Harvard Case - Say on Pay at The Walt Disney Company
"Say on Pay at The Walt Disney Company" Harvard business case study is written by Ian D. Gow, Gaizka Ormazabal. It deals with the challenges in the field of Human Resource Management. The case study is 18 page(s) long and it was first published on : Jan 24, 2013
At Fern Fort University, we recommend that The Walt Disney Company (Disney) implement a comprehensive, multi-faceted approach to address the concerns raised by the 'Say on Pay' vote. This approach should focus on aligning executive compensation with long-term shareholder value, enhancing transparency and communication, and fostering a culture of fairness and accountability.
2. Background
The case study focuses on the 'Say on Pay' vote at Disney in 2019, where a significant number of shareholders voted against the company's executive compensation plan. This vote highlighted concerns about the disconnect between executive compensation and company performance, particularly in light of declining shareholder value and the CEO's high compensation.
The main protagonists of the case study are:
- Bob Iger: The CEO of Disney at the time, who was heavily criticized for his high compensation despite the company's declining performance.
- The Board of Directors: Responsible for setting executive compensation and facing pressure from shareholders to address the concerns regarding pay practices.
- Shareholders: The ultimate stakeholders who expressed their dissatisfaction with the executive compensation plan through the 'Say on Pay' vote.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Corporate Governance and Strategic Human Resource Management.
Corporate Governance: The 'Say on Pay' vote highlights the importance of aligning executive compensation with shareholder interests. Disney's compensation structure, which heavily emphasized short-term performance metrics, failed to adequately incentivize long-term value creation. This disconnect led to shareholder dissatisfaction and ultimately, the negative 'Say on Pay' vote.
Strategic Human Resource Management: The case study underscores the need for a strategic approach to compensation and benefits, employee incentives, and talent management. Disney's compensation structure, while generous, lacked a clear link to long-term performance and failed to adequately address the concerns of employees at various levels.
4. Recommendations
To address the concerns raised by the 'Say on Pay' vote, Disney should implement the following recommendations:
Realign Executive Compensation with Long-Term Value Creation:
- Shift the focus of performance metrics from short-term to long-term goals, including metrics such as revenue growth, market share, customer satisfaction, and environmental sustainability.
- Increase the proportion of long-term incentives, such as stock options and performance shares, in executive compensation packages.
- Introduce clawback provisions to recover excessive compensation in case of poor performance or unethical behavior.
Enhance Transparency and Communication:
- Publish a detailed explanation of the company's compensation philosophy and methodology, clearly outlining the rationale behind executive compensation decisions.
- Provide regular updates to shareholders on the performance of the company against long-term goals and the impact of executive compensation on those goals.
- Establish a dedicated channel for shareholders to voice their concerns and provide feedback on compensation practices.
Foster a Culture of Fairness and Accountability:
- Conduct a comprehensive review of the company's compensation structure to ensure fairness and equity across all levels of the organization.
- Implement a robust performance management system that aligns with the company's long-term goals and provides clear performance expectations for all employees.
- Develop a comprehensive employee training program to educate employees on the company's compensation philosophy and the importance of ethical behavior.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with Disney's core competencies in storytelling, entertainment, and innovation, and are consistent with its mission to create the most magical experiences for its guests.
- External customers and internal clients: The recommendations aim to improve shareholder satisfaction and create a more equitable and transparent work environment for employees.
- Competitors: The recommendations are based on best practices in corporate governance and compensation practices adopted by other leading companies in the entertainment industry.
- Attractiveness ' quantitative measures: The recommendations are expected to improve shareholder value by aligning executive compensation with long-term performance, enhancing transparency, and fostering a culture of fairness and accountability.
6. Conclusion
By implementing these recommendations, Disney can address the concerns raised by the 'Say on Pay' vote, rebuild trust with shareholders, and create a more sustainable and ethical corporate culture. This will ultimately lead to improved financial performance and long-term value creation for all stakeholders.
7. Discussion
Other alternatives not selected include:
- Maintaining the status quo: This would likely lead to continued shareholder dissatisfaction and potential negative impact on the company's reputation.
- Reducing executive compensation drastically: This could negatively impact the company's ability to attract and retain top talent, potentially hindering long-term growth.
Key risks and assumptions of the recommendations:
- Implementation challenges: Implementing these recommendations requires significant organizational change and buy-in from leadership.
- Resistance from executives: Some executives may resist changes to the compensation structure, especially if it reduces their potential earnings.
- Impact on employee morale: Changes to the compensation structure could impact employee morale if not implemented thoughtfully and communicated effectively.
8. Next Steps
To implement these recommendations, Disney should take the following steps:
- Form a task force: This task force should include representatives from the board of directors, senior management, and key stakeholders to develop a detailed implementation plan.
- Communicate the plan: The task force should communicate the plan to all employees and shareholders, clearly outlining the rationale and expected benefits.
- Pilot test the changes: The task force should pilot test the changes in a limited segment of the organization before rolling them out company-wide.
- Monitor and evaluate: The task force should monitor the implementation of the plan and evaluate its effectiveness on a regular basis.
By taking these steps, Disney can successfully implement the recommendations and achieve its goal of aligning executive compensation with long-term shareholder value, enhancing transparency, and fostering a culture of fairness and accountability.
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Case Description
This case focuses on the lead-up to Disney's 2012 annual meeting, where Disney would face a vote on the compensation package of its CEO, Robert Iger. Leading proxy advisory firms were recommending that shareholders reject the proposed compensation.
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