Universal Music Group CEO Lucian Grainge is facing renewed pressure from investors over his “excessive” compensation package, with leading proxy research firm Glass Lewis saying that it has “severe reservations” about Grainge’s compensation which UMG shareholders will vote on - as part of an agenda item relating to executive remuneration - at the company’s AGM in just over a week, on 16 May.
However, the agenda for the AGM makes it clear that next week’s vote on the 2023 remuneration report - which sets compensation for Grainge and other senior executives - is simply an “advisory vote” rather than a binding resolution.
More than 60% of Universal’s shares are held by institutional investors. A Tencent-led consortium holds the largest institutional stake at 19.92%, while investor Vincent Bolloré has a 18.01% stake. Hedge fund investor Bill Ackman holds 10.26%, and Vivendi - UMG’s original owner before the company was spun out - 9.98%. In July 2023, Fidelity Investments - a US fund manager - passed the 3% threshold needed to add an agenda item to the AGM.
At last year’s AGM, investors representing 941.8 million shares voted for the amendment to Grainge’s pay, while 653.5 million voted against. This means almost 41% of shareholders were unhappy with the new pay deal. This came after another warning from Glass Lewis and Institutional Shareholder Services - another company that advises institutional investors - that his pay package should be rejected.
With next week’s vote only advisory, the board of UMG will not be legally required to change the way Grainge’s compensation is structured if a significant proportion of shareholders object. However, a small increase in those voting against could bring that advisory vote within sight of 50% of shareholders, which would cause significant governance and PR issues for Universal - and potentially Grainge’s wallet - leaving the company on the back foot and in need of ways to placate discontented shareholders.
Just before last year’s AGM, Grainge entered into a new pay deal that saw his base salary slashed from €16.2 million to a mere €4.6 million but also brought in a number of changes to his ‘short-term incentives’ - or STIs - and ‘long-term incentive’ - or LTI - bonus provisions. A key part of this change was to “better align” Grainge’s remuneration “with shareholders’ interests, including a change to a more performance-based and share-based remuneration package”.
Between 2020 and 2022, Grainge received a total of around €138.5 million in salary and other benefits, with his base salary coming in at €13.6 million in 2020, €13.2 million in 2021 and €15.4 million in 2022.
On top of this, according to Glass Lewis, Grainge “received three payments” totalling €258,096,561” from Vivendi in 2021 “for achieving certain milestones pre-IPO and securing strategic investors”.
According to corporate filings made at the time of Universal’s IPO, Grainge was entitled to various benefits on top of his salary, including a housing allowance of €418,200 - plus tax liability - as well as “the use of a car, with a driver, for business and reasonable private use” as well as use of a private jet for business travel “subject to requiring approval for any such usage in excess of €410,000 per annum”. Grainge was also entitled to life insurance and international health insurance “for his family”.
As part of the new compensation package - which also saw Grainge’s tenure as UMG CEO extended through to May 2028 - Universal’s board made a “one-time transition award” that is worth up to €92 million in equity in the company. Half of this award - €46 million - is linked to continued service at Universal, while the other half is based on the company clearing various share price hurdles. With those hurdles placed at €26.50, €30 and €38, Grainge has already snagged around €15.3 million in additional shares, and is just inches away from a similar grant as the share price hovers around the €29.30 mark.
On top of this, Grainge is eligible for an annual cash bonus - as a short term incentive - with a “target payout” of €9.2 million - and possible maximum of €13.8 million - based on a combination of revenue growth and EBIDTA growth. As part of his long term incentives he’s also entitled to as much as €18.5 million, half of which is based on the company achieving various thresholds.
Overall, including base salary, Grainge is able to make around €37 million in salary and stock-based compensation, excluding the additional €92 million “transition award”.
By comparison, Robert Kyncl, CEO of Warner Music Group, made $2 million a year in base salary in 2023, with a cash bonus of $2.3 million and stock grants of $15.3 million. Including other benefits, his total compensation for the year was $20.4 million - or about €18.9 million converted to Euros at today’s rates.
As part of their decision making process, UMG’s board “took into consideration its belief” that Grainge’s “unique position of leadership in the music industry” would be in the best interests of UMG, its shareholders, and stakeholders in the company.
Grainge’s salary was also benchmarked against CEO pay at a number of other media, entertainment and technology companies, with the board looking at compensation practices for video games companies Activision Blizzard and Electronic Arts; cable and satellite network operators Altice and DISH Network; media companies Discovery, Fox, and NewsCorp; video streaming platform Netflix, as well as Live Nation, Sirius XM and Warner Music Group.
In a report published in November 2023, US-based shareholder advocacy not-for-profit As You Sow said that the CEOs of Live Nation, Netflix, Fox and Warner Bros Discovery were among the 100 most overpaid in the US.
More tellingly, 81% of institutional shareholders - and 54% of reported shares - voted against Live Nation boss Michael Rapino’s $139 million compensation plan, while 71% of institutional shareholders and 71% of reported shares voted against the pay package of Netflix co-CEOs Reed Hasting and Ted Sarandos.
In 2021 shareholders in Activision Blizzard - now owned by Microsoft - narrowly backed CEO Bobby Kotick’s $155 million pay package by 54%, but only after pushing back the shareholder meeting in a move that the FT said “critics described as an effort to avoid an embarrassing rebuke”. Glass Lewis had also issued a report advising shareholders to vote against the company’s remuneration report.
Late last year, Universal announced a swathe of lay-offs across its business, described by Grainge to investors as a “cut to grow” strategy which would see hundreds of UMG employees lose their jobs as part of a drive to “cut overheads in order to grow elsewhere”.
That said, with UMG’s share price up considerably from the IPO “reference price” of €18.50 per share, some may argue that Grainge’s compensation is justified. Whether or not shareholders agree at the AGM on 16 May remains to be seen.
