Activision Blizzard’s chief executive officer, Bobby Kotick, has become the focus of criticism for a reported payout of nearly $66 million over the next three years.
The Los Angeles Times reported this week that Kotick was awarded the largest pay package ever paid to a U.S. CEO in 2017, largely because of a stock bonus that can be used to fund a big payout for his 2018 shares. That’s likely to be the largest in the industry.
Activision stock has risen more than 50 percent since the start of 2016, and by about the same in the past year alone. This is good for the earnings of Kotick, who has built a successful gambling company, King Digital, partly through a string of successful releases on Android and IOS devices.
Some analysts criticized Kotick for stock awards that are more than five times his base salary for the past several years. Another said that awarding him a stock bonus would encourage more bad behavior as more CEOs raise salaries.
Activision Blizzard did not respond to request for comment. The company’s shares rose less than 1 percent in Monday trading, making it the best-performing publicly-traded video game company.
Activision Blizzard is best known for its “Call of Duty” series, as well as titles like “World of Warcraft,” which has about 12 million subscribers. The “Call of Duty” series was renewed for three games, all of which came out in 2016. The first “Call of Duty” game came out in 2003. Activision Blizzard also made a deal with Electronic Arts to produce new games for the Microsoft HoloLens augmented reality headset and has several other initiatives underway.
Kotick earned a base salary of $20 million in 2016, and the stock awards last year put his total pay package at $76.9 million.
Activision Blizzard shareholders will have a chance to approve Kotick’s pay package at a special meeting. If they don’t approve it, then Kotick will go before the full board of directors to argue that he was justified for the pay. That’s the standard for any multi-million dollar pay package, according to Sean McGowan, the analyst at Needham & Co.
Activision’s tax-loss carry-forward will expire in 2025. The company is poised to make a big push into virtual reality. Last year, the company announced that it was working with Sony to bring “Titanfall” to PlayStation 4. It also has “Ghost Recon Wildlands” and “Rise of the Tomb Raider” coming this year, and plans to have two titles available for Google’s new Daydream VR headset.
Activision Blizzard’s board is an experienced bunch, though one major question is how Kotick will be treated. “Kotick has a good reputation among shareholders,” McGowan said. “But he’s [also] the chief architect of all this stock-based compensation. The question is, should he take it on?”
Activision’s board of directors is a star-studded panel made up of investment and public relations experts. McGowan called Kotick’s pay package “unsettling.”
Activision Blizzard’s biggest rival, Electronic Arts, has just had a significant reorganization after a scandal involving its chief executive, Andrew Wilson. In January, the company fired Wilson after an internal investigation determined that he had been involved in sex parties with subordinates at a San Francisco residence rented by another EA executive.
Wilson reportedly received a severance package worth about $76 million. “It’s a big payout,” McGowan said, “just a five-to-six-year deal from the books. I don’t know if that’s a very sustainable pattern.”
Electronic Arts has publicly apologized for Wilson’s actions, and the board of directors has said that it’s reviewing the resignation. McGowan said that EA’s board structure was the main reason that Wilson ended up with a big payday.
“They have a board that’s driven by the CEO,” McGowan said. “The cofounders of EA were Eren, Dimitri, and Owen. All three of them are friends of Andrew Wilson. The board is not independent in the same way.”