Sirius XM updates its CFO’s earnings…

Sirius radio

It’s officially earnings season, and in Sirius XM Radio’s (SIRI) case, a second-quarter release is due in no more than a week. Meanwhile, as a footnoted reader and tipster pointed out, the satellite radio broadcaster seemed eager to give us some preliminary reading with a sort of earnings statement for its CFO, packaged neatly in an 8-K filed early last Friday.

As footnoted regulars know, the meat of Friday filings is often in the afternoon dump. So the 8-K in question seemed harmless enough at first glance. On the one hand, it extends CFO David Frear’s employment term to July 20, 2015, providing a base annual salary of $850,000. On the other, it grants severance benefits of a lump-sum salary-and-bonus payment plus a year’s worth of health and life insurance. All business as usual.

What kept us reading instead of turning straight to the waiting hoard of unread filings, though, was the load of bonus stock options Frear netted for staying with his company:

“In connection with the execution of the Employment Agreement, we granted Mr. Frear an option to purchase 16,000,000 shares of our common stock at an exercise price of $2.18 per share . . . The Option will generally vest in four equal installments on each of July 21, 2012, July 21, 2013, July 21, 2014 and July 21, 2015.”

Our tipster worked some black magic — Black—Scholes modeling magic, to be precise — to find that these options are worth at least a whopping $17.6 million.

That’s more than $4 million vesting each year, surpassing even Frear’s fiscal 2010 compensation of just over $3.3 million, which we found in Sirius’s latest proxy. (The same proxy also goes to show Sirius is no stranger to huge option awards — CEO Mel Karmazin received $35.2 million worth back in FY 2009.)

That Black—Scholes figure may even underestimate the options— long-term value because it assumes random changes in stock price rather than the upward trend we seem to be seeing with Sirius. After all, consumers should be returning steadily to their digital entertainment as the economy recovers.

As fans of pay-for-performance, we do tip our hats to the fact that the bonus was awarded in equity rather than cash. But it’s worth noting that the options are in essence a reward for signing the new employment agreement, which makes them more pay-for-signature than pay-for-performance.

With CFO earnings at Sirius coming along so well, it’s no wonder that show host Howard Stern responded the way he did when Frear himself suggested a paycut late last year.

The question that stands is how well the company earnings have kept pace with the CFO earnings.

Image source: tylerkaraszewski via Flickr

This post was written by footnoted intern Andy Cheng, a rising junior at the University of Chicago. Special thanks to our tipster for pointing us to the filing!


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