Walt Disney Company (DIS)

Long-term compensation

In fiscal 2005, the Committee awarded long-term compensation for executive officers named in the Summary Compensation Table pursuant to the long-term incentive compensation policies adopted in December 2004 and described above. The Committee awarded the named executive officers stock options and restricted stock units identified in the Summary Compensation Table and in the table under Long Term Incentives, below. As provided in the new policies:

In determining the annual grants of restricted stock units and options, the Committee considered market data on total compensation packages, the value of long-term incentive grants at targeted external companies, total shareholder return, share usage and shareholder dilution and, except in the case of the award to Mr. Iger, the recommendations of Mr. Eisner and Mr. Iger.

In view of the then-pending succession question, Mr. Iger was not given a grant in January 2005. His annual grant was made in June 2005, at which time the Committee awarded Mr. Iger options for 274,241 shares and restricted stock units with respect to 166,126 shares. The Committee determined that these awards were appropriate for Mr. Iger’s position as President during fiscal 2005. Similarly, in June 2005, the Committee awarded to Mr. Staggs (who also had received no annual grant in January) options for 125,367 shares and restricted stock units with respect to 75,944 shares. In both cases, vesting of the units is subject to Section 162(m) performance objectives as to all the units and to a total shareholder return test with respect to half of the units.

During the course of fiscal 2005, the Committee negotiated an employment agreement with Mr. Iger covering his new position as President and Chief Executive Officer, the economic parameters of which were discussed with and approved by the independent members of the Board. During that process the Committee assessed the appropriate total compensation for Mr. Iger in his new role as President and Chief Executive Officer. The Committee’s external consultant provided an in-depth review of competitive practices, focusing on chief executive officer compensation practices at large, diversified publicly held corporations, including major entertainment companies. Based on this review, the employment agreement establishes a minimum annual salary, a minimum annual bonus target and a minimum annual long-term incentive award for Mr. Iger, but in each case subject to the terms and conditions of the applicable compensation program, including the achievement of such performance objectives established by the Committee for senior executives participating in those programs. The Committee concluded that the total compensation package reflected in Mr. Iger’s employment agreement was consistent with competitive practices, and structured to allow the Committee appropriate flexibility to assure that the compensation payable thereunder is con -

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

sistent with the overall pay for performance philosophy established by the Committee, as set forth above or as may be modified by the Committee as appropriate in future fiscal years.

In October 2005, pursuant to the terms and conditions in his employment agreement, Mr. Iger was awarded 500,000 performance-based restricted stock units. Vesting of all of the units is generally subject to Mr. Iger’s continued employment until dates specified in the agreement, as well as satisfaction of Section 162(m) performance objectives and achievement of a total shareholder return test at specified times over a period of five years. The Committee determined the size and terms and conditions of this award based on its review and analysis of competitive compensation practices, taking into account historical long-term incentive awards to Mr. Iger and the pay-for-performance philosophy described above.

The terms and conditions of Mr. Iger’s employment agreement are summarized below under the heading “Employment Agreements.”

Long-term compensation

In fiscal 2004, the Committee used two key forms of long-term compensation for executive officers named in the Summary Compensation Table: annual stock option and restricted stock unit awards and performance-based long-term incentive awards.

Annual stock option and restricted stock unit awards.    Under the Company’s Amended and Restated 1995 Stock Incentive Plan, which was in effect in fiscal year 2004, the Committee granted stock options and restricted stock units on commencement of employment and on an annual basis in amounts that took into account such factors as the goals of the long-term incentive program, market data on total compensation packages, the value of long-term incentive grants at targeted external companies, total shareholder return, share usage and shareholder dilution. Special grants were also occasionally authorized outside of the annual-grant framework, though a grantee who received a special grant that exceeds the typical annual-grant level would generally not be eligible for annual grants for two to five years or until he or she is promoted, enters into a new employment agreement or is within twelve months of full vesting, unless the Committee specifically determines otherwise. These grants were designed to provide long-term incentives to executive officers and to better align interests of executives with the interests of shareholders. In fiscal 2004, Mr. Braverman received stock options and stock unit awards as reflected in the Summary Compensation Table.

All such grants made during fiscal 2004 were approved by the Committee, taking into account the recommendations of Mr. Eisner and Mr. Iger as well as the other factors described above.

Long-term performance-based awards.    Under the 2002 Executive Performance Plan, the Compensation Committee is authorized to grant restricted stock or restricted stock units that are intended to qualify as performance-based compensation under Section 162(m). In general, restricted stock granted under the plan is a grant of stock that is subject to forfeiture if specified performance-based vesting requirements are not satisfied, and restricted stock units are awards denominated in shares of the Company that are payable to a participant in cash or shares upon satisfaction of performance-based conditions specified by the Committee.

In April 2004, the Committee approved a grant of 250,000 performance-based restricted stock units to Alan Braverman, the Company’s Senior Executive Vice President and General Counsel, as reflected in the Long-Term Incentive Plans award table elsewhere in this proxy statement. The grant reflected Mr. Braverman’s promotion to that position during fiscal 2003. In approving the award, the Committee sought to provide Mr. Braverman with an element of incentive compensation focused on mid-range performance periods (i.e., in the two- to four-year range); the amount of the award took into consideration the awards made in the same amount to other senior executive vice presidents of the Company in 2002, before Mr. Braverman assumed his current position. Vesting requirements are based upon Mr. Braverman’s continued employment and the attainment of performance targets for a two-year performance period comprised of fiscal years 2005 and 2006 and a second two-year performance period comprised of fiscal years 2007 and 2008. In accordance with Section 162(m), the target for the first performance period was set within the first 90 days of fiscal 2005 on the basis of “adjusted net income” as provided under the 2002 Executive Performance Plan. The performance target for the second two-year period will be set within the first 90 days of fiscal 2007. Subject to satisfaction of all requirements applicable to the relevant period, 50% of the stock units will vest after the first performance period and the remainder will vest after the second period. The stock units are payable in cash or shares of Company common stock in the Company’s discretion within 30 days following satisfaction of vesting conditions. The stock units have no voting rights unless and until paid in shares of common stock. Any dividends paid on the Company’s common stock while the stock units are outstanding are deemed reinvested as stock units. Accelerated vesting occurs under the awards upon a change in control of the Company followed by termination in certain circumstances, or upon death, permanent disability, wrongful termination or termination by the employee for “good reason,” regardless of whether any performance periods have been completed. See “Employment Agreements—Alan N. Braverman.”

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