The heirs of Steven J. Ross could potentially amass one of the bigger family fortunes in America over the next decade as a result of the unusually rich terms of the late Time Warner chief's employment contract.
Compensation experts estimate Ross' heirs will be paid at least $300 million before taxes over the next 10 years and possibly as much as $1 billion or more.
Any estimate carries risks, because the ultimate payout depends on how well Time Warner's stock performs and how parts of the compensation are treated for tax purposes.
In the short term, details of Ross' contract indicate that his heirs will receive about $30 million over the next three years in the form of life insurance payments and earnings derived under an unusual clause that requires New York-based Time Warner to continue paying Ross' base salary and annual bonus for three years after his death.
Although it is not unusual for companies to make a payment to family members upon an executive's death, continuing to pay a salary and bonus for years is rare.
"Off the top of my head, this seems unusual. I don't know of any others like this out there," said Ralph Whitworth, president of the United Shareholders Assn. of America.
Executive pay has become a controversial issue in recent years. In one highly publicized case, Occidental Petroleum in 1990 paid $25 million in cash and $1.2 million stock to Armand Hammer's estate to pay off the remaining years on its late chairman's employment agreement.
A Time Warner spokesman declined comment on the details of Ross' contract, saying he could not elaborate beyond what is published in the company's public documents.
Ross, 65, died Sunday in Los Angeles after a long battle with prostate cancer. He is survived by his wife and three children.
Flamboyant in life, Ross' executive pay of more than $78 million in 1990 triggered a national debate over executive pay, prompting detractors to call him "the prince of pay."
But his defenders--and even many of his harshest pay critics--noted that shareholders did well with Ross over the years, averaging an annual return of nearly 24% from 1973 until 1990, when Time Inc. and Warner Communications combined to become the world's biggest media and entertainment company.
Stock options on 7.2 million Time Warner shares could provide the largest chunk of money to Ross' heirs. Ross' options are unusual, according to executive pay expert Graef S. Crystal, in that they do not have to be exercised shortly after his death. Rather, they can be exercised any time over the next decade.
Those options are worth nothing now because Time Warner's stock is trading below the price at which they can be exercised. But using a modest estimate of 10% growth in Time Warner's stock price, Crystal estimates that they could be worth from $225 million to $250 million by the time they expire. If the company performs spectacularly, they could be worth $1 billion or more.
Crystal, who has written extensively about Ross' contract, formerly prepared a list of top-paid executives for Time Warner's Fortune magazine, but he stopped last year after claiming interference over the way he valued Ross' compensation. Fortune has denied the allegation.
Crystal figures Ross' heirs will receive about $7 million in life insurance payments, after certain premiums are paid back to Time Warner.
Other payments will come from Ross' pay and bonus for 1992, estimated by Crystal to be as high as $5 million, and about $2.4 million in base pay for the next three years. Still more money will come in bonuses over the next three years, tied to Time Warner's pretax income, which Crystal estimates could easily total from $15 million to $20 million, especially if the company substantially reduces its debt.
An undisclosed amount of money--likely to be in the millions of dollars--will be paid to Ross' heirs from two trust accounts and another long-term compensation trust account that were maintained for Ross by Time Warner. According to its proxy statement, Time Warner will value the accounts after Ross' death and pay them promptly to his heirs.