The Director Compensation Project: Disney

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Disney's (DIS-NYSE) 2008 proxy statement.

Name	Fees Earned or paid in cash	Stock Awards	Option Awards	All Other Compensation	Total
Susan E. Arnold	$31,113	$24,890	--	--	$56,003
John E. Bryson	65,000	80,772	$56,367	$1,946	204,085
John S. Chen	75,000	68,104	48,206	5,016	196,326
Judith L. Estrin	83,264	76,492	56,367	7,668	223,791
Steven P. Jobs	--	--	--	--	--
Fred H. Langhammer	85,042	67,027	31,886	2,220	186,175
Aylwin B. Lewis	85,000	68,267	48,206	536	202,009
Monica C. Lozano	94,361	79,138	56,367	12,298	242,164
Robert W. Matschullat	90,000	74,699	52,235	2,406	219,340
John E. Pepper, Jr. (Chairman)	23,750	395,269	20,036	832	439,887
Orin C. Smith	75,000	62,594	20,036	783	158,413
Retired Directors
George J. Mitchell (former Chairman)	--	$125,000	$100,910	$162,435	$388,345
Leo J. O'Donovan, SJ	$32,708	26,167	155,990	148,152	363,017

Director Compensation. The board met seven times during fiscal 2007. Average attendance was approximately 93%. Although no directors received more than $100,000 in director’s fees paid in cash, the non-employee directors as a group averaged $221,504 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards and options grants, which are considered director’s fees for purposes of complying with exchange rules. Providing such a large portion of director’s fees in stock and options allows Disney to pay its directors handsomely while saving cash and complying with the exchange rules.

Director Tenure . On average, the non-employee directors have served on the board for just 4.5 years. Many of the directors also sit on other boards. One director alone sits on the boards at Nike, Inc., Washington Mutual, and Conservation International.

CEO Compensation. One final point of interest is the compensation paid to the CEO, Robert A. Iger. He was paid $27,699,201 last year, a relatively small portion of which came in the form of direct salary ($2,000,000). The majority of his compensation was a cash bonus of $13,670,686, with combined stock and options awards of $10,174,840. Additionally, Mr. Iger benefitted from the increase in pension value and nonqualified deferred compensation earnings of $1,108,498 and "other compensation" of $739,852. This included personal air travel, security, and "other," which can include vehicle benefits, health club membership, an annual physical exam and financial consulting.