Assignment
The Walt Disney Company brought in Michael Eisner, a Paramount executive, as CEO in 1984. The Disney board of directors agreed to pay Eisner a salary of $750,000, plus a signing bonus of $750,000, plus an annual bonus equal to 2 percent of the dollar amount by which Disney's net income exceeded 9 percent return on shareholders' equity. In addition, Eisner received options on 2 million shares of Disney stock, which meant that he could purchase them from the firm at any time during the five-year life of the contract for $14 per share.
1. At the end of 1984, shareholders' equity was about $1.15 billion. How much would Eisner's 1985 bonus have been if Disney's net income that year were $100 million? If it were $200 million?
2. In 1987, the price of Disney's stock rose to about $20 per share. How much were Eisner's options worth?