Bob Iger’s $13.5 Million Pay Cut Draws Attention

(Bloomberg Opinion) -- What’s probably not the best way for Walt Disney Co. to help squeak Bob Iger’s compensation package through an impending shareholder vote? By drawing attention to how exorbitant the CEO’s pay is just days prior. 

Disney disclosed in a filing Monday that it lowered Iger’s target annual compensation to $35 million, down from $48.5 million, after shareholder-advisory firms criticized the sum. He’ll now receive a $3 million base salary, $500,000 less than he was initially set to make when Disney’s 21st Century Fox Inc. merger closes. Even so, Iger remains one of the top-paid CEOs, and his bump is better than Disney’s stock did in 2018. 

Bob Iger’s $13.5 Million Pay Cut Draws Attention

Disney shareholders, who rejected Iger’s lavish compensation for the first time last year, are set to vote again at an annual meeting this Thursday. Such votes are merely symbolic, but they carry weight and only on rare occasions have they gone against management. After unexpected push-back the last time, Disney had already tweaked a stock award in December that’s separate from the target annual compensation. In doing so, the company actually raised his potential stock payout, but the stakes are higher for him to receive it. If, for example, Disney beats 75 percent of the S&P 500 Index in the four years through December 2021, he gets 1.17 million shares (worth about $134 million currently). If it performs in the lower quartile of the index, he doesn’t get any. For context, Disney’s gains have slowed in recent years, though the stock has beat the U.S. benchmark over the last 12 months.

Bob Iger’s $13.5 Million Pay Cut Draws Attention

While the subsequent changes to Iger’s pay this week are a sign the company was anticipating further reproach and trying to get ahead of it, this could backfire by putting a bigger spotlight on the issue. It also comes across as an admission that Disney might have a “key-man” issue. The company’s lack of a stated succession plan at this juncture for the 68-year-old and his recent monumental shifts in strategy (e.g., the Disney+ streaming service and the Fox megadeal) have in turn made Disney’s future seem almost dependent on one person, who should be in the twilight of his career. For all Disney’s successes, this stands out as a corporate-governance failing

Iger is still beloved by Disney shareholders. He orchestrated the deals for Pixar, Marvel and Lucasfilm over his tenure, which have all made the company substantially more valuable and given it a lucrative library of characters and story lines to build on for years to come through its film, theme-park and new streaming businesses. But he’s since taken on great risk by having Disney acquire $85 billion of assets and debt from Rupert Murdoch’s 21st Century Fox, who in seeing the challenges ahead for the entertainment industry has chosen to retreat and focus on Fox News and sports programming. As Murdoch, 87, makes his exit, Iger is doubling down. 

Even though Iger has a proven M&A track record, the Fox deal is larger and more complex than his past endeavors. The merger will allow for significant cost savings that give lift to profit, but it could also serve to disrupt the empire at a time when it’s trying to get a handle on how to compete against Netflix Inc. without cannibalizing the legacy media business that propels its cash flow.

Disney is essentially overpaying Iger to keep him from retiring and to stay on to manage the sprawling operations he’s built out over the last 13-and-a-half years. But truth be told, he probably didn’t need so much pecuniary convincing. I’ve joked before that Disney World security will need to physically remove Iger because he might just strap himself to the darn castle. 

Then again, when investors are scanning the media industry, they see Netflix at a bloated valuation and burning through cash at a staggering rate, AT&T Inc. struggling to re-fashion itself as a media conglomerate as it sits atop a mound of debt and CBS Corp. looking like a rudderless ship. In comparison, Disney certainly has its perks – but right now they’re just more certain for Iger than for shareholders. 

Analysts predict its share price will climb 9 percent, on average,over the next 12 months. Their percentage of “buy” recommendations is as high as it was when Iger became CEO in 2005, according to data compiled by Bloomberg.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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