edit1111/lacter/march3/1stjc/mike2nds

Hed -- Is Eisner worth it?

After all the shouting had died down at Walt Disney Co.'s annual meeting last week about excess compensation and the misguided hiring of Michael Ovitz, company shareholders did the only logical thing: They voted for business as usual.

They did so because Burbank-based Disney remains one of the world's best managed companies, and for the last dozen or so years it has given its shareholders virtually unparalleled returns on their investments. As Chairman Michael Eisner was quick to point out at the meeting, $1,000 worth of Disney stock in 1984 is now worth more than $22,000.

Those sorts of results albeit cooling off over the past year with Disney's acquisition of ABC provides a lot of goodwill. So much goodwill, in fact, that shareholders remain willing to sign off on Eisner's compensation package, which is valued at more than $200 million.

Questioning the merit of awarding Eisner or any other successful chief executive a ton of money is, to us, a fruitless exercise that usually misses the point about the success or failure of a particular company.

On its face, Eisner's compensation is exorbitant, but so is that of the Chicago Bulls' Michael Jordan or the Dodgers' Mike Piazza or, for that matter, several of the local TV weather forecasters, who pull in six-figure salaries for telling us whether it's going to rain this week.

The point is that compensation can't be based on some preconceived notion about how much people should be paid, but rather on market-driven factors. A sports superstar demands millions because of his track record in delivering the goods. Eisner, too, has a track record that affords him a rich package.

If anything, a contract like Eisner's is more equitable than a lump-sum salary because it is based largely on how well the company performs. The emphasis on bonuses and stock options means that the better a company does, the more a chairman or chief executive is likely to draw. What could be more reasonable than that?

"You'll never pay a really top-notch executive as much as they are worth," financial wizard Warren Buffett once said. "A million, $3 million or $10 million, it's still peanuts."

Even a pay package of $200 million doesn't appear to faze Buffett, whose Berkshire Hathaway owns 24 million shares. Buffett, in fact, was on hand at the shareholders' meeting and heartily defended Eisner.

More relevant than Eisner's high compensation is whether the company can sustain the kind of double-digit growth that has made such compensation possible. Eisner himself questioned that at the shareholders' meeting as has Wall Street, given Disney stock's sub-par performance over the past year (sub-par compared with the rest of the blistering market).

The challenge, first and foremost, is to manage an ever-expanding company in particular, to deal with the growing pains from the ABC acquisition, to fight off increased global competition from other media giants, to ward off public embarrassments like the Ovitz fiasco, and to do it all under the glare of being the world's most watched company.

Eisner's ability to handle such a load will say a lot about whether he is worth so much money.

For reprint and licensing requests for this article, CLICK HERE.