This Controversial Tax Benefit Means Warner Bros. Discovery CEO David Zaslav Could Score a Payday of Over $800 Million |
This Controversial Tax Benefit Means Warner Bros. Discovery CEO David Zaslav Could Score a Payday of Over $800 Million
Excise tax gross-ups have grown less popular over the years, but Paramount’s winning acquisition bid now includes one.
BY BRIAN CONTRERAS, STAFF WRITER @_B_CONTRERAS_
David Zaslav. Illustration: Inc.; Photo: Getty Images
If everything lines up right in Paramount’s acquisition of Warner Bros. Discovery, David Zaslav could make over $800 million, a recent securities filing suggests.
That’s in large part thanks to a controversial contractual mechanism known as an excise tax gross-up. The Warner Bros. CEO stands to make about $504 million if the deal closes, the Wall Street Journal reports, plus as much as $335 million from the tax gross-up if a 20 percent federal tax is levied on the chief executive’s earnings–for a total of $839 million.
An excise tax gross-up finds a company increasing, or “grossing up,” severance and other payments as a sort of reimbursement for government taxes.
It’s not yet certain that Zaslav’s gross-up will actually happen: Warner Bros. said in a filing made late Monday that Zaslav won’t have to pay the excise tax if the merger closes next year, which would save Paramount from having to reimburse him, per Wall Street Journal reporting. (However, Paramount has already said it’s planning on closing the deal later this year, the outlet notes. Warner Bros. expects the value of Paramount’s gross-up to “significantly decline with the passage of time.”)
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The executive compensation consultancy Pearl Meyer noted in a 2022 blog post that excise tax gross-up provisions are controversial among boards and have seen decreased use in change-in-control and severance plans since the 1990s. Nevertheless, the consultancy adds, companies will sometimes embrace them in the lead-up to an expected transaction.
A study of over 900 transaction disclosures by Pearl Meyer, for instance, identified 50 instances of companies adding at least one excise tax gross-up provision “shortly before the closing of a transaction.”
“Warner’s board agreed to pay the tax gross-up on March 10,” the WSJ reports. “The board’s compensation committee said the cost of the tax reimbursement would be borne by Paramount after the deal closes, not by Warner’s shareholders.”