Walt Disney Company (DIS)

Long-Term Incentive Compensation

The Committee made regular annual equity awards to the named executive officers in January 2009. Consistent with the equity award policies in place at the time (as described under “Performance-Based Compensation — Equity-Based Compensation” above), the Committee awarded restricted stock units and options, with 30% of the grant-date fair value of the award in the form of restricted stock units subject to performance vesting conditions in addition to the Section 162(m) test, 30% in the form of restricted stock units subject only to the Section 162(m) test and 40% in the form of options. For purposes of determining the value of restricted stock units received by executives that included performance conditions, the grant date fair value of these restricted stock units used for accounting purposes as estimated at the time of the award was discounted by 10% to reflect the uncertainty that the performance conditions would be met. The discounted grant-date fair value of the awards to Mr. Iger, Mr. Staggs and Mr. Braverman were equal to $9,000,000, $3,975,000 and $2,200,000, respectively, which were equal to the minimum provided in their respective employment agreements. The discounted grant-date fair values of the award to Mr. Mayer and Ms. McCarthy, neither of whom have contractually agreed minimums, were $1,510,000 and $936,000, respectively. As

Long-term Incentive Compensation

Employment agreements with Mr. Iger, Mr. Staggs, Mr. Braverman and Mr. Mayer provide that they are eligible to receive equity-based long-term incentive awards under the Company’s applicable plans and programs on substantially the same terms and conditions as generally apply to other senior executives of the Company. Mr. Iger’s new employment agreement provides that the fair value of each annual award made after fiscal 2008 will be not less than $9,000,000; Mr. Staggs’s new employment agreement provides that the fair value of each annual award made after fiscal 2008 will be not less than three times his year-end salary; and Mr. Braverman’s new employment agreement provides that the fair value of each annual award made after fiscal 2008 will be not less than two times his year-end salary. Mr. Mayer’s agreement does not specify a minimum fair value for his awards and no minimum fair value is established for Ms. McCarthy.

In January 2008, the Committee awarded long-term incentive compensation for fiscal 2008 to the named executive officers pursuant to the long-term incentive program described above resulting in the awards of stock options and restricted stock units identified in Fiscal 2008 Grants of Plan Based Awards table. As noted above, Mr. Iger, Mr. Staggs and Mr. Braverman also received awards of options or stock units in connection

Long-term Incentive Compensation

In January 2007, the Committee awarded long-term compensation for fiscal 2007 to named executive officers pursuant to the long-term incentive program described above resulting in the awards of stock options and restricted stock units identified in Fiscal 2007 Grants of Plan Based Awards table.

Employment agreements with Mr. Iger, Mr. Staggs, Mr. Braverman and Mr. Coleman provide that they are eligible to receive equity-based long-term incentive awards under the Company’s applicable plans and programs. Mr. Iger’s agreement provides that:

Long-term Incentive Compensation

Purpose.    The long-term incentive program provides a periodic award (typically annual) that is performance based. The objective of the program is to align compensation for named executive officers

Long-term incentive compensation

As described in last year’s report, in December 2004, the Committee also approved a new approach to long-term incentive compensation as a complement to the modifications made to the Company’s annual bonus compensation policies. The redesign took into account evolving practices at other major public corporations, as well as the Company’s own critical objective of further enhancing linkages between employee performance and the creation of shareholder value. Key elements of the redesigned policy include:

Mix of restricted stock units and stock options. The Company’s long-term incentive compensation generally takes the form of a mix of restricted stock unit grants and option awards. For grants made to senior executives, approximately 60% of the total value of a long-term compensation award typically takes the form of restricted stock unit grants, with stock options accounting for the remaining value. For 2006, the Committee has approved keeping the guidelines for determining the value of options and units and the mix of restricted stock units and stock options consistent with 2005 levels. The Committee may in the future make adjustments to this mix of award types or approve different award types, such as restricted stock, as part of the overall long-term incentive award.

