On Thursday, at his company’s annual meeting, Walt Disney Co (NYSE:DIS) CEO Bob Iger said he couldn’t remember a day in the past 44 years he “wasn’t happy to show up at the office.” He may have finally had such a day on Friday of last week, at the hands of Walt Disney stock owners.
In a stunningly rare move, owners of DIS stock rejected the suggested raise for Iger and other executives for the next four years. He was tentatively offered a package that could earn him as much as $48.5 million per year through 2021, plus an equity option grant that could be worth roughly $100 million in Walt Disney stock, depending on how well the stock performs between now and then. For perspective, Iger earned $36.3 million last year, down 17% from 2016’s total.
Was the rejection aimed at someone, or something, specific, or is this a sign that shareholders are collectively growing tired of executives’ bloated pay packages for merely so-so performances?
Maybe a little of both.
DIS Shareholders Say Enough Already
For the record, proxy advisory firm Institutional Shareholder Services says only 1.2% of compensation plans are rejected by shareholders. That figure may be on the verge of rising though. Even market-darling Elon Musk, chief of electric car icon Tesla Inc (NASDAQ:TSLA), finds himself on the wrong side of the table.
Institutional Shareholder Services as well as rival proxy firm Glass Lewis & Co. both encouraged shareholders to vote against the planned $2.6 billion equity award earmarked for Musk, suggesting it was simply too big.
And it’s the stark differences between the organizations that points to this kind of pushback being a broad movement rather than a company-specific one. Tesla, though it mainstreamed electric cars, is still bleeding cash left and right, while Disney, even with its ESPN woes, remains a cash cow … and very profitable.
Not surprisingly, Disney’s Board of Directors’ compensation committee pushed the latter point, with committee chairperson Aylwin Lewis, saying “We believe that the terms of Bob’s extension are in the best interests of our company and our shareholders, and essential to Disney’s ability to effectively maximize long-term value from this extraordinary acquisition.”
That acquisition is, of course, the planned buyout of most of Twenty-First Century Fox Inc (NASDAQ:FOXA). Although Comcast Corporation (NASDAQ:CMCSA) is also making a bid for Fox’s piece of Europe’s Sky television property, the crux of the Disney/Fox deal is still expected to take shape.
It’s the impending merger of the two media giants, in fact, that prompted 44% of Walt Disney stock holders to pay Iger exactly what the compensation committee recommended. A different 52% more or less said Iger didn’t have to be kept on board at all feasible costs.
Reality Check for Walt Disney Stock Owners
And that is the core of the debate — is Iger really the only one who can get the Fox deal done, and make it bear fruit?
Perhaps he is. But, perhaps there are a lot of other people with just as much drive and cleverness that, when adding “Walt Disney Inc.” to their business card, could achieve just as much success.
The data — at least some data — supports that possibility. A statement from Glass Lewis, which gives Disney’s compensation plan a grade of “D” after two years of “C,” noted that “Overall, the company paid more than its peers, but performed about the same.”
That said, the risk the scenario poses to Walt Disney is far greater than the risk Tesla may be facing. The latter has largely been categorized by traders and analysts as a speculation, and it’s largely a given that Musk is in the habit of overpromising, underdelivering, and making millions upon millions for keeping the story going. It’s just part of the game traders have learned to deal with.
Owners of Disney stock, however, have never really been forced to tangle with the Board of Directors and its top executives in this way. The willingness to do so now is certainly understandable though. DIS stock is priced right where it was the middle of 2015, while almost all other stocks are much higher for the timeframe. Ignoring shareholders now is tantamount to saying shareholders mean little to the company’s chiefs, who are making millions while investors tread water.
In other words, this could inadvertently turn into a PR blunder. Never even mind that fact that a successful shareholder pushback could encourage investors of other companies to do the same.
Bottom Line
To that end, Aylwin Lewis noted of the vote “The board accepts the result of today’s non-binding vote and will take it under advisement for future CEO compensation.”
That’s board-speak for “thanks, but we don’t really care.”
That’s a pretty bold attitude from corporate leaders that have done very little for shareholders in the past three years. It might be just enough, in fact, for frustrated investors to exercise their only real recourse … to start wading out of their Walt Disney stock, recognizing that the deal with Fox isn’t guaranteed to revive the stagnant company.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
