Activision Blizzard Inc. and its shareholders have been at odds about the chief executive’s compensation for years, but as CEO Bobby Kotick’s 2020 pay package hit more than $150 million while the videogame publisher company laid off employees, the battle turned into an all-out war.
At its annual general meeting last week, the “Call of Duty” publisher hit the pause button on an investor vote on its executive compensation, delaying it for a week. Investment firm CtW Investment Group, which had urged shareholders to vote against the “say on pay” proposal, called the company’s move a “desperate attempt to avoid a loss.”
Michael Varner, director of executive compensation research at CtW, told MarketWatch that “while legal, this maneuver is unusual and in poor taste.”
On Monday, Activision
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“We are pleased that, based on exceptional shareholder returns and responsiveness, Activision Blizzard shareholders again approved our say-on-pay proposal and re-elected our Board directors with an average of 96% of votes,” a spokesman for the company said. “The additional time shareholders requested allowed them to thoroughly review the facts about Activision Blizzard’s rigorous pay-for-performance compensation practices as well as changes the Board made to our executive compensation based on extensive feedback from shareholders.”
Varner said the company will not be able to “rest on their laurels” with the changes it has made so far. “With only 54% of votes cast in favor, the proposal nearly failed to receive majority support –– it appears Activision did just enough arm-twisting for the measure to pass,” he said, adding that say-on-pay votes in the 50% range are very rare.
“This marks the sixth time in the past eight years Activision has received less than 70% support for its Say on Pay proposal, and the 2021 vote is the lowest support the company has received on this proposal in its history,” Varner said.
The battle at Activision is part of a swelling uprising in the videogame industry, which has long put employees through high-pressure, long-hours stress periods known as “crunch” while finding new ways — “lootboxes,” “expansion packs” and more — to siphon money from their fans. The tactics have made investors rich — Activision stock is up 149% since 2016, while shares of Electronic Arts Inc.
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For example, in its 2021 proxy filing, Electronic Arts addressed the fact that its say-on-pay proposal was approved by a mere 26% of shareholders last year. EA noted that it granted no special equity awards in 2021 after its August 2020 annual meeting.
Activision acknowledged in its proxy filing that its compensation proposal received just 57% of shareholder votes in 2020, and said it had “substantially greater” engagement with investors last year — holding more than 70 meetings — because of it. The company said it and Kotick agreed to halve his base pay for 2021 from $1.75 million to $875,000. But Kotick got almost $150 million in long-term stock awards, partly because of the company’s strong stock performance, bringing his total compensation to $154.6 million.
In its notice of exempt solicitation filing urging shareholders to vote against the Activision proposal, CtW said that while Activision tried to address shareholders’ previous concerns about Kotick’s compensation by amending his contract, it wasn’t enough.
“Given the repeated opposition to Activision’s pay over the years, shareholders expect sustained change in CEO Kotick’s compensation over a longer time period than merely one year,” CtW said in its filing with the SEC. “The short contract extension does not represent a strong enough effort on the part of the compensation committee to truly [rein] in Mr. Kotick’s continued outsized equity pay.”
Varner told MarketWatch that CtW isn’t disputing Activision’s success or Kotick’s contribution. But he said “there’s myriad people responsible for video games’ success,” and added that the company’s most recent success is attributable to the coronavirus pandemic. “Most people’s activities were shut down, so that helped Activision,” Varner added.
Activision shares have risen 21% in the past year, but are down about 0.8% year to date.
Influential proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services had also urged shareholders to vote against Activision’s say-on-pay proposal.
In its proxy research report for the company, ISS called Kotick’s compensation “outsized.” It also expressed concern over new Chief Operating Officer Daniel Alegre’s pay, including that his base pay is “above the company’s peer median for the CEO position” and that the company provided “a problematic life insurance perquisite to the executive’s spouse.” Alegre’s total 2020 compensation was $12.6 million.
Kotick has been at the helm of Activision for three decades. In 2007, Activision merged with Vivendi Games, which owned Blizzard Entertainment. According to Equilar research, Kotick has received $461 million in total compensation since 2007, about $300 million of it in stock. His pay package in 2021, which was more than five times his compensation of $30.1 million in 2019, surpassed his previous record of nearly $65 million in 2012.
Varner, of CtW, said there has been “an overemphasis on performance equity at the expense of pay quantum.” He said companies justify paying their executives a lot no matter what.
According to a recent New York Times report, the gap between worker and CEO pay widened during the coronavirus pandemic, with chief executives making 274 times their employees’ median pay in 2020.
“When performance is going very well, companies are granting equity for strong performance,” Varner said. “When stock performance is dropping, they’re giving money for retention. Where does it stop?”