Vesting of restricted stock units. Restricted stock unit awards granted as long-term incentive compensation to senior executives generally have scheduled vesting dates on or about the second and fourth anniversary dates of the grant date. On each of those dates 50% of the total award is scheduled to vest, contingent upon the executive’s continued employment with the Company. However, the scheduled vesting with respect to half of the restricted stock units eligible for vesting on each such anniversary date is also subject to a performance-based vesting requirement; namely, that the Company’s “total shareholder return” (as described below) as of each of the vesting dates must exceed the weighted average “total shareholder return” of corporations in the Standard & Poor’s 500 Index over either the prior year or the prior three years. If the performance test is not met on the first scheduled vesting date, the restricted stock units subject at that time to the performance requirement may still vest on the second vesting date (i.e., on the fourth anniversary date), provided that the performance test for the second vesting date is met, and the executive remains employed. For purposes of these determinations, “total shareholder return” reflects (i) the aggregate change, for the performance time period specified, in the market value of the Company’s stock or the S&P 500 Index, as the case may be, and (ii) the value returned to shareholders in the form of dividends or similar distributions, assumed to be reinvested on a pre-tax basis, during the performance period.

For executives subject to Section 162(m), vesting of all restricted stock units covered by the grant is subject to performance-based vesting requirements that are established to satisfy the requirements for qualified performance-based compensation under Section 162(m).

The foregoing performance-based requirements do not relate to restricted stock unit awards granted in lieu of cash under the Company’s annual bonus program, because these bonus awards are granted based on performance under the annual bonus incentive program and, in the case of awards to the named executive officers, are themselves subject to the requirements of Section 162(m). The amounts of

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

these awards are determined based on the annual bonus earned by the executive and the portion thereof, if any, determined by the Committee to be payable as a restricted stock unit award. Half of these awards will generally become vested at the end of two years and the remainder at the end of four years, contingent upon the continued employment of the executive, unless vesting is accelerated upon involuntary termination of employment (other than for cause) or as otherwise provided in employment agreements, awards or plan documents. See note 2 to the Summary Compensation Table. The Committee has on occasion made adjustments to the vesting schedule for bonus-related restricted stock units and reserves the right to do so in the future.

Stock options.    The long-term incentive program calls for stock options to be granted with exercise prices equal to the market price of the Company’s stock on the date of grant and to vest ratably over four years, based on continued employment, with rare exceptions made by the Committee. New option grants normally have a term of seven years, rather than the ten-year term that was generally used prior to fiscal 2005. The Committee will not grant stock options with exercise prices below the market price of the Company’s stock on the date of grant, and will not reduce the exercise price of stock options (except in connection with adjustments to reflect recapitalizations, stock or extraordinary dividends, stock splits, mergers, spin-offs and similar events permitted by the relevant plan) without shareholder approval.

Stock ownership and holding policy.  The incentive compensation program includes stock ownership and holding requirements for the executive officers named in the Summary Compensation Table. These officers are expected, over time, to acquire and hold Company stock (including restricted stock units) equal in value to at least three to five times their base salary amounts, depending on their positions. In addition, for all stock option grants made beginning in 2005, the executives are required, as long as they remain employed by the Company, to retain ownership of shares representing at least 75% of the after-tax gain realized (100% in the case of the Chief Executive Officer) upon exercise of such options for a minimum of 12 months. The Committee believes that this ownership and holding policy further enhances the alignment of executive and shareholder interests and thereby promotes the objective of increasing shareholder value.

Periodic review.    The Committee intends to review both the annual bonus program and the long-term incentive program annually to ensure that its key elements continue to meet the objectives described above. Except as described above, the Committee has determined that there will be no changes made to either program for fiscal 2006.

Long-term incentive compensation

In December 2004, the Committee also approved a new approach to long-term incentive compensation as a complement to the modifications made to the Company’s annual bonus compensation policies. The redesign also

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took into account evolving practices at other major public corporations, as well as the Company’s own critical objective of further enhancing linkages between employee performance and the creation of shareholder value. Key elements of the redesigned policy include:

Mix of restricted stock units and stock options.    Beginning in fiscal year 2005, the long-term incentive policy contemplates that long-term compensation will generally take the form of a mix of restricted stock unit grants and option awards. It is anticipated that, for grants made to senior executives, approximately 60% of the total value of a long-term compensation award will typically take the form of restricted stock unit grants, with stock options accounting for the remaining value. The Committee may in the future make adjustments to this mix of award types or approve different award types, such as restricted stock, as part of the overall long-term incentive award.

