Eisner Makes $565 Million in Stock Options

In the single biggest payday for an executive in history, Walt Disney Chairman Michael Eisner on Wednesday exercised stock options at a profit of about $565 million that he had accumulated as head of the entertainment giant.

Eisner exercised options for 7.3 million shares of stock that he has been accumulating since they were awarded him in contract negotiations in January 1989. The huge value reflects in part a Disney stock that has soared lately.

Eisner’s pretax payout is his second gigantic one within the past five years. In 1992, he reaped $202 million, nearly all of that from options he exercised. That action triggered intense debate over lucrative stock option packages for executives, as some experts believe this is likely to do once again.

In a statement, Eisner acknowledged that his action “will undoubtedly provoke much discussion. The profits reflect the remarkable growth of our company which our shareholders and I have been fortunate to enjoy over the past 13 1/2 years, which I hope and expect to continue.”

Executive compensation expert Graef Crystal, who designed Eisner’s contract, estimated that Eisner has earned close to $1 billion since he has arrived at Disney, putting him for now a shade behind the late Coca-Cola Co. Chairman Roberto C. Goizueta in money earned by a chief executive. Eisner still has a huge chunk of stock options--about 8.7 million shares worth--that he can’t exercise yet and which will presumably increase in value over the next decade.

Crystal said that more executives are likely to exercise options in eye-popping amounts in part because the bull market of the past few years has made their options worth so much and because some may be spooked by the stock market fluctuations of last October.

“They’re probably going to be saying ‘Let’s clean out the cookie jar while we can.’ We’d better grab it,” Crystal said.

Eisner’s payday exceeds the $550 million that former junk-bond financier Michael Milken took home in 1986, believed to be the previous record.

Although Eisner’s pay package is huge, his net worth still far trails that of a number of executives who own large chunks of the companies they run. Forbes magazine recently estimated Microsoft Chairman Bill Gates is worth $39.8 billion.

Eisner’s payouts have been massive, but executive compensation experts frequently defend his pay package because it is so closely tied to the performance of Disney’s stock. Eisner’s base pay has remained at $750,000 a year since he was first hired to turn the then-ailing entertainment company around in 1984. The gains he is reaping now were earned over a nearly nine-year period even though he is realizing them on a single day.

Stock options are financial incentives that allow an executive to buy stock at a set price. As the company’s stock price increases, the options increase in value because the executive can still buy them at that set price. If the company performs poorly and the stock lags, the options may have no value at all.

In Eisner’s case, he was able to buy the 7.3 million shares for about $130 million. Based on the closing price of Disney’s stock price Wednesday, those shares would have been worth about $695 million, making for a paper profit before taxes of about $565 million.

About 5.5 million of his options were purchased at $17.14 a share, with 1.8 million shares at $19.64. That compares to a Disney stock price that has soared to nearly $100 a share. On Wednesday, it closed at $95.19, down $1.38 in trading on the New York Stock Exchange.

Eisner sold or donated 80% of the shares he acquired Wednesday, with the largest chunk, 2.6 million shares, earmarked to cover taxes. He kept about 20% of the shares for his personal portfolio.

Overall, Eisner sold an additional 1.4 million for what Disney described in a statement as “estate planning purposes.” Wall Street sources said that Eisner probably sold shares for nearly $93 a share, and that investment bank Goldman Sachs resold them to investors at $93.50 a share.

Eisner donated an additional 300,000 shares to his family charitable foundation.

In a statement, Eisner said he is keeping 1.6 million of the shares, putting his total holdings in the Burbank-based entertainment company at 3.6 million shares. Eisner said he is replacing the 1 million shares he donated to the foundation from his personal portfolio last April.