AMC Execs Fighting the Pandemic, Universal and Bad Grant Timing
May 14, 2020
AMC shares are down 36% YTD

The current global pandemic has accelerated an already troubling macro trend for the movie theater industry: people are going to the movies less.  The proliferation of the at-home product coupled with a global pandemic have blockbusters spurning traditional theatrical releases:

This has landed AMC Entertainment (AMC), a global leader in movie theaters, in hot water – they have closed locations, furloughed employees, and feuded with major Hollywood studios. To top it all off, the timing on a compensation change by their senior executives appears to have backfired significantly.

Compensation Changes

In February, prior to the peak onset of the COVID crisis in the US, senior AMC executives signed into a new compensation program whereby they decreased their cash compensation for one-time equity grants, which were “considerably out of the money.”’

CEO Adam Aron hailed it as a strong validation of their belief in the strength of their company, “All the relevant senior officers of AMC have deep conviction about AMC’s future, and therefore each of us is putting our money where our mouth is.”

The vesting of shares is dependent on maintained stock price appreciation, split into tranches, over three years. Shares closed at $5.90 on February 26, the day the equity grant was announced, and precipitously dropped in the ensuing weeks as the pandemic evolved. Shares closed at a low of $2.08 on April 13. Though prices have since recovered a bit on rumors that Amazon may purchase them (closed at $4.41 on May 14), they are still a ways away from being in the money:

SPSU vesting schedule and premium to stock price at time of grant

CEO Adam Aron accepted $562K in reduced compensation for the one-time “special” PSU grant of 1.5M shares.  Last month, in addition to a number of other COVID-related mitigations, the company announced executive salary reductions of “20%-100%” and a cancellation of annual merit pay increases.

Mr. Aron’s 2019 compensation was over $9.4M consisting of $5.4M in equity and the balance in cash salary and incentive pay.

It remains to be seen what, if anything, happens with the acquisition rumors. But as expectations for the theater industry are relatively dire, execs may be looking for an exit plan.

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