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Bonus onus was nearly dealbreaker

Ovitz tried for upfront bonus on Disney board

Michael Ovitz asked for a $50 million signing bonus to come to Disney, according to testimony Tuesday in the ongoing shareholders’ lawsuit in Delaware.

Executive pay consultant Graef “Bud” Crystal testified that the upfront bonus was the major sticking point between Ovitz and members of the Disney board’s compensation committee during negotiations to bring him to the company.

“(Irwin) Russell and (Ray) Watson were quite adamant that they didn’t want to give Ovitz a signing bonus,” said Crystal, who was hired by Michael Eisner to work with the committee on Ovitz’s compensation. “When Eisner came in, he did not get a signing bonus. Disney did not have a history of giving signing bonuses, and they didn’t want to start now. If something happens that is untoward, and the person leaves the company, they just take the money and it’s gone.”

Ovitz, in turn, argued that he wanted some sort of protection for leaving his $25 million-a-year post at CAA. Crystal, Watson and Russell came up with a complicated formula that could reward Ovitz a maximum of $50 million in cash, stock and options if he stayed with the company for five years.

“This man had the modest appellation of ‘the Most Powerful Man in Hollywood,’ ” Crystal said. “If you want him, you’re going to have to pay a lot of money to get him.”

Ironically, Ovitz’s efforts months earlier to land the job as prexy of Universal imploded over similar demands for a signing bonus. That led to his former partner Ron Meyer getting the U job.

Crystal testified that he never met with the compensation committee’s other two members, Sidney Poitier and Ignacio Lozano. A continuing assertion of the plaintiffs is that the duo were cut out of high-level conversations regarding the employment of Ovitz, thereby showing the Mouse House didn’t do enough due diligence in his hiring.

The court’s morning session concluded the testimony of Russell, who had been on the stand for five days. He recounted the final days of Ovitz’s tenure, noting that he did not feel his conduct constituted “gross negligence or malfeasance” — the standard required to terminate his contract without handing over the $140 million severance package.

“In my experience in entertainment, this is a relatively common standard,” Russell said. “It has a very, very high standard of misbehavior before it would apply. In my 40-odd years of experience, I was not aware of any situation where an executive was fired based on good cause and it was publicly acknowledged.”

In a December 1996 email, Eisner wrote of the press coverage of the dissolution of the Ovitz contract: “No one has got the two main points. 1) He is a psychopath (doesn’t know right from wrong), cannot tell the truth. Basically he has a character problem, too devious, too untrustworthy to everybody, only out for himself. In other words his problem started and ended with a character problem, and no matter how much he may have learned over the next period of time, he never would change his basic problem, CHARACTER. 2) Totally incompetent.”

Recalling conversations with Disney chief operations officer Sandy Litvack, Russell said Litvack believed a firing “for cause” could result only from criminal behavior.

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