Mays brothers take pay cut


They haven’t lost their jobs like 1,850 others at Clear Channel Communications, but CEO Mark Mays and President/CFO Randall Mays have agreed to cuts in their base pay and potential bonuses. Also, to conserve cash, the company has elected to pay the interest on some of its senior notes with more notes.

Rather than the $875,000 per year base pay ($895,000 for Mark) specified in the five-year contracts they signed last summer (when the buyout closed), the Mays brothers have agreed to cut that to $500,000 for 2009. For 2010 through the end of their contracts, the base pay will be $1 million. The contracts previously called for annual raise reviews by the compensation committee of the board of directors.

The bigger cuts, though, are in the bonuses the two are eligible to receive. Gone are the minimum performance bonuses of $6.625 million for hitting at least 80% of budgeted OIBDAN (Operating Income Before Depreciation, Amortization and Non-cash compensation). OIBDAN is the metric that had been preferred at Clear Channel in recent years of Mays family control. Instead, each executive will be eligible for an annual performance bonus ranging from zero to $4 million, based on the percentage target of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) achieved. EBITDA is a metric more commonly used on Wall Street. Under the new arrangement, achieving 100% of target EBITDA would have each Mays brother receive a performance bonus of $2 million – the center of the bonus range.

The contract revisions were filed with the SEC as Clear Channel’s parent, CC Media Holdings, also reported Tuesday’s firing of 1,850 employees, 9% of its workforce, which it said is part of restructuring designed to cut fixed costs by $350 million per year. The company said it expects to incur approximately $200 million in one-time charges due to the restructuring.

CC Media reported that for the semi-annual period beginning February 1st, it has elected to pay interest on its 11.00%/11.75% Senior Toggle Notes due 2016 entirely by payment in kind (PIK) – in other words, more notes rather than any cash interest. The issue has $1.33 billion in principal of the issue outstanding. Under the terms of the notes, the company can elect to pay all cash, all notes, or half and half but must make that election at least 10 business days prior to the beginning of each interest period. If no election is made, the terms from the previous period continue. So, the interest payments will now be 100% PIK until such time as CC Media makes a new election.

The PIK election permits Clear Channel to hold onto more cash in the current tough economy. However, it also increases the company’s debt load going forward.

RBR/TVBR observation: It’s a bit surprising that the company didn’t announce the Mays brothers’ pay cuts to employees as it made Tuesday’s staff cuts. At least the top two executives are sharing in the pain to some extent.