Karmazin’s Viacom Exit Is Worth $35.4 Million

The highly unusual employment contract fashioned by Mel Karmazin to protect himself against his meddlesome boss paid off handsomely: The former president of Viacom Inc. collected $35.4 million in bonuses and salary after quitting in June.

The nation’s third-largest entertainment company disclosed the payment -- and another one of $20.8 million to outgoing Viacom entertainment chief Jonathan Dolgen -- in its second-quarter earnings report Thursday.

Karmazin resigned after a four-year power struggle with Viacom’s strong-willed chief, Sumner Redstone, the controlling shareholder of the media giant that owns such assets as CBS, MTV, Nickelodeon, Paramount Pictures and the Blockbuster video store chain.

Dolgen quit the next day, after being passed over for Karmazin’s job. Karmazin’s duties were divided up by CBS chief Leslie Moonves and MTV Networks head Tom Freston, who were named co-presidents.

What makes Karmazin’s payout so unusual isn’t its size, but the fact that it was virtually guaranteed, thanks to an exceptional number of protections and allowances in his contract that prevented Redstone or the board from overruling him, undermining him or interfering with his authority.

“This isn’t an employment contract, it’s a treaty between two sovereign powers,” said Graef Crystal, the San Diego-based executive compensation expert. “He really wrote himself a sweetheart deal. He wore a sign ‘Do Not Provoke,’ like they have over a zoo cage.”

What’s more, the contract allowed Karmazin himself to determine whether his bosses were meddling in any way.

“To allow the executive to be the judge himself is highly unusual,” Crystal said. “No chance of a hung jury here.”

While Karmazin’s payment is generous, Crystal noted that it was by no means the highest. Walt Disney Co., for example, paid former President Michael Ovitz $140 million to go away. Mattel Inc. gave former Chief Executive Jill Barad a $50-million send-off.

Viacom said Thursday that Karmazin’s and Dolgen’s severance cost the company 2 cents a share in second-quarter profit.

Also on Thursday, the company struck new employment agreements with Redstone, Moonves and Freston. The 84-year-old Redstone got a slight raise, to $5.5 million in salary and deferred compensation, up from about $5 million a year.

Freston and Moonves, the newly appointed co-presidents of Viacom, will each receive a base salary of $3 million, and options to purchase 1.5 million shares.

At the same time, New York-based Viacom said profit rose 14% for the quarter over the previous year as robust advertising sales at its cable and broadcast television networks offset a continued slump at the Infinity radio division. Profit was $754 million, or 43 cents a share, up from $660 million, or 37 cents a share, a year earlier.

Redstone said Viacom wouldn’t pursue any major deals, after recent agreements to buy a music channel in Germany and the remaining shares of SportsLine.com Inc. it did not already own. Viacom, he said, plans to repurchase its shares after it completes the spin-off of video rental chain Blockbuster Inc. in early October.

“Our focus is not on big deals,” Redstone said. “I repeat, no big acquisitions.”

Shares of Viacom’s actively traded class B shares closed up 85 cents Thursday at $34.45 on the New York Stock Exchange.