Vesting of restricted stock units.    Under the new policy, restricted stock unit awards granted as long-term incentive compensation to senior executives will generally continue to have scheduled vesting dates on each of the second and fourth anniversary dates of the grant date, and on each of those dates 50% of the total award will be scheduled to vest, contingent upon the executive’s continued employment with the Company. However, the scheduled vesting with respect to half of the stock units eligible for vesting on each such anniversary date will also be subject to a performance-based vesting requirement; namely, that the Company’s “total shareholder return” (as described below) as of each of such vesting dates must exceed the weighted average “total shareholder return” of corporations in the Standard & Poor’s 500 Index over either the prior year or the prior three years. If the performance test is not met on the first scheduled vesting date, the stock units subject at that time to the performance requirement may still vest on the second vesting date (i.e., on the fourth anniversary date), provided that the performance test for the second vesting date is met, and the executive remains employed. For purposes of these determinations, “total shareholder return” reflects (i) the aggregate change, for the performance time period specified, in the market value of the Company’s or the S&P 500 Index, as the case may be, and (ii) the value returned to shareholders in the form of dividends or similar distributions, assumed to be reinvested on a pre-tax basis, during the performance period.

The 50% of the restricted stock unit grants not subject to performance vesting will be scheduled to vest in equal tranches on the second and fourth anniversaries of grant, contingent upon the executive’s continued employment with the Company. However, for executives subject to Section 162(m), vesting of all restricted stock units covered by the grant will be subject to performance-based vesting requirements that will be established to satisfy the requirements for qualified performance-based compensation under Section 162(m) of the Code.

The foregoing performance-based requirements do not relate to restricted stock unit awards granted in lieu of cash under the Company’s annual bonus program, because the bonus awards under that program are granted based on performance under the annual bonus incentive program and, in the case of awards to the named executive officers, are themselves subject to the requirements of Section 162(m). The amounts of these awards will be determined based on the annual bonus earned by the executive and the portion thereof, if any, determined by the Committee to be payable as a restricted stock unit award. Half of these awards will generally become vested at the end of two years and the remainder at the end of four years, contingent upon the continued employment of the executive, unless vesting is accelerated as provided in employment agreements, awards or plan documents. See note 1 to the Summary Compensation Table. However, the Committee has on occasion made adjustments to the vesting schedule for bonus-related restricted stock units and reserves the right to do so in the future.

Stock options.    The Committee anticipates that stock options will continue to be granted with exercise prices equal to the market price of the Company’s stock on the date of grant and will vest over four years, based

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on continued employment. The Committee anticipates that new option grants will have a term of seven years, rather than the ten-year term that has been used in the past. The Committee will not grant stock options with exercise prices below the market price of the Company’s stock on the date of grant, and will not reduce the exercise price of stock options without shareholder approval.

Stock ownership and holding policy.    As part of the redesigned incentive compensation program, the Committee has established new stock ownership and holding requirements for the executive officers named in the Summary Compensation Table. These officers will now be expected, over time, to acquire and hold Company stock equal in value to at least three to five times their base salary amounts, depending on their positions. In addition, for all stock option grants made beginning in 2005, the executives will be required, as long as they remain employed by the Company, to retain ownership of shares representing at least 75% of the after-tax gain realized (100% in the case of the Chief Executive Officer) upon exercise of such options for a minimum of 12 months. The Committee believes that this ownership and holding policy further enhances the alignment of executive and shareholder interests and thereby promotes the objective of increasing shareholder value.

Periodic review.    The Committee intends to review the operation of the redesigned long-term incentive program at least annually to be assured that its key elements continue to meet the Company’s fundamental objective of enhancing the alignment of senior management’s interests with those of its shareholders.