Blockbuster CEO to Exit With Less Cash

Blockbuster on Tuesday said it had settled its long-simmering pay dispute with Chairman and CEO John Antioco, striking a deal that calls for him to step down later this year with a reduced pay and bonus package.

Under the deal, the movie rental chain will pay Antioco a bonus of US$3.05 million for calendar year 2006, a compromise between the $2.28 million the board had previously offered and the $7.65 million he would have received under the terms of his original employment contract.

Antioco said he was "pleased" to have the matter settled. "This revised employment agreement allows for management continuity and ample opportunity for an orderly succession by the end of the year," he stated.

'Best' for Stockholders

Blockbuster board of directors member Carl Icahn said the agreement is "clearly in the best interests of the stockholders."

In addition to his 2006 bonus, Antioco will receive a severance payment of just under $5 million, a fraction of the $13.5 million he would have been entitled to had he resigned or been terminated without cause by the end of this year.

For 2007, he will be paid $1.25 million in salary, receive a bonus of $2.025 million and accrue deferred compensation of $1.45 million.

Messy Dispute

For Blockbuster, the dispute over Antioco's pay became a potentially messy disagreement at a time when the company can ill afford a distraction that takes its eye off the rapidly changing movie-rental business.

The dispute arose because of the terms of Antioco's original contract, which allowed for the board to reduce his bonus only by making findings that his performance was not up to par.

With increased attention on executive compensation, and with Icahn taking a seat on Blockbuster's board to fight to have more money funneled to shareholders, the company was searching for a solution that avoided a long and drawn-out fight.

Outraged over the pay package in place when he joined the board in 2005, Icahn fought to have Antioco replaced, but was unable to muster the proxy votes to force the company to act.

Other Firms to Follow?

Blockbuster's move to hold the line on the CEO's pay in a time of less-than-stellar performance for the company may encourage others to follow suit. In the past, many boards have rubber-stamped CEO pay packages even though they contained performance provisions.

Recent uproar, however, notably over the pay package of former Home Depot (NYSE: HD) CEO Bob Nardelli -- who stood to carry some $210 million away from his job on retirement, despite lagging performance by the retailer -- has brought new attention to the role of boards in such pay packages.

Shares of Blockbuster were lower Tuesday, falling 3.5 percent in midday trading to $6.86.

Blockbuster did not specific its plans for succeeding Antioco, though speculation is that the company is already grooming the next CEO. Who that person is and what their background consists of may give clues into the company's strategy for deal with new competitive challenges, from rent-by-mail options such as Netflix (Nasdaq: NFLX) to direct download services.

Antioco said he would use the rest of his time at the helm to focus on improving Blockbuster's performance, with an emphasis on the AllAccess program that gives subscribers access to DVD rentals by mail and in stores and the right to download digital content.

More Battles Ahead?

Blockbuster may be on the verge of an aggressive move into the movie download space, with published reports suggesting the company is close to a $50 million deal to acquire Movielink, a DVD download site backed by several major Hollywood studios.

Whether such an acquisition is made or not, Antioco has promised that Blockbuster will not a late arriver at the direct download party, the company eager to avoid the come-from-behind scenario now playing out in the DVD-by-mail sector, where it launched its service some four years after Netflix.

Meanwhile, some analysts believe Icahn is not finished pushing for changes at Blockbuster.

The CEO pay dispute may have been a lever for Icahn to speed up the company's transformation into more of a streamlined, Web-based business, Wedbush Morgan analyst Michael Pachter told the E-Commerce Times.

"Icahn is impatient with the pace of Blockbuster's restructuring," he said, adding that Icahn may use the successor search to push for a plan to pay down debt and increase shareholder value.