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As Music Industry’s Fortunes Rise, So Do Warner Music Group’s Executive Payouts

One consequence of the music industry's accelerating growth for the ownership of the Warner Music Group: the amount the record company must pay some of its top executives is increasing accordingly.

One consequence of the music industry’s accelerating growth for the ownership of the Warner Music Group: The amount the record company must pay some of its top executives is increasing accordingly.

Ever since 2012, the year after billionaire Len Blavatnik’s holding company, Access Industries, bought Warner Music Group in 2011, top management have been given a choice on how they receive extra compensation above their base salaries. They can agree to a target bonus that is spelled out in a dollar amount, and while the target amount may change, they are locked into that option for the length of the contact. Or, they can receive a specified percentage of a free cash flow pool (the amount of cash generated from operations and left over after all cash-based expenses are paid).

With the latter arrangement, executives are betting on improving company performance that would result in higher bonus payouts. Moreover, they are allowed to defer some of those payments by taking WMG stock instead, potentially seeing these payments further appreciate in value and reaping bigger payouts when redeemed, as some have already been doing.


Last year, employees who chose the latter arrangement hit a home run as the company paid out $102 million in compensation: $70 million in equity-based compensation; $30 million from the growing free cash flow pool; and $2 million in dividends. The latter two categories, which total $32 million of that, were paid in cash, while the $70 million measures an increase in value of WMG stock held by employees not yet redeemed. The company bonus compensation plan also offers matching equity consideration to senior management, although it’s unclear if any such stock grants have been made thus far.

In the last four years, the free cash flow pool has grown to $481 million in 2017 from $321 million in 2016; $174 million in 2015; and $54 million in 2014. That compensation option calls for the company to pay up to 7.5 percent to the employees from the free cash flow pool, though that percentage appears to be at the discretion of management and the individual payment percentages comprising that 7.5 percent vary by employee. 

Blavatnik set up the cash-flow-pool compensation plan at a time when the industry’s revenues had been on the decline for more than a decade, as a way to give top execs some “skin in the game,” one source tells Billboard. Without such a scheme, he was skeptical that the company’s top executives would have enough incentive to turn the company around, given their already-high salaries, company executives told Billboard at the time.


But it took time to develop the new compensation plan, and ownership’s hesitancy to continue greenlighting big salaries without tying compensation to company performance resulted in several executive defections from the company, sources said then.

The free cash flow pool compensation plan was first acknowledged in the company’s 2012 10-K filing and implemented for 2013, and now appears to be paying off handsomely for the executives who stayed on and chose to participate in the pool.

Some sources close to the company at the time said it didn’t anticipate the strength and speed of the current turnaround when the plan was structured, and bet that the plan is creating a bigger drain on company profits than expected. But WMG’s top brass believes the compensation option tied to the company’s performance will continue to help the company going forward — even though it will cost more — by aligning the objectives and rewards of management and the shareholders, sources tell Billboard.

“This plan now catches up and brings WMG executives in line with the industry payment levels, after years of initially being underpaid for their gamble,” says a former WMG executive, who is familiar with the company’s compensation plans.


Max Lousada, who assumed the role of CEO of WMG’s recorded music operation on Oct. 1, appears to be betting he can help deliver more growth to come, apparently opting to switch from the targeted bonus to the free cash flow pool for his new contract ending in 2022, according to Billboard’s analysis of the contract filed with WMG’s 10-K filing for the year ended Sept. 30, 2017. Lousada will receive a base salary of £4 million ($5.35 million) annually, and as part of that contract, Lousada gets first-class international travel, subject to approval, and a £520,000 signing bonus, or $694,000, according to the filing, which doesn’t specify what share of the pool he will receive going forward. Lousada is scheduled to receive his 2017 target bonus of £2.4 million ($3.21 million) in January.

WMG CEO Stephen Cooper’s fiscal 2017 compensation includes $12.03 million from the so-called non-equity incentive compensation plan; and another $2.18 million in cash dividends, for total compensation of $15.206 million in cash. (Cooper commands a base salary of $1 million, down from prior years when his base salary was $2 million, which both are well below industry levels for the head of a major music company. Although Cooper has been leading the company since Blavatnik’s 2011 leveraged buyout, he was paid as a consultant until the end of fiscal 2016, and is now a WMG employee.) The payouts to Cooper disclosed in the 10-K are only related to his WMG employment; and do not include any other compensation he may be paid as a consultant to Access Industries.

If Cooper is terminated without cause or if he resigns for good reason, Cooper will receive a $32.31 million payout from deferred compensation, an amount he will also receive if there is a change in ownership control instead. In both instances, he would also receive whatever his payout is from the free cash flow pool that year. Cooper’s employment terms call for him to receive 2.5 percent of the free cash flow pool, the same percentage as last year and up from 2 percent in 2015 and 1.5 percent in both 2014 and 2013. Cooper had to take that payout in cash this year, but in 2015 and 2014, he chose to take his free-cash-flow-pool bonus in equity.


Not all of WMG’s top executives share in the free cash flow: Warner/Chappell’s chairman/CEO Jon Platt, for example, instead receives a targeted-bonus equivalent to his salary, and he appears to be locked into the targeted-bonus scheme until his contract expires Sept. 30, 2020, according to the filing. It isn’t clear whether he would have earned more this year in the free cash flow pool, because those earnings would depend on what percentage of the pool that might have be offered to him. Some execs who were invited into the pool opted not to participate because the risk seemed too great, according to sources, and not all execs were given the option to join. 

WMG’s CEO of international and global commercial services, Stu Bergen, though, earned more than double his base salary from the pool. Bergen’s total compensation in fiscal 2017 was $4.16 million: $1.25 million in base salary; $2.43 million in the incentive compensation plan; and $486,000 from stock dividends. He also appears to have received nearly $1.2 million from the pool that he chose to defer by taking it in stock; his 0.75 percent of the free cash flow pool worked out to nearly $3.61 million in 2017.

While Bergen is an at-will employee, if he is terminated without cause or for a good reason, or if he resigns for a good reason, he would receive an $8.26 million million payout — an amount he would also receive if there is a change in ownership control instead. In both instances, Bergen would also receive whatever his payout is from the free cash flow pool that year.

Warner Bros. Records’ outgoing chairman/CEO Cameron Strang, meanwhile, appears to be receiving a $4.81 million payout for fiscal 2017, based on his one percent allotment from the free cash flow pool, plus whatever deferred compensation in the form of equity he has accrued over the years. He has also been removed from the company’s board of directors, a position he has held since 2012, while Platt and Lousada have been added to the board.