No Bonuses for Eisner, 3 Other Disney Execs

As with the saying from Walt Disney Co.’s “Toy Story” films, Michael Eisner’s compensation used to seem like it soared to infinity and beyond, especially since it reached $576 million one year.

Not so anymore. In a reflection of the Burbank-based entertainment giant’s sagging financial performance and lackluster stock price, the Disney chief executive and three other top corporate officers were shut out when it came to bonuses for the fiscal year that ended Sept. 30, according to proxy materials the company filed Wednesday with the Securities and Exchange Commission.

Eisner received only his $750,000 salary, the annual pay he agreed to when he was hired in 1984 from Paramount Pictures to turn Disney around. Eisner also failed to receive any new stock option grants.

Not that Eisner’s hurting. In addition to reaping more than $1 billion over the last 15 years from bonuses and stock option grants, Eisner exercised an additional $50 million worth of stock options last year. Those options had been granted to Eisner in 1989 and were due to expire.

Nonetheless, Eisner’s goose egg on the bonus scoreboard says a lot about Disney’s fortunes last year and how his performance-based compensation formula has a downside as well as the extraordinarily lucrative upside he’s previously enjoyed.

“He took his lumps, which is what he should have done. He didn’t wimp out and give the standard excuse: ‘It’s not my fault,’ ” said executive compensation specialist Graef Crystal, who designed Eisner’s early pay formulas but no longer consults for the company.

Bullish Analysts Cite Prospects

“With a lot of companies, the profits are high and the stock is up, so the CEO gets rich,” Crystal said. “When the stock goes down and profits are down, then it’s all [Fed Chairman] Alan Greenspan’s fault and the board gives the CEO a lot of money as a consolation prize.”

During Disney’s previous fiscal year, Eisner’s bonus was slashed 49%, but it still came to $5 million. That year was his most spectacular compensation period because he exercised $569.8 million in stock options in December 1997.

The disclosure about Eisner’s lack of a bonus comes as Disney’s stock--for the first time in nearly a year--is showing some life, with some investors finally turning hopeful.

Analysts who are bullish about Disney cite prospects for its theme park business; improved results for its ABC network, thanks largely to the “Who Wants To Be a Millionaire” game show; the potential sale of its animated films on DVD; and the strong box-office performance from its film division, led by “Toy Story 2” from Disney and Pixar Inc., “Tarzan” and “The Sixth Sense.”

Disney’s stock rose $1.31 Wednesday to close at $32.94 on the New York Stock Exchange. Although still off from the nearly $39-a-share level reached almost a year ago, the stock has recovered by almost 40% from its low in November.

According to Disney’s proxy, the company failed to meet an unspecified 1999 profit target set by a subcommittee of company directors. During the fiscal year, Disney’s profit fell 28% to $1.37 billion on revenue of $23.4 billion, with the two biggest problems being the performance of its consumer products and home video divisions.

Because of the poor results, Eisner, Vice Chairmen Roy E. Disney and Sanford Litvack, and Executive Vice President John F. Cooke received no bonuses. The only exception was Executive Vice President and General Counsel Louis M. Meisinger, who received a $350,000 bonus.

Sources said Meisinger received the bonus because he took on a big workload, not only overseeing Disney’s legal issues, but continuing to defend the company in the 2-year-long breach-of-contract lawsuit settled in July with its former studio chief, Jeffrey Katzenberg.

Before joining the company in 1998, Meisinger was in private practice, serving as the company’s main outside lawyer working on the Katzenberg case.

Separately, in his annual letter to shareholders, Eisner acknowledged that what 10 years ago he called “The Disney Decade” in financial terms “ended on a down note.”

He outlined the company’s strategies to deal with its lackluster consumer products and home video units, such as cutting the number of merchandise licensees in half, redesigning its Disney Stores and releasing all of its videos simultaneously on videocassette and DVD.

He also hinted that some of the company’s cash could be earmarked for a stock buyback, which some major shareholders have been pushing for.

Animation Shakeout Predicted

Eisner also said it appears that a long-awaited shakeout is at hand among Hollywood studios competing with Disney in feature film animation, which he said should ease the cost pressures that drove the price of animation up dramatically in the mid-1990s.

Inspired by Disney’s animation profit, other studios invested hundreds of millions of dollars to build animation units that so far have produced only mixed results.

“It now appears that a lot of studios have learned that the animation business isn’t so easy and almost all of them are pulling back,’ Eisner said.

Eisner also touched on the company’s ongoing cost-cutting campaign, which includes leveraging the company’s size to buy supplies at cheaper prices, slashing costs at the studio, consolidating marketing operations and TV production units, trimming the number of films, and cutting overlapping worldwide operations.

“If we want to continue to play in the creative sandbox and thereby generate long-term growth, then we’d better make sure that we stay responsibly in the financial box and thereby keep our operating margins healthy,” he said.