Outside prospect for No. 2 job may demand CEO title by a certain
date -- or hefty payout
By Joann S. Lublin and Ben Fritz
Finding a new No. 2 executive may prove a complicated and costly
task for Walt Disney Co., the world's biggest media
conglomerate.
Tom Staggs, once viewed as the heir apparent to Chief Executive
Robert Iger, stepped down Friday as chief operating officer, a
change Disney announced just last month. The company's board of
directors needs an executive ready to take command in two years,
when the 65-year-old Mr. Iger plans to retire.
Board members will more seriously consider external candidates
than in the past, people familiar with the matter have said. But an
outside prospect for the No. 2 job may demand the CEO title by a
certain date -- or a hefty payout if he or she never takes command
of the Magic Kingdom.
Disney directors may take those steps to attract a strong
second-in-command, according to someone close to the company. "It's
expensive to bring new leaders in from the outside," the person
said.
Some aspiring chief executives who came aboard as understudies
have won such assurances. J.C. Penney Co. recently took this
approach by guaranteeing Marvin Ellison a juicy consolation prize
in case it failed to move him into the corner office quickly.
The struggling department-store chain picked the Home Depot Inc.
veteran as its next leader in fall of 2014 and gave him a long
transition period to come up to speed. Mr. Ellison initially held
the title of president, with an agreement that Penney would elevate
him to chief executive the following summer.
Under his employment contract, Mr. Ellison could have collected
a multimillion-dollar severance package if he didn't succeed CEO
Myron "Mike" Ullman by Aug. 1 2015. He assumed command on
schedule.
Mr. Ellison could have stayed at Home Depot. Known for his
strong operational skills, he was considered for CEO before another
insider was selected in 2014.
A Penney spokeswoman declined to comment about the Ellison
arrangements.
Over the years, companies such as Motorola Inc., TRW Corp. and
AT&T Corp. also have promised a new senior executive the
highest job or a sizable departure payment -- and occasionally paid
plenty when the expected promotion didn't occur. "Disney directors
should offer those assurances to an external second-in-command,"
said Robin Ferracone, chief executive of Farient Advisors LLC, an
executive-compensation consulting company in Pasadena, Calif.
Still, Disney is one of the most successful and attractive
companies in the world. If the board brings in a less experienced
but promising executive to become chief operating officer who
doesn't necessarily expect to become CEO of such a large company
soon, it is possible such assurances won't be necessary.
Mr. Iger plans to retire in June of 2018, after the board asked
him to extend his tenure past his original retirement date in 2015.
Given the current timeline, board members could ask him to delay
his retirement again so he can groom a different heir apparent.
The potential for such an extension could be a concern to
prospective successors.
"If you don't sweeten the pot, attractive candidates will have
to take the risk that Mr. Iger doesn't fulfill his 2018 retirement
pledge," Ms. Ferracone explained.
Substantial severance for a No. 2 executive recruited by Disney
would show that the company is "very serious about making the CEO
appointment happen in two years," said Steven B. Potter, U.S.
managing partner at Odgers Berndtson, an executive-search firm.
"The world is littered with broken promises about the CEO's job,
but it's not always the company's fault," Mr. Potter said, noting
that candidates sometimes fall short of expectations.
An outside prospect capable of running an enterprise as complex
and creative as Disney will expect a compensation package that also
includes a generous signing bonus and equity grant, another pay
specialist suggested. By the time a candidate is further
compensated for money left on the table at his or her previous
position, "you could be looking at a package well north of $25
million," estimated Frank Glassner, CEO of Veritas Executive
Compensation Consultants in San Francisco.
Disney's board of directors is expected to retain a search firm
to look for inside and outside candidates to replace Mr. Staggs,
but hasn't yet done so, said a person with knowledge of the
matter.
Disney senior executive ranks include several company veterans,
but all of them took their current roles within the past two years.
And no insider appears to be as well positioned to become CEO as
Mr. Staggs was. Before becoming operating chief in February 2015,
he was groomed for the job by gaining operational experience as
chairman of the company's parks and resorts business after a long
tenure as chief financial officer.
In the No. 2 job, Mr. Staggs worked closely with Mr. Iger, but
didn't have any divisions or executives reporting solely to
him.
He is to remain a special adviser to Mr. Iger through the end of
Disney's current fiscal year in early October. To retain certain
equity awards and stock options, under the terms of his contract,
Mr. Staggs must remain as a consultant to the company until six
months after submitting his resignation "for good reason." The
provision also prevents the former COO from working for competitors
during that period, meaning he wouldn't be able to start another
job until October at the earliest.
Write to Joann S. Lublin at joann.lublin@wsj.com and Ben Fritz
at ben.fritz@wsj.com
(END) Dow Jones Newswires
May 09, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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