from $200,000.00 - $500,000.00 in salary and bonus payments in mid 1980's to literally ten-times that amount, and more, just eight to nine years later for same job.
Throughout 1990's, amount of money and compensation paid to CEOs and other top executives at film studios and major labels continued to reach new levels of financial absurdity, especially in area of severance packages (the part of their contract that kicks in if they are fired or "leave company for any other reason"). You want to know how absurd it's gotten? It's to point now where if you really stop and think about it, there's no real incentive for CEO's to try and succeed anymore, other than ego (which we do not underestimate as an extremely powerful and driving force in this business).
Why? Because today, we live in an era where more often than not, consequences of failure for a CEO have become far too financially lucrative! If you don't believe me, look back over last ten years and think about all of labels that have had regimen changes such as when EMI made Charles Koppelman CEO of its music division only to have entire EMI label close down a few years later with over 135 employees losing their jobs (many with just a two week notice) while Koppelman exited with well over $30M along with other contractual compensation.
Consider also revolving door of CEOs appointed by Gerald Levin (then CEO of AOL Time Warner) to run Warner's music division in mid 90's. Between 1994 and 1998, Warner hired, promoted and fired Doug Morris, Bob Morgado and Michael Fuchs to run Music Division. Each outgoing executive cost them between $15M - $25M.
