Karmazin’s Serious Investment
The pay of senior management of company’s is an oft discussed subject. The buying and selling of stock by company executives also grabs peoples attention. A couple of days ago Sirius XM Radio CEO Mel Karmazin bought 2,000,000 shares on the open market. Some felt is was a strong sign of commitment, other have termed his buy as “pocket change” for a man of his wealth.
To truly understand the magnitude of Mel Karmazin’s personal stock purchases, we should look at the size of his investments vs. the cash pay that he has taken home since he started as CEO at Sirius. This is not taking into account options or warrants that Karmazin has in his contract, but rather the cash he has taken home each year.
- 2004 Salary: $147,436 Bonus: $0.0
- 2005 Salary: $1,250,000 Bonus: $2,200,000
- 2006 Salary: $1,250,000 Bonus: $3,000,000
- 2007 Salary: $1,250,000 Bonus: $4,000,000
- 2008 Salary: $1,250,000 Bonus: $4,000,000 (projected)
Total cash earnings: $18,347,436
- 11/19/04 – 1,500,000 purchase @ $5.3589; cost $8,038,350
- 01/12/06 – 1,000,000 purchase @ $6.2085; cost $6,208,500
- 05/30/06 – 1,000,000 purchase @ $4.468; cost $4,468,000
- 08/04/08 – 2,000,000 purchase @ $1.3732; cost $2,746,400
Total purchases: 5,500,000 shares for $21,461,250; cost basis is $3.902
Mel Karmazin has personally bought 5,500,000 shares of stock. He has invested over $21.5 million from his own personal bank account into this company. His gross pay since he began his work at Sirius has been $18.3 million, and we have not even gotten into taxes! Mel’s average price paid is $3.90. The biggest item to note is that Karmazin has invested every penny he has made, and then some, back into the company, and $21,000,000 is nothing to shake a stick at. This is a lot of money even to someone that has wealth. This type of money is not simply thrown around as if it were pocket change. At the $1.42 price the stock is trading at, his personal investment into satellite radio is worth $7.8 million. Mr. Karmazin has a stake in the company. No one can take that away from him.
Now, the next logical question is other stock interests in the company that Mel has. He did receive 3,000,000 shares when he came to Sirius. This puts his account at 8,500,000 shares. With these shares added to the mix, his average is cost is at $2.50, still above where the stock is trading at today. What about options you ask? When entering into an employment agreement with Sirius, Karmazin received the right to buy 30,000,000 of SIRI stock at an exercise price of $4.72 per share. While much has been written that, Karmazin made $32,000,000 in 2007, the fact of the matter is that a very substantial part of that calculation was taking into account options to buy shares. Mel has not exercised that right, nor at the current stock price would he be likely to.
Does Mel Karmazin make a lot of money? Yes. Has he invested a lot of money into satellite radio? Yes. Is having options to buy 30,000,000 shares a good thing for Karmazin? Is an exercise price of $4.72 on those options good for him? Not right now.
Karmazin has a serious investment in Sirius XM Radio. It is that plain, and that simple. The documents bear this out.
Thanks Homer for outlining this in the Sirius Buzz Forums.
Position – Long SIRI
Compare Mel’s purchases to the ongoing sales by the other executives at both SIrius and XM. Mel needs to have a talk with those guys and ask them up front whether they are on board or not. Their actions show a lack of confidence in their employer. Maybe they would be happier working somewhere else. The same goes for Howard Stern. He sells his shres as fast as he gets them. Again, a lack of confidence. He couldn’t tell me that he is all for satrad when he has absolutely nothing vested in it.
Paul…..
These “sales” you speak of are typically not sales that have anything to do with sentiment in the company.
These executives have stock that vests over time. When that stock vests, they have a capital gain. That capital gain is a taxable event.
The investors have a choice of either coming in with cash (substantial sums to many of these executives), or to sell enough of the vested shares to cover the tax and commissions. Like most, they choose to sell enough to cover the taxes.
In most situations, they are actually adding to their position. If they sat back and did nothing, their options would expire worthless.
These sales are simply taking care of the taxes, and allowing the executive to keep their options.
I hope this makes sense.
Tyler,
I hear you, but during the past year ending in July 2008 there were only approximately 33K insider shares purchased, but 444K insider shares sold. That’s a 13.4 to 1 sell to buy ratio. It goes well beyond covering the tax liability. A lot of the board members are making at or close to seven figures. At 33,000 shares on the purchase side that is really on the low side. I would look for more of practicing what they they are preaching. Maybe Mel’s example will lead the way. Stern is not considered an insider, but his immediate sales of any awarded shares are not helping the overall cause. Thanks for bringing up another perspective on the matter.
Paul, also consider that senior management (at least Karmazin) has been prevented from any insider transactions for the last 2 years. Karmazin pointed this out on Covuto the other night.
While he was negotiating the merger and subsequently after that, they were not allowed to buy or sell shares — as they all had insider information. Who this includes, I don’t know exactly… but I assume it would include all of their Board of Directors, Karmazin, Frear and several other of the senior staff.
But that is not to make an excuse for them — I expect all of them to buy now… but I also don’t think I’ll see it in this lifetime.
Taxable event selling is normal and really not considered “insider” in the grand scheme of things.
—-
Paul….
Taxes are exactly what most of this is about. The only Sirius executive that has sold outside that scope is Frear, who typically has sales of stock every year.
If you read the SEC filings you will see this:
On 2-19 Greenstein “sold” shares. At the bottom of the SEC filing you will see, “Shares of common stock sold are equal to federal and state taxes due on February 20, 2008 as the result of the vesting of the restricted stock units and the related brokerage commission on the sale.”
After this transaction, Greenstein had 1,473,307 shares.
Now if wee look at Greenstein’s previous filing, we will see that he received restricted stock that was to vest on 2-20-08. He received 153,311 shares.
When the 153,311 shares vested, he had to sell 55,092 shares in order to cover the taxes. In this transaction he added to his position by 98,292 shares.
Now, with nearly 1.5 million shares owned, how prudent would it be for Greenstein to buy more shares in his personal account? The man has stock worth about $2,000,000 right now, which likely is a very substantial sum of money for him.
Ok, guys. Let’s see how all this pans out over the next few months. The stock price is simply looking for something, anything, so it can rally on it. The shareholders need more than crumbs to sustain themselves. LOL
Paul in FL is 100% CORRECT by his ststement
Mel needs to have a talk with those guys and ask them up front whether they are on board or not. Their actions show a lack of confidence in their employer. Maybe they would be happier working somewhere else. Send them all to CBS
if there is a siri ticker change how does that affect the stock,shorts and anything else besides a fresh start?
thanks
To clarify a few issues That I am getting emails about.
People have the misconception that Mel Karmazin made $32,000,000 in 2007 and $31,000,000 in 2006. He did not.
His employment agreement gives him options on 30,000,000 shares at an exercise price of $4.72 cents per share.
This means that he has the right to buy 30,000,000 shares of the company for a price of $4.72 for each share.
Mel has not exercised that right, and in fact, it would be cheaper for him to buy shares on the open market as he has already done.
From an accounting perspective, because the right exists to Mel, the value of the vesting options needs to be shown on the statements of compensation to executives. However by no means does this mean that Mel was paid this money.
What Mel has is a right to buy stock at a specified price of $4.72 per share. Sirius’ SEC filings bear all of this out. You can clearly see that no options have been exercised by Mel.
Those thinking that Mel made $32,000,000 in 2007 and $31,000,000 in 2006 are doing so in error.
There is a substantial difference between owning an option and exercising it.