By Louis Lavelle For Walt Disney Chairman Michael Eisner, Philadelphia might well be his Waterloo.he 43% withhold vote by shareholders at the Mar. 3 meeting was one of the biggest shows of no confidence against a sitting CEO in recent corporate history. It already has prompted the Disney (DIS) board to strip him of his chairmanship. Eisner says he has no plans to leave before his contract expires in 2006. The question now: Will the board cave in to investor pressure and force him out? (See BW Online, 3/3/04, "Eisner's 'Long, Long, Long' Odds" and BW, 3/15/04, "Now It's Time To Say Goodbye")
So it's worth asking: Would Eisner leave a well-compensated man? In a word: Yes.
GOLDEN BOY. Were he cast out of the Magic Kingdom, or were he to resign, at a bare minimum Eisner would be entitled to more than $37 million in salary, bonuses, pensions, and other perks -- a figure that far exceeds the payout received by Vivendi's (V) Jean-Marie Messier and is on par with the hauls of Electronic Data Systems' (EDS) Richard Brown, Mattel's (M) Jill Barad, and Conseco's (CNO) Stephen Hilbert -- all of whom exited amid controversy.
Toss in the gain he can expect on options that vested late last year -- thanks to a kindness from Disney's board -- and the sum could easily climb to nearly $375 million.
Eisner is employed under the terms of a 10-year contract first struck in 1997 and then renegotiated in 2000. He was recruited to Disney (DIS) in 1984 by Roy Disney and Stan Gold -- the ex-board members who mounted the campaign against him in Philadelphia.
In the early days, Eisner could do no wrong. He enjoyed a 12-year stretch of success, with Disney shares increasing nearly 20-fold. And by the time his contract was revisited in 2000, Disney shares had doubled again over the preceding four years.
SWIMMING IN MONEY. That news clearly put the board in a generous mood. Under the terms of the amended contract, virtually any parting of ways between Eisner and the company -- except for death, disability, negligence, malfeasance, or voluntary resignation without the company's consent -- brings Eisner an embarrassment of riches.
It starts with his $1 million-a-year base salary. If the board were to oust him, Eisner would be entitled to every penny in his base pay through the contract's expiration on September 30, 2006 -- about $2.8 million. In addition, he would get his bonus for the current year -- let's assume that would be around $6.25 million, which was the bonus he received last year. Next, add on post-termination bonuses of no less than $6 million a year through the end of the contract, plus two additional years for a total of more than $30 million in bonuses.
Throw in his pension -- approximately $300,000 a year for the rest of his life, or $4.2 million through the age of 75, the average life expectancy for a white male -- and Eisner could walk away from Disney with atleast $37 million in cash.
ACCELERATED VESTING. But by far the biggest payday comes in the form of options. Three months before Eisner signed the contract in January, 1997, he received a tidy 24 million options. Eisner cashed in 3 million options in 2000 for a gain of $60.5 million, leaving him with 21 million. All vested by September 30, 2003 -- thanks to the board's decision to accelerate the vesting on 9 million of them as part of the 2000 contract renegotiation.
So if Disney stock appreciates at 8% a year -- Value Line's most conservative long-term price projection -- Eisner will be able to exercise 12 million options when they expire in 2008 for a take of $205 million, and the remaining 9 million options when they expire in 2011 for a gain of $132 million. His total option haul would be a staggering $337 million.
By any measure, that would be a generous sendoff. Typical severance deals guarantee a payment of two or three times salary -- and some boards are starting to get stingier, offering smaller amounts or no guaranteed severance at all, although that's still a rarity. Disney spokesman John Spelich declined comment about Eisner's severance deal.
INVESTOR OUTRAGE. To Eisner's critics and corporate-governance experts, though, the amount seems particularly unwarranted in light of the company's poor performance over the last three years. "That's a pretty big number," says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "It's a 'heads I win, tails I win' scenario."
Eisner has been winning for some time now. During his 20 years at Disney's helm, he has taken home more than $1 billion. In fact, his $203 million payday in 1993 began the modern backlash against outrageous CEO pay.
The prospect of an additional $374 million haul has even defenders of hefty CEO compensation complaining. Robert Stucker, a Chicago attorney who has negotiated huge pay packages for many top execs, says such lavishness might have been understandable as a lure when Eisner first joined the company -- but it should have been purged from his contract a long time ago, and replaced with performance-based incentives.
TOO COSY? "It's common when you're recruiting someone into the company to have base pay and bonus continuation for some period of time," says Stucker. "The question is, why continue that arrangement?"
There's really only one answer, and it's one that continues to bedevil Disney, despite all the governance improvements it has made in recent years. The fact is that the Disney board has been too close to Eisner for too long. Luckily for shareholders, the board that renegotiated his contract is gradually disappearing. Whether Eisner survives through the end of his term or not, let's hope the new Disney board doesn't make the same mistakes with his successor. Lavelle covers executive compensation issues for BusinessWeek in New York