Katie Couric dodges the bullet

The rule that would have effective exposed the pay of Katie Couric and other big stars looks like it's going down.  That's great for them.  Now let's discuss the rest of the rule.

The SEC proposed requiring disclosure of a firm's three highest paid non-executive employees – the so-called "Katie Couric" rule. And now, in response to criticism from Hollywood and elsewhere, the WSJ reports that the SEC is considering withdrawing that part of its executive compensation proposal.

Since Hollywood is always bashing greedy business people, as I've discussed, you would think that it would love a regulation that would really get at the greediest (i.e., highest paid) of all.

But my article also points out that the entertainment industry is a business, too. And some of the people who work in it are among the highest paid of all. It's not really business that Hollywood doesn't like, it's the capitalists who provide them with these fat paychecks. So it's not surprising that Hollywood howled when the SEC proposed its Katie Couric Rule.

However, as I discussed when the rule was first proposed, many of the problems with this proposal infect the rest of the SEC's executive compensation disclosure rule:

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"* * * ? 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 * * * . 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.

Following this post I discussed some research on the negative effects of envy (I would call it resentment) on executive pay.

So I guess the lesson is: resentment is ok for Hollywood movies, and as a basis for regulatory policy on business, but just don't try to actually apply this policy to Hollywood.