April 13 (Bloomberg) -- To paraphrase a famous line from the movie ``Network,'' Carl Icahn is mad as hell, and he isn't going to take it anymore.

Icahn's wrath is aimed at Blockbuster Inc., the largest video-rental chain and where he is the largest shareholder with 9 percent of the outstanding stock. He has sent shareholders ballots to vote for his own three-person slate -- which includes himself -- when Dallas-based Blockbuster holds its May 11 annual meeting.

A principal cause of Icahn's anger is the ludicrous pay contract that Blockbuster's board conferred last June on its longtime chief executive officer, John Antioco, one of the board members up for re-election.

Before discussing that $51.6 million pay package, let's look at Antioco's performance.

He became CEO in 1997, before the company went public on Aug. 10, 1999. Between that date and last Friday, Blockbuster's total return was a mere 2.3 percent a year. Still, it was better than the even more anemic return of 0.1 percent a year on the Standard & Poor's 500 Index.

Virtually all the difference between S&P's return and Blockbuster's can be traced to the 11.8 percent increase in Blockbuster's stock price over the two-day period ended April 8. The likely reason for that increase was Icahn's announcement. The S&P 500 Index fell 0.2 percent during the same two-day period. If that theory is correct, it would be the height of irony to credit Antioco for the stock surge.

Antioco's Performance

Here are a few more performance tidbits:

-- Blockbuster's total return looks good or bad depending on the year you examine. Out of five annual time windows of performance ending between Dec. 31, 2000, and Dec. 31, 2004, Blockbuster badly lagged the S&P 500 Index in three and wildly exceeded the index in the other two. Case in point: For the year ended Dec. 31, 2003, total return was a luscious 47.2 percent. The very next year, however, total return was negative 13.2 percent.

-- During the one-year period ended on June 18, 2004, the date the board executed a new employment agreement with Antioco, total return was negative 1.7 percent while the return on the S&P 500 index was 14.3 percent.

-- The company has never earned a dime. Every year of its public ownership has seen negative net income. In the six years ended with 2004, cumulative net income was negative $4.2 billion.

His Pay

Now for Antioco's pay.

He has a base salary and deferred compensation of $2.2 million a year. That's quite impressive considering the relatively small size of the company. Looking at the 2001-2003 annual average salary levels of 495 major U.S. companies, all with market caps of $3 billion or more, the ``going rate'' of salary for a company with Blockbuster's 2004 net sales of $6.1 billion is a much lower $888,000. To be sure, that $888,000 figure will be a bit higher for 2004, but there's no way it's going to reach Antioco's $2.2 million of fixed compensation.

Then there's his bonus, which, in any given year, looks like it was picked by Antioco's board compensation committee using a table of random numbers.

In 2002 he received no bonus at a time when net income was negative $1.6 billion. Yet in 2004, when net income was negative $1.2 billion, the second-worst performance since 1997, Antioco's bonus rose to $5 million. Reducing a loss to $1.2 billion from $1.6 billion seems to be cause for celebration in Blockbuster's boardroom, yet in 2003 when the loss was $979 million, Antioco's bonus was $5.3 million.

His Options

Antioco also was handed the equivalent of 1.73 million free shares, worth $26.8 million at the time of their grant.

And he was granted a stock option covering 5 million additional shares. Under Bloomberg's option valuation methodology, the present value at grant of this option was determined to be $17.6 million. That value is in large part based on the huge stock volatility that Blockbuster has experienced in the past. If the past turns out not to be prologue and if Blockbuster's stock volatility descends to more normal levels, then the ultimate present value will turn out to be somewhat lower.

The strike prices of the options granted to Antioco in 2004 are among the lowest he has had since the company went public. Thus, Antioco is returning to ground that has already been ploughed more than once. He is, in effect, being given a second chance to get it right.

There's one other item worth mentioning here. On this past Dec. 10, Antioco was allowed to turn in 4.3 million of his underwater option shares and to receive in return 1.6 million free shares. No sitting up nights for him agonizing over whether his company's stock price will ever rise enough to cause his past option grants to pop above water.

With free shares worth $14.7 million based on the $8.90 close price on the Dec. 10, 2004, repricing date, he's got it made, even if the stock price should decline further. (As of the close on April 8, the stock price was $10.21.)

All the Best

The one good thing to be said for Antioco's pay is his decision to forgo $751,823 of his 2005 deferred compensation. But in the context of his overall pay package, that's the equivalent of taking a 1,000 gallons of water out of the Pacific Ocean.

In an interview with Bloomberg News, Dan Satterthwaite, Blockbuster's senior vice present for human resources, said of Antioco's pay: ``The package was designed to keep Mr. Antioco with the company and to keep him focused on delivering shareholder value over the next five years.''

Two questions seem appropriate here:

Why should anyone, other than someone with an extreme masochistic streak, go out of his way to keep Antioco in his job?

And why try to keep Antioco ``focused on delivering shareholder value'' through lavish incentives, when he has demonstrated a complete inability to respond to such incentives?

Speaking for myself, I wish Carl Icahn all the best.

* * *

The members of Blockbuster's board compensation committee as reported in the company's proxy statement filed on July 6, 2004, less than a month after Antioco's new employment agreement was executed, were:

-- John Muething, chair, of counsel, Keating, Muething & Klekamp, LLC.

-- Jackie Clegg, founder, managing partner, Clegg International Consultants, LLC.

-- Linda Griego, president, Zapgo Entertainment Group, LLC.

To contact the writer of this column: Graef Crystal in Las Vegas at at graefc@bloomberg.net.

Last Updated: April 13, 2005 00:10 EDT