Walt Disney Company (DIS)

The Company’s executive compensation philosophy

The fundamental objectives of the Company’s executive compensation policies are to ensure that executives are provided incentives and compensated in a way that advances both the short- and long-term interests of shareholders while also ensuring that the Company is able to attract and retain executive management talent.

The Company approaches this objective through three key components:

In making compensation decisions with respect to each of these components, the Committee considers the competitive market for executives and compensation levels provided by comparable companies. The Committee regularly reviews the compensation practices at companies with whom it competes for talent including businesses engaged in activities similar to those of the Company, specifically major entertainment companies, as well as businesses with a scope and complexity similar to that of the Company, primarily large, diversified publicly held corporations. The businesses chosen for comparison may differ from one officer to the next depending on the nature of the business for which the particular officer is responsible.

The Committee does not aim to achieve compensation levels within a particular range related to levels provided by industry peers, but uses these comparisons as one factor in determining the expected total value of salary, short-term incentives and long-term incentives that fairly compensate executive officers when considered in combination.

As noted in last year’s report, in December 2004, the Committee completed a redesign of the processes relating to annual bonus and long-term incentive grants that was intended to achieve two principal objectives:

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The Walt Disney Company Notice of 2006 Annual Meeting and Proxy Statement

The Committee has retained a compensation consultant to assist it in development and evaluation of compensation policies and determinations of compensation awards.

The Company’s policies with respect to each of the three key components identified above, as well as other elements of compensation, are set forth below, followed by a discussion of the specific factors considered in determining key elements of fiscal year 2005 executive compensation, including compensation for the executive officers named in the Summary Compensation Table in this proxy statement.

The Company’s executive compensation philosophy

The fundamental objectives of the Company’s executive compensation policies are to ensure that executives are provided incentives and compensated in a way that advances both the short- and long-term interests of shareholders while also ensuring that the Company is able to attract and retain executive management talent.

The Company approaches this objective through three key components:

During fiscal 2004, the Compensation Committee, with advice and assistance from an independent compensation consultant, devoted extensive attention to redesigning its approach to the last two of these components, with particular emphasis on redefining the process for setting individual bonuses for executive officers and bonus pools for all other bonus-eligible individuals, and establishing new standards for long-term incentive grants. The redesign efforts were completed late in the year, and the new processes will be applied beginning in fiscal year 2005.

The following report first reviews the processes that the Committee has implemented for fiscal year 2005 and beyond, and then describes the process followed by the Committee in determining key elements of fiscal year 2004 executive compensation, including compensation for the executive officers named in the Summary Compensation Table in this proxy statement.