Studios Are Furious That SEC Is Curious About Hollywood Pay
By MATTHEW KARNITSCHNIG, MERISSA MARR and KARA SCANNELL
Wall Street Journal April 10, 2006; Page B1
online.wsj.com
Media companies, worried that some of their most closely guarded Hollywood secrets could be exposed, are rallying to fight a proposed change to corporate-disclosure rules.
The proposed regulation, under consideration by the Securities and Exchange Commission, would require a corporation to publish the salary details of as many as three nonexecutive employees whose total compensation exceeds that of any of its top five officers. Companies currently have to disclose only the pay of the chief executive officer and the next four highest-paid officers.
The new rule, which the SEC is expected to decide on later this year, would apply to all listed companies but would likely have the most impact in industries such as media, financial services, technology and pharmaceuticals, in which star performers can earn more than CEOs.
Nowhere are stars with huge paychecks more plentiful than in entertainment. But despite the industry's reputation for flaunting wealth, detailed information on the compensation of a big-name entertainment figure is rare. In addition to a salary, top earners often receive bonuses, stock and perquisites -- extras that are usually protected by extensive confidentiality clauses in contracts.
The SEC says the proposed change was motivated by a desire to give shareholders more information about how corporate funds are being spent. The agency says it isn't requiring more detailed information about the employees, such as their names, because the workers in question don't have a "policy-making function." The SEC's deadline for public comment on the measure is today.
Viacom Inc., which owns the Paramount film studio, sees things differently; it plans to file a letter with the SEC arguing that the compensation information should be treated as a trade secret. The proposed rule "would likely impose significant additional costs and administrative burdens in order to achieve disclosure which ... we believe to be of limited value to shareholders," the letter says.
Spokespeople for News Corp. and Walt Disney Co. said their companies planned to endorse the Viacom letter. Other media companies, including NBC Universal parent General Electric Co., were considering endorsing, people familiar with the matter said.
In the past, media companies have taken great pains to have their studio chiefs not classified as corporate officers because their salaries often came close and sometimes topped the salary of the CEO. It isn't unheard of for a top studio executive to earn well in excess of $5 million in salary and bonus.
At Viacom, the new rule would likely affect a number of its Hollywood executives; Viacom has made some particularly expensive hires in the past 15 months as part of its efforts to turn around Paramount.
To lure Brad Grey away from his talent-management firm to be head of Paramount, for example, Viacom offered a fat salary and bonus that would likely place him among the top three earners at the company alongside Chairman Sumner Redstone and CEO Tom Freston, according to people familiar with the matter. Depending on how well the company performs, Mr. Grey's combined salary and bonus could approach Mr. Redstone's in some years. That might raise some eyebrows on Wall Street because Paramount accounted for only 2.4% of Viacom's operating earnings last year.
Viacom's recent acquisition of live-action movie studio DreamWorks SKG could also put superstar employees like Steven Spielberg, and even perhaps Stacey Snider, in the spotlight. Both Mr. Spielberg and Ms. Snider recently signed four-year employment contracts at DreamWorks, as producer/director and chief executive/co-chairman, respectively.
Mr. Spielberg commonly takes a large slice of the revenue of his movies. However, since he has the option to work with other studios, it isn't clear how the SEC would treat his status if the new rule goes into effect.
One big question is how the SEC would define "employees." Some compensation experts say actors and directors may not be exposed under the proposed disclosure rules because they are commonly independent contractors, often hired via loan-out corporations.
But that isn't always the case in areas such as network television. Katie Couric, for instance, could well rank among the top earners at CBS Corp. in her new role as anchor and managing editor of the CBS Evening News. (Ms. Couric will earn about $15 million a year, according to people familiar with the terms of her contract.)
Also possibly subject to disclosure are the pay packages of NBC's Jay Leno, who reportedly earns $17 million; Larry King, talk-show host for Time Warner Inc.'s CNN cable network; and Bill O'Reilly, of News Corp.'s Fox News.
Entertainment companies say that competition for talent is fierce and publishing salary details could send costs even higher. They also say calculating the best-compensated employees would be a highly complex task because of the extensive use of contingent compensation in the industry.
Many actors, directors and producers have complex contracts with sliding scales of income that often aren't realized for some time. For instance, A-listers like Tom Cruise and "King Kong" director Peter Jackson are often paid an upfront salary in the region of $20 million and then as much as 20% of the movie's revenue after their salary is covered.
The new rule might hit smaller companies hardest. DreamWorks Animation SKG Inc., for example, makes only two movies a year and often hires top A-list talent to voice and make them. DreamWorks Animation filed a letter to the SEC last week, laying out its objections to the proposed regulation. "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," said Lewis Coleman, president of DreamWorks Animation.
At Disney, the recent acquisition of Pixar could put some of Pixar's star animators and executives into the spotlight. Pixar's creative guru, John Lasseter, for instance, earned just more than $3 million in salary in 2005, according to a recent SEC filing. Mr. Lasseter has directed some of Pixar's most successful movies, including the "Toy Story" series, and will have an expanded role at Disney.
The lack of a clear justification for the disclosure and concerns over competitive issues have prompted a number of organizations to oppose the measure. These opponents include corporate-governance group Institutional Shareholder Services, which believes it would provide no useful information for shareholders, and the U.S. Chamber of Commerce.
Write to Matthew Karnitschnig at matthew.karnitschnig@wsj.com, Merissa Marr at merissa.marr@wsj.com and Kara Scannell at kara.scannell@wsj.com |
