Sumner Redstone’s soggy CBS stock options

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While the world was bracing Sunday to see how markets would react to the government’s Wall Street bailout plan, at least one corporate board committee was looking ahead to sunnier days.

The Compensation Committee of the CBS Corp. board, in a rare Sunday meeting conducted by phone, paved the way for billionaire media mogul Sumner Redstone to become a bit wealthier by awarding him $6.85 million in stock options for his role as chairman of the old-line television and radio company.

The effective date of Redstone’s CBS stock options was Monday, the day the markets welcomed the government’s bailout plan by driving down the DJIA more than 372 points. CBS was not immune: Its stock sank to $15.39 per share. According to a filing CBS made with the Securities and Exchange Commission on Wednesday afternoon, that amount became the exercise price for Redstone to purchase 445,000 newly granted stock options. The options will vest in four equal installments in successive years beginning in September 2009.

And since Monday, CBS shares have dropped even further, closing Wednesday at a new low of $14.72 per share. Redstone’s new options, only three days old, are already underwater.

But Redstone, 85, is not one to bet against himself or his own companies. After all, he will be 89 when the final installment vests. Redstone, as he is fond of saying, expects to live forever, so that’s not an issue. And if CBS shares bounce back (they were trading at nearly $32 a share a year ago) he will have made a handsome profit.

Still, it doesn’t sit well with everyone. ‘There are a lot of questions for this company, such as what is the justification for such a huge option grant award, which dilutes the shares of everyone else who owns them?’ said Dan Pedrotty, who monitors executive compensation issues as director of investment for the labor organization AFL-CIO. ‘And also, why now, when the stock is trading so low?’

CBS bumped those questions to Redstone’s spokesman, Viacom Inc. executive Carl Folta. He points out that CBS restructured Redstone’s compensation package last year to more closely tie it to shareholder value rather than salary and bonuses. Folta downplays the timing, saying CBS routinely decides its executive compensation in September. What’s more, he says, CBS’s compensation committee reviewed the matter during a regularly scheduled board meeting last week.

‘The determination was made by an independent committee of the board,’ Folta said. ‘And this aligns Sumner’s interest with that of the other shareholders.’ The matter was simply formalized on Sunday.

— Meg James