Disney stops paying 100,000 workers; cuts mean $500 million a month in savings
Walt Disney Co. will stop paying more than 100,000 employees this week, nearly half of its workforce, as the world’s biggest entertainment company tries to weather the coronavirus lockdown.
Suspending pay for thousands of so-called cast members will save Disney up to $500 million a month across its theme parks and hotels, which have been shut in Europe and the U.S. for almost five weeks.
But slashing fixed costs in a more severe way than other theme-park owners, such as NBCUniversal and Warner Media, poses significant risks to the reputation of the century-old empire behind Mickey Mouse.
The decision leaves Disney staff reliant on state benefits — public support that could run to hundreds of millions of dollars over coming months — even as the company protects executive-bonus schemes and a $1.5-billion dividend payment due in July.
By contrast, some big multinationals, including L’Oréal and Total in France, have vowed to forgo state aid in a show of solidarity with taxpayers.
Disney over the past month has raised debt and signed new credit facilities, leaving the company with about $20 billion in fresh cash to draw upon for a downturn. “They could afford” not to furlough staff, said Rich Greenfield, analyst at BTIG.
Walt Disney Co. on Thursday said furloughs will begin April 19.
He cautions, however, that Disney is probably braced for a “very prolonged shutdown.” Disney made nearly $7 billion in operating income from its parks, experiences and products business last year, making up nearly half of all operating profits. Shares in Disney have fallen by a quarter since the outbreak of the virus.
“With labor accounting for approximately 45% of operating expenses and 33% of total expenses, we assume notable savings,” said JPMorgan’s Alexia Quadrani, who estimates the furloughs, alongside other cost cuts, will save Disney about $500 million a month.
Disney will provide full healthcare benefits for staff placed on unpaid leave. From April 19 onward, it urged employees to apply for the extra $600 a week of federal support available through the $2-trillion coronavirus stimulus package.
In Orlando, home to more than 70,000 Disney cast members, Florida offers unemployment payments of up to $275 a week for 12 weeks — among the lowest rates in the U.S.
California’s jobless rate shot up in March as coronavirus shutdowns took effect and 2.7 million filed unemployment claims in just a month
Salary payments also will be stopped for most of the 17,000 staff at Disneyland Paris, who will be placed on France’s “partial activity scheme.” This allows companies to reduce staff hours or furlough workers while the government covers up to 84% of their net salary.
Some union representatives of French workers have assailed Disney for failing to top up the government support. “Will we have Disney+?” asked the CFDT union, noting executives were “no doubt much more comfortable in confinement than most of the company’s employees.”
Djamila Ouaz, a CFDT representative, did acknowledge the relatively better position of staff in Paris. “We are in France, so we have unions and legal rights to defend ourselves,” she said. “In the U.S. it’s a catastrophe.”
Top Disney executives have made salary sacrifices to “better enable the company to weather the extraordinary business challenges.” Bob Iger, executive chairman, gave up the remainder of his $3-million salary for this year, while Bob Chapek, who recently replaced Iger as chief executive, will forgo half his $2.5-million base salary.
Disney protected incentive schemes, which account for most of the executives’ remuneration. Iger earned $65.6 million in 2018 and $47 million last year, The latest package is more than 900 times that of the median Disney worker’s earnings, which stands at about $52,000.
Chapek could potentially earn an annual bonus “of not less than 300%” of salary, in addition to a long-term incentive award of “not less than $15 million.”
Speaking at Disney’s shareholder meeting in March, Chapek said: “Our ability to do good in the world starts with our cast members ... who create magic every day. Our commitment to them will always be our top priority.”
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