How the Fired Disney CEO Was Paid $44 Million to Lose Himself

Bob Iger may be returning to Disneyland now that he resumes his job as CEO. But ex Disney (DIS) CEO Bob Chapek is on his way to the bank.


Disney announced on November 20 that it would be firing Chapek, CEO of the media and entertainment giant since February 24, 2020, without a specific cause. And that triggers a lucrative “termination without cause” clause in his employment contract. Last fiscal year that clause was valued at about $44 million.

“In connection with his termination, Mr. Chapek will receive severance benefits due in accordance with the terms of his previously disclosed employment agreement,” Disney said in a regulatory filing.

And that’s a pretty magical way to let go.

Chapek’s $44 million pink petticoat

Chapek’s tenure has been painful for employees. The company in November, when Chapek was still CEO, announced a painful restructuring that involved layoffs, hiring freezes and other cost cuts.

But Chapek’s firing is far from financially painful. According to a Disney regulatory filing, “Options and restricted stock granted to executive officers under employment contracts continue to vest (and options remain exercisable) even after employment is terminated if the executive’s employment is terminated by the Company for no reason or by the manager with good reason.”

The company did not disclose what the exact payment for Chapek would be. But for last fiscal year, that payout would have been $17.9 million as a cash payment, $6.5 million for an options acceleration, and a limited stock unit acceleration of $19.6 million. It’s a parting gift of $43.9 million

Investors in Chapek: see Ya

Investors are unlikely to complain about Chapek’s departure. However, they could lose the $44 million he will apparently walk with.

During his roughly two-year stint as company chairman, Disney’s stock tumbled nearly 27 percent, while the S&P 500 rose 22 percent. Additionally, theme park analysts have pointed to the discrepancy between ticket prices and the quality of the experience. Downtime from malfunctioning rides is increasing, the Wall Street Journal reports, even as the price of a single park, one-day admission to Disneyland has risen again this year, to nearly $180.

Seeing the stock drop was hard for investors to take, as it had worked so well with Iger at the helm. Shares of Disney rose more than 450% with Iger as CEO from October 2, 2005 to February 24, 2020. That swept the 162% change in the S&P 500 over that period.

What’s new for Iger

We’ll see if Iger can bring the magic back.

But S&P 500 investors shouldn’t assume that this “boomerang” CEO will have the same touch he had the first time around. True, there have been successful CEOs like Steve Jobs a Apple (AAPL).

But boomerang CEOs usually fail. Such boomerang CEOs vanished at JC Penney, Chipotle (CMG) and Enron, says an analysis of the performance of 167 boomerang CEOs of companies listed on the S&P Composite 1500 index from 1992 to 2017. The report was co-authored by Bradley Hendricks, assistant professor of accounting at Kenan- Flagler Business School.

“While these high-profile anecdotes capture a great deal of attention among corporate leadership and the business press, our analysis suggests these success stories are the exception rather than the norm,” wrote Hendricks and others in “MIT Sloan Management Review “.

The study found that boomerang CEOs “performed significantly worse” than other types of CEOs.

“On average, the annual stock performance of companies led by boomerang CEOs fell 10.1% lower than their first-period counterparts. These results held true even when we compared them to other (non-boomerang) CEOs who are been hired in times of crisis.”

Looks like Iger wants to boo on his way back to work.

Bob Chapek’s Magic Fire

Estimated Fiscal Year 2021 Termination Payment for Former Disney CEO

Terms of payment Quantity
Cash $17,858,846
Acceleration option 6,457,679
Limited Escort Unit Acceleration 19.603.114
Total 43,919,639
Disney show under Chapek -26.60%
S&P 500 +22.40%
Sources: Disney Regulatory Filing

Follow Matt Krantz on Twitter @mattkrantz


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