Disney (NYSE:DIS) announced on Mar. 30 that its executive chairman and former CEO, Bob Iger, would forego his entire annual salary this year while Bob Chapek, who took over from Iger as CEO, would take a 50% pay cut. While the move will save the company some money in its current fiscal year, it will do little for Disney or DIS stock.
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The Short-Term Prognosis for DIS Stock is Not Good
First, let me just say that I’m generally bullish on Disney’s entire business. However, the money it borrowed to buy 21st Century Fox’s movie and television and production businesses has put Disney in a bit of a hole. The hole is so deep that Disney will have a hard time climbing out of it if a recession occurs.
“I don’t think Disney+ will be a loser. Its brand is too strong. Therefore, I would say that Cramer is right about the outlook of Disney stock being positive,” I wrote in an October 2019 column before the launch of the video streaming service.
“The only caveat: If the inevitable recession comes next year or the year after that and DIS hasn’t paid down a good chunk of the debt it borrowed to buy 21st Century Fox, DIS stock won’t be doing very well,” I added.
So far in 2020, DIS stock has tumbled 33%. With Disneyland, Walt Disney World, Disney Paris and all of the company’s North American retail stores closed as a result of the coronavirus, the company’s financials are going to take a short-term hit.
In addition, on Mar. 19, the company announced that its content creation capabilities were also going to be seriously hurt.
“There has been a disruption in creation and availability of content we rely on for our various distribution paths, including most significantly the cancellation of certain sports events and the shutting down of production of most film and television content,” the company wrote in its Mar. 19 SEC filing.
The Pay Cuts Sound Great
Disney shut down its parks on Mar. 16. In a Mar. 30 press release, it said they will remain closed until further notice. However, the company added that all hourly parks and resorts workers would continue to be paid through Apr. 18.
It’s great that it will continue to pay its hourly employees through Apr. 18. However, what will happen to those employees after that date?
And it might sound great to shareholders that the company’s executives are sacrificing for the greater good. However, in Disney’s 2019 proxy, it highlighted that Iger made $65.6 million in 2018 or 1,424 times the median total annual compensation of the company’s employees.
I calculated in July 2019 that Iger’s hourly compensation worked out to almost $23,000. At the time, Roy Disney’s granddaughter, Abigail Disney, was in a feud with the company over the treatment of the employees of Disneyland and Walt Disney World. At the time, Disney said it paid its hourly workers an average of $19.50 per hour.
Based on Iger’s 2018 compensation, the former CEO’s total pay package was equivalent to the compensation of 1,168 hourly park employees.
The Bottom Line on Disney’s Pay Cuts
While Iger was slated to stop receiving his $3 million annual salary starting today, there’s been no mention of reducing the performance-based aspects of his total compensation.
For example, in fiscal 2019, Iger received stock that was worth $40.1 million when it vested. That’s on top of the $44.5 million of stock and option awards he was granted, along with multiple other forms of compensation he received besides his annual salary.
All in all, Iger appears to be giving up less than 4% of his total compensation. Employees who are lower on Disney’s organizational chart are probably going to take a much bigger hit
In my opinion, if Disney really wanted to ingratiate itself to the workers that staff its parks and resorts, it would issue Disney stock to every one of them.
Don’t get me wrong; Disney paying its employees until mid-April is a grand gesture, but don’t try to make me believe that Disney’s executives are taking one for the team. That’s far from the truth.
The executive pay cuts that Disney announced are a public relations move if there ever were one. And the cuts will not be a long-term catalyst for the company’s shares.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.