How Disney's Fired CEO Got Paid $44 Million To Get Lost

Bob Iger might be going back to Disneyland now that he’s retaking the CEO job. But former Disney (DIS) CEO Bob Chapek is going to the bank.

Disney announced Nov. 20 it was terminating Chapek, CEO of the media and entertainment giant since Feb. 24, 2020, for no specific cause. And that triggers a lucrative “terminate without cause” clause in his employment contract. Last fiscal year that clause was valued at nearly an estimated $44 million.

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

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

Chapek’s $44 Million Pink Slip

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

But Chapek’s layoff is far from financially painful. According to a Disney regulatory filing, “Options and restricted stock units awarded to executive officers with employment agreements also continue to vest (and options remain exercisable) beyond termination of employment if the executive’s employment is terminated by the Company without cause or by the executive with good reason.”

The company hasn’t disclosed what the exact payout 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 option acceleration and a $19.6 million restricted stock unit acceleration. That’s a $43.9 million parting gift

Investors To Chapek: See Ya

Investors will hardly lament Chapek’s departure. They may miss the $44 million he apparently will walk with, though.

During his roughly two-year stint as the company’s president, shares of Disney sagged nearly 27%, while the S&P 500 rose 22%. Additionally, theme park analysts pointed out the disconnect between ticket prices and the quality of the experience. Downtimes at malfunctioning rides are rising, the Wall Street Journal reports, even as the price of a single park, one-day admittance to Disneyland rose again this year, to nearly $180.

Seeing the stock drop was tough for investors to take, as it had done so well with Iger at the helm. Shares of Disney jumped more than 450% with Iger as CEO from Oct. 2, 2005 to Feb. 24, 2020. That blew away the S&P 500’s 162% change in that time.

What’s Next 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. True, there have been successful return CEOs like Steve Jobs at Apple (AAPL).

But boomerang CEOs usually fail. Such boomerang CEOs fizzled out at JC Penney, Chipotle (CMG) and Enron, says an analysis of 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, an assistant professor of accounting at the Kenan-Flagler Business School.

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

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

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

Looks like Iger may want to whistle while he returns to work.

Bob Chapek’s Magical Firing

Estimated termination payment in fiscal 2021 for former Disney CEO

Payment type	Amount
Cash payment	$17,858,846
Option acceleration	6,457,679
Restricted stock unit acceleration	19,603,114
Total	43,919,639

Disney performance under Chapek	-26.60%
S&P 500	+22.40%