New rules for equity stakes, stock options
HOLLYWOOD — It’s about to take a little more faith to be a top exec at Disney.
Mouse House board Thursday approved a revision of its long-term incentive plan for senior execs. Management, particularly CEO Michael Eisner and whoever replaces him, will be required to hold bigger equity stakes and take less compensation in the form of stock options.
Move comes as Disney’s board is coming off what might be called an annus horibilis that most recently included a settlement with the Securities and Exchange Commission over the failure to disclose that several board members’ relatives were also company employees (Daily Variety, Dec. 21). In a split decision on Thursday, the SEC commissioners declined to approve the settlement arranged by its enforcement staff and agreed to by Disney, thereby essentially dropping the case. Mouse board also has been repeatedly hammered in the Michael Ovitz trial for a lack of oversight, and dealt with a shareholder revolt at the 2004 annual meeting that resulted in CEO Michael Eisner losing his chairman spot.
Executive incentive revisions, which were approved by the board and its compensation committee Thursday, come after Disney revised its bonus program in September to closely tie that portion of exec pay to performance. Company’s hopeful the changes will instill greater faith that top execs are invested in the Mouse House’s future.
“These changes reflect the company’s continued commitment to strong corporate governance practices,” said compensation committee chair Judith Estrin. “We want to maintain our shareholders’ confidence by creating a stronger alignment between the interests of our management teams and those of our investors.”
Estrin added that she’s also hopeful the move will help attract talent, an important need as Disney searches for a successor to Michael Eisner amid intense scrutiny.
Revisions include making restricted stock units 60% of total equity compensation and reducing stock options to 40%; tying the grant of half of those restricted stock units to Disney outperforming the S&P 500 in total shareholder return; a requirement that the top five execs acquire stock equal to at least three to five times their base salary and that they retain shares equal to at least 75% of the gains from stock options (100% in the case of the CEO); and a reduction in the term of new stock options from 10 to seven years, with a promise by Disney that it won’t re-price stock options without shareholder approval.
Changes take effect in January.
Disney shares closed down 4¢ at $27.59 Thursday.