Walt Disney Co.’s multimillion-dollar contract with Michael Ovitz was unreasonable and one of the most generous ever, a compensation expert testified on Monday for shareholders suing the board to recoup as much as $200 million.
The shareholder lawsuit, brought in 1997, claims the board of directors was asleep at the wheel when it approved Ovitz’s initial contract and again when it allowed him to walk away from his job as president with a $140 million severance package 14 months later.
Disney Chief Executive Officer Michael Eisner engineered a deal to hire his good friend Ovitz in 1995, the shareholders say, bringing on board one of Hollywood’s most powerful talent agents and founder of Creative Artists Agency.
At the time, the company agreed to pay Ovitz a salary of $1 million, with 5 million stock options and an estimated annual bonus of $7.5 million, according to documents introduced at the trial in Delaware’s Court of Chancery business court.
“The initial contract was one of the most generous — if not the most generous — ever offered to a non-CEO in corporate America,” Kevin Murphy, a University of Southern California business and law professor, testified for shareholders.
Murphy said the annual salary and bonus — valued at $8.5 million — was the most paid to any president of a Fortune 500 company in the early 1990s, a group whose median compensation ran at $540,000.
He added that Ovitz’s stock option plan — valued at $107 million — was the richest ever granted to an executive when the contract was signed in 1995.
Murphy called the pay package “unreasonable” and told the court it was “not in the interest of shareholders.”
Plaintiff shareholders called Murphy as the last of three expert witness they are relying on to make a case that Disney’s board failed to give enough scrutiny to Ovitz’s hiring and firing.