The $887 Million Question: How a Tax Rule Designed to Curb CEO Pay Fueled a Massive Payout
Warner Bros. Discovery CEO David Zaslav stands to receive a staggering payout exceeding $800 million if the planned acquisition of his company by Paramount Skydance closes. This potential windfall, detailed in SEC filings, has reignited debate over a complex corporate tax provision originally intended to rein in excessive executive compensation during takeovers.
Breaking Down the Potential Payout
According to regulatory disclosures, Zaslav’s compensation package triggered by the change of control includes several components. The core severance and equity awards total approximately $667 million, comprising about $500 million in share awards, $115 million in vested stock, and $34 million in cash. The figure that pushes the total toward $887 million is a separate, potentially massive payment: up to $335 million to cover the “golden parachute” excise tax.
How the “Golden Parachute” Excise Tax Works
This 20% tax was established by Congress in the 1980s. Its trigger is specific: it applies when an executive’s total change-of-control payout exceeds three times their average annual base salary and target bonus. For a CEO like Zaslav, whose base salary is a fraction of his potential equity awards, this threshold is easily breached in a major acquisition.
In a critical twist, the acquiring company—Paramount Skydance in this case—agreed to “gross up” Zaslav’s compensation. This means Paramount will pay the excise tax on his behalf, a reimbursement that phases out completely if the deal closes after 2027. Paramount’s board stated this gross-up was necessary to put Zaslav on equal footing with a prior, unsolicited proposal from Netflix, which would not have triggered the parachute tax. They also clarified that the cost of this gross-up would be borne by Paramount, not Warner Bros. Discovery shareholders.
A Rule With Unintended Consequences
Rather than limiting CEO wealth, many corporate governance experts argue the rule has had the opposite effect. As stock-based compensation became the norm for top executives, the value of parachutes ballooned, making them “increasingly lucrative, platinum in many cases,” according to Jeffrey Gordon, co-director of Columbia Law School’s Ira M. Millstein Center for Global Markets and Corporate Ownership.
Gordon’s analysis highlights a key paradox: the tax creates a financial incentive for CEOs to pursue or accept sale deals that trigger their full payout, while the acquiring company often feels compelled to cover the tax to secure the executive’s cooperation. This dynamic can lead to escalating costs for the acquirer and, ultimately, its shareholders, without necessarily benefiting the broader workforce facing layoffs post-acquisition.
Correction: Paramount Skydance is acquiring Warner Bros. Discovery. A previous version of this story mischaracterized the deal.
