Bob Iger has signed a new five-year contract with the Walt Disney Co. that will keep him at the helm until 2015, when he will step down as chief executive and leave the entertainment giant the following year at age 65.
In March, Iger will assume the additional role of chairman with the retirement of Disney’s current board chairman, John E. Pepper Jr. Iger will serve in the dual capacity as chairman and chief executive for three years, until a successor is named CEO. At that time, Iger will become executive chairman and serve until June 2016.
Corporate governance experts criticized Disney for re-combining the two top executive positions that the board had separated in 2004 amid growing shareholder dissatisfaction with the performance of Michael Eisner, who at the time had served for two decades as both chairman and CEO. Former U.S. Sen. George Mitchell was named chairman in 2004 and Iger took over for Eisner as CEO the following year.
“Given the controversy surrounding that position, I’m rather surprised they’ve combined that role,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “The modern trend has been to separate the two. … At this point, I don’t see any good reason for re-combining it. Doing so only creates more controversy.”
Paul Hodgson, senior research associate at GMI, a corporate governance research firm, said shareholders prefer a division of the roles of board chairman, who is charged with representing investor interests, and chief executive, who oversees the operational and managerial side of the company.
“That would be considered a backward step by Disney,” Hodgson said. “The current trend going on at the moment is to separate the chairman and the CEO positions to introduce a much more effective balance of power in the boardroom.”
Pepper addressed the governance issues in a statement, saying that the board determined Iger should assume the added role of chairman to assure a smooth transition in leadership.
“For more than six years, Bob Iger has proven he has that ability at the highest level,” Pepper said in the statement. “The Board is delighted that the company has been able to secure the longer-term continuation of Bob’s unique blend of experience and leadership skills.”
Disney’s corporate governance guidelines call for the appointment of an independent lead director, elected by the board, whose responsibilities would include evaluating the chief executive and performing the board’s annual self-assessment.
Doug Creutz, a media analyst for Cowen and Co., said Disney may have taken the unusual step of publicly laying out its succession plans to assure investors that Iger serving in both capacities “isn’t a permanent arrangement.”
Under his new contract, Iger will receive an annual base salary of no less than $2.5 million — a raise of $500,000 from his previous employment agreement. For the three years in which he will hold both titles, Iger’s annual incentive bonus could increase to $12 million, based on the company’s performance — operating income, free cash flow, earnings per share and return on invested capital.
In that same period, he will also be eligible for $15.5 million in stock and options that vest over several years. Both his incentive bonus and stock and options package goes to $6 million when he serves in the sole capacity as executive chairman.
Last year, Iger’s total compensation package, including salary, bonus and equity awards, reached $28 million, according to the company’s proxy filing.
Disney has already taken steps to groom potential successors to Iger.
In 2009, Iger reversed the roles of two of his top executives. He named Tom Staggs, the company’s chief financial officer, as chairman of the parks and resorts group. Although Staggs was highly-regarded by the investor community, he lacked operational experience. Jay Rasulo, who at the time served as head of the parks division, took over as the company’s face to Wall Street.
Since taking the reins of Disney six years ago, Iger has engineered a number of major transactions, including the acquisitions of Pixar Animation Studios and Marvel Entertainment, and has replaced a number of senior managers with his own picks. Most recently, company veteran Andy Mooney was swept out and succeeded by home entertainment chief Bob Chapek.