Hollywood pay

As I've discussed, Hollywood often bashes the capitalist pigs who run giant corporations. So you'd think the moviemakers would be lining up in favor the SEC's proposal to require more disclosure of how much the pigs are being paid. But, as discussed in this WSJ article, there's a catch: the proposal would require disclosure of compensation of high-paid non-executive employees – like movie stars, directors, and producers. No names – but the culprits will be obvious.

Viacom, which may be paying Brad Grey at Paramount and Steven Spielberg at DreamWorks more than Sumner Redstone who runs the whole company, plans to file a comment with the SEC protesting this application of the rule. And there's sticky issues over at television: Katie Couric at CBS, Jay Leno at NBC, Larry King at TimeWarner, Bill O'Reilly at News Corp.

Hollywood claims disclosure could be sticky because these contracts are complex and contingent. Also, DreamWorks Animation, which has to pay Pixar animator John Lasseter, filed a comment saying, "this would create an invasion of privacy for non-policy-making officers and put us at a competitive disadvantage. We believe it would also create morale problems internally." As I've been discussing for months (see my executive compensation archive), these will be problems for plain old executives too.

One might argue that paying stars is more likely to be arms' length than fixing the compensation of the executives who run the company, and may exercise control over the board. So possibly the benefits of disclosure are lower here. But that would questionably assume that the real reason for the disclosure is agency costs rather than, as we've heard so often, executive greed. Movie studios have unions, too, and surely as much, or more, seething resentment to stoke as in other firms.

Is the difference that stars are "non-policy-making officers," as DreamWorks Animation argues? I thought this was supposed to be about the compensation decisions made by the policy-makers.

Are the costs of disclosure higher here? It's ok to invade the privacy of corporate executives but not movie stars? Morale problems? Again, a purpose of the disclosure is to feed resentment. Is disclosure more complex here? If pay is supposed to reward performance, shouldn't pay calibration always be complex? Competitive disadvantage? Why for movie stars but not executives – there's a market for executive talent, too.

Finally, why should the SEC care about the special problems of one industry? After all, Cox and several commissioners have expressed opposition to exempting small firms from SOX 404 (see this WSJ report from last Thursday). The arguments for special treatment seem much stronger for small firms than for movie stars.

I'm looking forward to seeing what the Commission does on this. It could reveal what's really behind executive compensation disclosure.

Comments

[C.E. Petit]

Actually, there is a very good reason thatas things standthe "nonpolicymaking" high-paid Hollywood figures (and, for that matter, authors, artists, etc.) should not be held to the same disclosure requirements: The basis for compensation is completely non-comparable.

Performance-related pay (and, for that matter, the very complexity of the job) for a policymaking executive is not project-by-project, but whole company (or at least discrete operational unit). The accounting rules that help us figure out profitability of an enterprise as a whole (or at least discrete operational unit) are at least arguably established and uniform, Enron notwithstanding.

On the other hand, a star's compensation depends upon a wholly fictitious (and incomprehensible) accounting system specified in a mandatory 50-page addendum to contracts; the same addendum governs screenwriters and all of the other "talent" on a film. The general rule is that no film is ever profitable under that system.

Thus, the real problem is not "invasion of privacy" or "morale problems," but "noncomparable data." On the other hand, if this effort were used to force the film industry to adopt GAAP instead of that arcane system of "net" and "net-net" profits, this might be a good thing for everyone!