Expert Tells of Disputes at Disney

Walt Disney Co. directors rejected Michael Ovitz’s request for a $50-million signing bonus as part of his 1995 agreement to join the company as its second in command, an executive compensation expert testified Tuesday.

Graef “Bud” Crystal, who advised Disney’s board about executives’ pay packages starting in 1984, told Delaware Chancery Court Judge William B. Chandler III that some of the company’s board members held “vigorous negotiations” over Ovitz’s contract and “dug their heels in” over the signing bonus, refusing to include it in the contract.

Directors instead beefed up the stock-option award in his proposed employment deal, said Crystal, a former executive compensation expert with management consulting firm Towers Perrin and now a columnist for Bloomberg News. That contract later provided Ovitz with his severance after he was fired from Disney, investors contend.

Shareholders of Disney argue that the board wasn’t diligent enough in reviewing Ovitz’s contract or Chief Executive Michael Eisner’s decision to fire him. Plaintiffs lawyers value Ovitz’s exit package at $140 million and are seeking $200 million in payments and interest.

Crystal said members of Disney’s executive compensation committee weren’t focused on severance issues while negotiating Ovitz’s five-year contract in August 1995 because they expected the former talent agent to succeed Eisner.

If Disney’s directors had a “minuscule inkling that Ovitz would fail, they wouldn’t have expended the energy to lure him to the company,” Crystal testified.

Eisner fired Ovitz in December 1996. Eisner said in a deposition that the firing was necessary because Ovitz never fully made the transition to a corporate executive.

Crystal said he analyzed Ovitz’s pay and stock option packages under different scenarios so that compensation committee members would have an idea of what he would be entitled to under the agreement.