Disney’s major executive pay cuts do not lift the Disney stock

<p>Disney (NYSE: DIS) announced on March 30 that its CEO and former CEO, Bob Iger, would relinquish 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 during its current fiscal year, it will do little for Disney or DIS shares.

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Here’s why.

The short-term forecast for DIS stocks is not good

Let me first say that I am generally bullish on Disney’s entire business. However, the money borrowed to buy 21st Century Fox film and television and production companies has put Disney in a hole. The hole is so deep that Disney will have a hard time climbing out of it if a recession occurs.

“I do not think Disney + will lose. Its brand is too strong. Therefore, I would say that Cramer is right that the Disney share outlook is positive “, I wrote in a column from October 2019 before the launch of the video streaming service.

“The only approach: If the inevitable recession comes next year or the year after that and DIS has not paid off a large part of the debt borrowed to buy 21st Century Fox, the DIS share will not do very well,” he added. .

So far in 2020, the DIS share has fallen 33%. With Disneyland, Walt Disney World, Disney Paris and all of the company’s North American stores closed as a result of the coronavirus, the company’s finances will have a short-term hit.

In addition, the company announced on March 19 that its content-creating capacity will also be severely damaged.

“There has been a disruption in the creation and availability of content that we trust for our various distribution channels, including most cancellations of certain sporting events and shutdown of the production of most movie and TV content,” the company wrote in its March 19 SEC filing. .

Pay Cuts sounds good

Disney closed its parks on March 16. In a press release on March 30, they said they will remain closed for the time being. However, the company added that all hourly park and resort workers will continue to be paid until April 18.

It is amazing that it will continue to pay its hourly employees until April 18th. But what will happen to these employees after that date?

And it may sound good to shareholders that company executives are sacrificing for the greater good. However, Disney’s 2019 power of attorney emphasized that Iger earned $ 65.6 million in 2018, or 1,424 times the average total annual compensation for the company’s employees.

I estimated in July 2019 that Iger’s hourly wage came to almost $ 23,000. At the time, Roy Disney’s grandson, Abigail Disney, was in a dispute with the company over the treatment of employees at Disneyland and Walt Disney World. At the time, Disney said it paid its hourly workers an average of $ 19.50 an hour.

Based on Iger’s remuneration for 2018, the former CEO’s total salary package corresponded to the remuneration to 1168 park employees per hour.

The conclusion of Disney’s pay cuts

While Iger stopped receiving his annual salary of $ 3 million as of today, there has been no mention of reducing the performance-based aspects of his total compensation.

For example, during the 2019 financial year, Iger received shares worth $ 40.1 million when it was earned. That is in addition to the $ 44.5 million in stock and option allotments he was granted, along with several other forms of compensation he received in addition to his annual salary.

In total, Iger seems to give up less than 4% of its total compensation. Employees who are lower on Disney’s schedule will probably get a much bigger hit

In my opinion, if Disney really wanted to aggravate the workers who staff its parks and towns, it would issue Disney stocks to each of them.

Do not misunderstand me; Disney pays its employees until mid-April is a big gesture, but try not to make me believe that Disney executives are taking one for the team. That is far from the truth.

The executive pay cuts announced by Disney are a PR step if there ever was one. And the cuts will not be a long-term catalyst for the company’s shares.

Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.