Ovitz’s Disney Pay Includes Stock Plan That Could Total $110 Million

Walt Disney Co. said it awarded President Michael S. Ovitz options to purchase 5 million shares of Disney common stock over seven years in a package one top executive pay consultant estimated could be worth about $110 million.

The details came in a U.S. Securities and Exchange filing by DC Holco Inc., a firm formed for the pending merger of Disney and Capital Cities/ABC Inc., and provide the first glimpse of what it took to lure the former agent to join the entertainment giant.

Disney noted that the value of Ovitz’s options package is impossible to predict, as it is tied to Disney’s stock price. Ovitz’s stock options would be worth hundreds of millions of dollars if the stock performs well, or prove worthless if the stock declines. The exercise price is $57 a share starting in October, 1998, and vests at 20% annually after that. Disney stock closed at $56.75 in New York Stock Exchange trading on Tuesday.

The filing does not include the entire Ovitz pay package, which is expected to be disclosed in Disney’s proxy statement for fiscal year 1996, more than a year from now.

Ovitz joined Disney as president on Oct. 1, the first day of the company’s fiscal year, leaving his post as Creative Artists Agency chairman.

Ovitz’s contract is widely expected to resemble that of Disney Chairman Michael D. Eisner, which includes a salary that is relatively low when compared to the huge amounts he could get through bonuses and stock options if the company performs well. Ovitz’s base salary is believed to be about $1 million a year.

Executive pay consultant Graef S. Crystal, who works with Disney periodically on compensation issues and was asked to do so on the Ovitz package, said he arrived at the $110-million value using a theoretical model that makes some assumptions about how much the stock will rise. The total includes $71 million for the first 3 million options Ovitz will be able to exercise during his five-year contract, and assumes that he signs a new contract to stay on after that.

Crystal said that the amount is very large by normal executive standards but not a record, and that it is not that surprising considering the rich contracts often awarded in the entertainment industry.

“Options are clearly the main course of Michael Ovitz’s banquet,” Crystal said. “It is an excessive package by the standards of all the other companies in America, but this is Hollywood. This is what passes for compensation down in La-La Land.”

But Crystal also noted that Ovitz is accepting a significant risk, given that he has no guarantee of making a lot of money should Disney’s stock perform poorly, that he was given no free shares, and that he also did not receive a signing bonus. Crystal, who also consulted on the pay packages that eventually made Eisner the top-paid executive in the country, has long advocated using options and other incentives to link compensation to performance.

Before announcing in August that he would be joining Disney, Ovitz negotiated with MCA Inc. to join that company, with the talks falling through in June. There, Ovitz is said to have been in discussions for a package valued at more than $250 million.

Separately, the filing shows that Cap Cities/ABC President Robert A. Iger will receive $1 million a year and has a $2-million bonus coming in the first year of his five-year contract. Also, Iger can terminate the contract after 2 1/2 years.

In addition, the investment banking firms Bear, Stearns & Co. and Allen & Co. will receive $2 million each for advice on Disney’s proposed $19-billion acquisition of Cap Cities/ABC.