Disney withdraws golden parachute provision amid criticism
Just days before investors would have their say on Walt Disney Co.’s executive pay, the entertainment giant changed the contracts of its top executives to remove a generous perk that had come under fire from an influential shareholder advisory firm.
The company said it would no longer pay the taxes on any severance package for Chief Executive Robert A. Iger and three other senior executives in the event they lost their jobs in a sale or merger of the Burbank entertainment company.
Institutional Shareholder Services, an advisor to large shareholders, had recommended voting against the compensation packages of Iger and the others that would have required Disney to reimburse the executives for an excise tax. The tax would kick in in the event that the severence pays them more than triple their annual salaries.
Disney’s move drew praise from corporate governance experts, who said such benefits appeared as if Disney had been trying to skirt Internal Revenue Service guidelines designed to protect shareholders.
“Why would the IRS put a limit on golden parachutes? They don’t think they should exceed a certain amount,” said Paul Hodgson of GovernanceMetrics International, which provides independent research on corporate governance issues. “If companies say, ‘I’m going to do what I like and pay the tax for the employees, so they don’t have to suffer for it,’ the company is sticking one finger up at the IRS and their shareholders.”
Disney initially tried to persuade shareholders to ignore the guidance of Institutional Shareholder Services, claiming in a March 2 letter that the recommendation was unwarranted. The company argued that the board’s compensation committee had already adopted a policy to omit such perquisites in future employment agreements, “in response to feedback from shareholders.”
But as the date neared for the company’s shareholder meeting March 23 in Salt Lake City, Disney reversed course.
The company filed documents with the Securities and Exchange Commission on Friday indicating that it had removed the controversial provision, known as an excise tax gross-up, from the existing contracts of Iger, Chief Financial Officer James A. Rasulo, General Counsel Alan N. Braverman and parks and resorts Chairman Thomas O. Staggs.
Institutional Shareholder Services said it would recommend that shareholders vote in favor of Disney’s executive compensation in the wake of Disney’s actions.
“It’s interesting that they ended up caving,” Steven Hall, managing director for executive compensation consultant Steven Hall & Partners, said about Disney. “We were surprised by how violently they reacted against ISS. It was the kind of thing companies gripe about in boardrooms but don’t do anything about.”
Disney spokeswoman Zenia Mucha said the changes were made to conform with the policy the board had adopted for future contracts.
Hodgson said Disney had been working hard to improve the public perception of its executive compensation since the days of former Chief Executive Michael D. Eisner, who in fiscal 1998 reaped $576 million when he exercised stock options he had accumulated for years.
For the first time, shareholders of some 5,000 publicly traded companies will have the opportunity to cast a nonbinding vote on the pay and benefits extended to executive officers under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The law was adopted after the collapse of Lehman Bros. in 2008 triggered a global financial meltdown. The measure was intended to give shareholders a say on pay and corporate affairs with a nonbinding vote on executive compensation and golden parachutes.
“It really raises the stakes,” Hodgson said. “It allows shareholders to exert some considerable influence on a company if it has adopted a compensation policy that is out of favor, and tax gross-ups in general have been out of favor for some time.”
