The first salvo of the 1999 proxy season has been fired by the Communications Workers of America, at The Walt Disney Co.
The $277 million CWA pension fund, Washington, has submitted a shareholder proposal for inclusion in next year's Disney proxy statement, requesting the board of directors adopt an executive compensation policy that all future stock option grants be performance based.
The resolution defines performance-based stock options as those with the exercise price indexed to an appropriate Standard & Poor's 500 peer group index (such as the index used in Disney's annual proxy statement), or premium-priced stock options, which set the exercise price of the option above the current market value of the stock.
Its goal is to link Disney CEO Michael Eisner's compensation to Disney's performance, as compared with the performance of an index of entertainment companies.
The proposal was submitted under Rule 14 (a)-8 of the Securities and Exchange Commission's proxy regulations.
In response, David Thompson, Disney's senior vice president and assistant general counsel, wrote two letters to the office of chief counsel of the SEC, explaining why Disney intends to omit the proposal from its proxy materials, and asking that the SEC counsel not recommend enforcement action against the company for doing so.
In his letters, Mr. Thompson said Disney gives stock options to a broad range of employees, including non-executives and members of middle management. Therefore, he said, the options are part of the company's basic compensation strategy and are an element of the ordinary business operations of the company. As such, he added, Disney may, under SEC guidelines, exclude the resolution from its proxy materials.
But Suman Ray, a spokesman for the CWA, said the union's resolution "is clearly aimed at executive stock options," which justifies its inclusion in the proxy statement.
Mr. Ray thinks Disney executives might be nervous about the proposal because the company's financial performance has weakened over the last quarter and because a shareholder resolution concerning director independence --submitted at its 1998 annual meeting by the Teachers Insurance Annuity Association-College Retirement Equities Fund -- got 35.5% of the vote.
Mr. Ray said Mr. Thompson is attempting "to mislead the SEC staff into thinking that the proposal deals with the compensation of the general work force, when it is clearly limited by its terms to an executive compensation policy."
Mr. Thompson, he said, "seems to think that The Walt Disney Co. can insulate itself from a proposal dealing with stock options for executives simply by handing out a few options to employees who are not classified as executives."
William Patterson, director of the AFL-CIO office of investments, released a copy of the proposal and Mr. Thompson's first letter to the SEC at the Investor Responsibility Research Center's annual conference in Washington late last month.
The TIAA-CREF shareholder resolution urged Disney to restructure its board so that a majority of its directors would be independent of company manage- ment.
The resolution also urged that Disney's audit, compensation and nominating committees be composed entirely of directors who are clearly independent of management.
According to TIAA-CREF, the 35.5% vote the resolution received is the highest vote ever attained by a resolution on board independence.
Disney also was the subject of a shareholder lawsuit concerning the compensation of former President Michael Ovitz.
Mr. Ovitz was employed by Disney for less than two years, but walked away with a compensation package estimated to be as much as $140 million. However, a court recently threw out that lawsuit.
