Disney CEO has some new heights to scale to earn his pay

Iger’s new compensation package depends a lot on what he does on streaming services

Walt Disney Co. needs to look like the Magic Kingdom again if Bob Iger wants to get paid like a king. Earlier this year, Disney shareholders baulked at an exorbitant pay package that was awarded to the CEO amid the stock’s middling performance.

It was a meaningful statement given that Iger is one of America’s most admired corporate leaders; only a tiny universe of S&P 500 companies lose such votes each year. But in Disney’s case, it was effective. In a filing, Disney tweaked part of Iger’s contract. He is now eligible for up to 1.17 million shares — worth about $135 million currently — if Disney beats at least 75 per cent of the S&P 500 Index in the four years through December 2021. If Disney performs in the lower quartile of the index, Iger will receive nothing. (He’ll still make his $3.5 million salary, bonus and other equity awards.)

But does Iger really believe a legacy media company can beat the stock market by such a wide margin? At one time, it was a given that Disney would.

However, Disney has become more vulnerable as Netflix Inc and a deluge of other streaming services threaten the industry’s two biggest streams of revenue: advertising and cable-package fees. Disney’s stock gains didn’t exceed even half the S&P 500 over the last four years, and that includes a period in which it was boosted by Star Wars: The Force Awakens, the highest-grossing movie domestically of all time.

Just three years away from retirement, Iger is in the midst of his largest acquisition yet, an $85 billion deal for 21st Century Fox Inc’s cable-entertainment and film assets. The integration will likely be messier than Disney’s past purchases. The Fox transaction is part of Disney’s new streaming strategy, which will could lead to strife within the empire.

Tough choices will be made as far as which new content should be reserved for the Disney+ streaming service, potentially instead of releasing it to theatres or home video or on its cable networks. The company may suffer a $1.4 billion hit to revenue in fiscal 2020.

Given his clear desire to continue running Disney, along with the speed bumps the stock has hit in recent years and the company’s reduced visibility, is such a generous pay package justified? No.