Eisner cashes in huge stock option
Eisner paid $ 3.59 each for the shares. Then, later in the day, he turned around and sold 3.4 millionof them for $ 40 apiece, walking away with $ 123.8 million net in cash. That still left him owning 2 million shares from the option. Combine that with his base salary and likely bonus, and Eisner may earn more than $ 200 million this year.
But at a price. The option deal also left Eisner with a huge tax bill next April on his capital gain of approximately $ 196.6 million, assuming a value of $ 40 per share for the stock he still owns.
Eisner isn't alone. Disney president Frank Wells sold 1.6 million shares at the same price, reaping a profit on those shares of $ 58.25 million.
The reason for the sale, Eisner said in a statement, was concern about potential tax changes under the incoming Clinton administration that could hammer Disney and other companies.
Eisner's options date back to his first contract with Disney when he came aboard in 1984. That allowed him to buy 8.1 million shares, after adjusting for splits.
The combined sale by the two executives of 5 million shares, or about 1% of Disney's outstanding stock, however, rattled the market. The issue was batted down $ 1.875 a share, closing yesterday at $ 40.375, a 4.3% loss.
Clearly, the selling by two top exex may have sparked concern among investors that the stock had peaked. But the company disagreed.
The stock price can be depressed "if you sell this much stock at one time ... but it isn't a negative event," echoed Ray Watson, chairman of Disney's executive committee and former chairman of the board.
The sale, he added, was tied to expected tax changes that would limit the amount of executive compensation that corporations can deduct as an expense.
In a statement issued by Eisner--an excerpt from his upcoming letter to stockholders in the 1992 annual report--he pinned his action on possible tax changes next year to limit the deductibility of executive compensation as a corporate expense.
Another factor may be that the Clinton administration might raise tax rates on high-income individuals.
Whatever the reason, Eisner's action catapulted him into the stratosphere of corporate pay.
According to compensation expert Graef Crystal, who designed Eisner's pay package, the Disney topper is benefiting from the tremendous gain the company's stock has made since 1984. He put Disney in the 95th percentile of 300 large corporations in maximizing shareholder returns over the past eight year. In that period, Disney's market value has jumped to $ 22 billion from $ 2 billion.
Last year, Eisner received $ 5.4 million in salary and bonus, when he didn't exercise any options. He takes home a base pay of $ 750,000, with the remainder coming from a percentage of corporate profits above a certain amount.
This year, Eisner's bonus could be as high as $ 7.4 million using Crystal's formula and estimates of Disney's fiscal year-end profits. Adding base salary and bonus to yesterday's $ 196.6 million, and Eisner becomes the $ 205 million man.
But Crystal says that's OK. "It's one of the most risky incentive packages," he noted. "One, he has a low base salary. Second, he has to stand out in the sun a great deal longer before he gets a bonus at the oasis."
