Why Warner Bros. CEO David Zaslav Is The Biggest Winner Of Paramount Merger

Paramount has agreed to buy Warner Bros. Discovery for $110 billion. WBD's top executives are set to become some of the biggest winners of this deal. Now, when a company is acquired, its highest paid executives are sometimes let go. They're often contractual agreements in place called change of control clauses that guarantee significant pay if in fact they are ousted. This is called a golden parachute. Warner Bros president and CEO David Zaslav's golden parachute could reach close to $900 million. Now the cash severance is set around $35 million and the stock package at around $515 million. But the company says it could also give Zaslav another $335 million in tax reimbursements. There's a special tax law called the excessive golden parachute tax. Now this is an excise tax on any golden parachute that is more than three times the base salary of an executive. So if you make $1 million on a typical year and your golden parachute is more than $3 million, you pay a 20% tax on that. So when these laws were first passed in the 1980s, the goal was to prevent companies from overpaying executives when they were acquired because they were getting these huge parachutes. In fact, two things happened. One is that rather than restricting payments, companies said, well, three times the pay is the limit. So they went right up to that three times, in fact, often paying them more than they would have because of this law. The other impact is that rather than having the executives pay their personal tax bill, in this case, the 20% companies decided to start what they call grossing up the payments. And it's the companies paying the taxes on what the government considers excessive pay to the executive. So in some ways, the original law had the opposite effect. Compensation packages went up, the golden parachutes got bigger, and the taxes were paid by the companies, not the executives. What's unusual about this is the size. The company is not only giving him $500 million to leave, he's also getting his tax bill paid for by the company and therefore shareholders, in this case, the new shareholders or the acquiring company, Paramount. The tax payment decreases over time and will be zero if the deal closes in 2027. That would bring the value of Zaslav's total payment down to only around $660 million. If David Zaslav can close this quickly, it'll add a golden safety net to his golden parachute.