Sirius XM announced today that Mel Karmazin’s employment agreement has been extended through December 31, 2012. The new deal gives Mr. Karmazin a raise in his base salary, as well as the options to buy 120 million shares at a price of $0.43 per share.
Karmazin, a long time radio industry guy, joined Sirius Satellite Radio in 2004. His deal was scheduled to expire in the fall of this year and could have been a potential worry for the street. Over his tenure, Mel was able to bring about a merger with XM, but has also been at the helm during a period where shareholder value has eroded. The new deal will likely be met with mixed emotions, as some have been critical of the share price as well as the merger.
The new options that Mel received will once again give him incentive to bring the share price of the stock upward. Karmazin recently indonated back the options he had from the previous deal about a month ago, in a move that helped offset newly issued shares. Mel’s old options were so far under water that they would likely never provide the incentive for him to exercise his rights to the options. Instead, Mel had done a few purchases of stock on the open market.
With the new option price at $0.43, Mel once again has a huge incentive to make the stock price appreciate. He will effectively be able to buy 120 million shares over the next 3 years at what could promise to be a very attractive price point in the future.
Karmazin’s base salary will be heading north to the tune of $1,500,000. While it is a lot of money, it is not the level of pay that many big time CEO’s are accustomed to. The options represent the huge payday for Mel, and now that those options have a chance of becoming very valuable, all shareholders can rest a bit easier knowing that the CEO has a lot at stake in increasing shareholder value. Even shareholders who have previously felt that Karmazin was not on their side need to now acknowledge that the structure of the new deal has potential to be very shareholder friendly.
Yes, there are those that wanted a change in management. They may still feel that way, but clearly, the current board, which includes Liberty Media representation feels that Mel Karmazin represents the future of leadership for this company.
Position: Long Sirius XM 
