Are You Worth $15,750,000 a Year?

Dec. 21, 2004
Disney Thinks Michael Eisner Is.

As a kid, I used to play "What do you want to be when you grow up?" At various times I wanted to be a mattress tester, a zoo attendant, and a junk collector. When I became older and more sophisticated, I wanted to be a piano tuner, a bicycle salesman, or a street-corner beggar. But when it came time to go to college, I decided to become a psychiatric social worker, earn a hefty $5,000 a year, retire at age fifty, and live happily ever after on my savings. To put that in perspective, it was the Depression, and $5,000 a year was the Utopian dream of all kids back then. If I was a kid today, however, I'd like to grow up to be Michael Eisner. Or, better yet, Michael Ovitz. Imagine having a 10-year contract that pays a base salary of $750,000 a year, plus a performance-based bonus that's capped at $15 million a year,. Add to that existing stock options (6 million-8 million shares) worth $358 million today, plus new options (8 million shares) estimated to be worth $195.4 million, and a severance package that vests immediately if you're fired without "good cause." That's what Walt Disney Co. is compensating Chairman and CEO Eisner.Is he worth it? Is any CEO worth it? I can make arguments for and against--although, I must confess that the pain in my bowels leads me to agree with San Diego lawyer, William S. Lerach, who filed a shareholder suit in California against Disney. He describes Eisner's contract this way: "It is too much Hollywood, too much aggrandizement of power." It has never been my good fortune--or bad--to be CEO of a company the size of Disney ($21.2 billion). And I've never been smart enough or lucky enough to grow a company's sales 12-fold and its share price 19-fold over a 12-year span of time. But I know some other CEOs who have. And although none of them are underpaid, none have the gratuitous contract that Eisner has negotiated for himself. As a Clevelander and a baseball fan, I can't help but make a comparison between Eisner's contract and that recently negotiated by Albert Belle, the highest-paid player in baseball. Belle made a terrific contribution to the Cleveland Indians baseball team. But there were eight other players on the field while Albert was doing his thing. And there were many others in the bullpen and on the bench to help out whenever Belle got into one or another of his "problems." Is Belle worth the $11 million a year the Chicago White Sox are going to pay him for the next five years? Check with me next year and we'll compare notes. I'm not a Belle-caliber bettor, but I'm willing to risk a dollar or two that some of the CEOs I know could run Disney every bit as well as Eisner. I am not one of them. My former company is substantially smaller than Disney, but, it grew nicely in sales and in profits during my tenure--eightfold in revenue and 14-fold in profits. And although I was CEO during the period of its remarkable growth, I will readily admit that I was not the person responsible for our impressive success. In fact, I was not even the most important person responsible for our success. And I'll wager that the same is true at Disney. Another big difference: We did not have to pay Michael Ovitz an estimated $98 million in cash and options for jumping ship after only one year on his job. How many company boards do you know of that would have paid Michael II a tidy $98 million because "the twain between Mikes would not meet?" If I were a Disney shareholder, I think I would have a nasty comment or two about that bit of corporate-governance wisdom. As an outsider, however, it seems to me that Eisner is making out better with Disney than Disney did. Question: Where would Eisner be without Disney? And what about Cap Cities/ABC? Where has its magic gone under Eisner? Tom Murphy must be turning over in his Jacuzzi. Michael Eisner is a person, just like you and I. He lives, he breaths, he thinks, he feels, he eats, he sleeps, and he does--just as we do. He has the same number of hours in a day to do it in. Sure, he's running a huge company. Sure, he has lots of employees. He generates lots of cash, and he wheels and deals and makes important decisions. But so do all CEOs. Some run companies that are bigger, most run companies that are much smaller. But they all have the same responsibilities and do the same kind of work, in the same number of hours, in the same number of days, months, and years. I know lawyers who charge anywhere from $50 to $300 a hour for their time. I know doctors who charge as much as $500 an hour, and chief executives who earn $1,000 an hour. But, by my calculation, Eisner earns $7,500 an hour--not counting his stock options. Is Mike Eisner worth what he earns? He must think so. He convinced his board that he was. Do his employees think he's worth that kind of money? I really don't know. But I do know this. Mike Ovitz thinks he's worth it. After all, Ovitz earned $46,666 an hour for his time on the job. I've just decided; I'd rather be Mike Ovitz!

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