Disney to Cut Grants of Options

Walt Disney Co. said Thursday that it would reduce the number of stock options it awards to top executives and increase the number of shares they are required to own to make them more responsive to shareholders.

The changes, which take effect in January, also would shorten the life of new stock options to seven years from 10, the Burbank-based company said, adding that it wouldn’t re-price options without shareholder approval.

Disney is addressing corporate governance issues that shareholders pointed out this year, when they delivered a 45% vote of no confidence against Chief Executive Michael Eisner. The company this week settled U.S. regulators’ claims that it failed to tell investors about business relationships between Disney and some board members.

Eisner “in the mid-’90s made about $600 million through the exercise of options given to him at the beginning of his career,” said Paul Hodgson, who researches executive compensation at Corporate Library in Portland, Maine. “Disney had been very much a stock options company.”

Once a common fixture of compensation packages, options are being used less by companies because their costs will soon have to be expensed under new accounting rules, Hodgson said.

Shareholder advocates this year criticized Disney for the size of its options awards, Hodgson said.

Disney hasn’t decided how much it will reduce stock option grants next year, said John Spelich, a company spokesman.

Shares of Disney, which also owns the EPSN sports cable channel, the Disney theme parks and the ABC television network, fell 4 cents to $27.59 on the New York Stock Exchange. They have gained 18% this year.

Disney’s board stripped Eisner of his chairman’s position after the March shareholder vote. Former U.S. Sen. George J. Mitchell replaced Eisner as a nonexecutive chairman.

Former board members Roy E. Disney and Stanley P. Gold waged a campaign this year to oust Eisner, saying that the company’s shares had stagnated and that its ABC television network and animated-movie division were in disarray.

In September, the two dissidents called a truce with Disney after the company said it had hired a search firm to find a successor to the CEO.