Shareholders of a publicly traded company have the right to know the details of their chief executive officer's total compensation package -- and the packages of other executives in the hierarchy.
Question: Should we know the compensation practices at work for Tom Cruise if he is making a movie for Paramount?
The Hollywood Reporter detailed such a proposition in a recent article. It looks like the Securities and Exchange Commission would like to persuade Hollywood studios to be more open about what they pay top talent. Not surprisingly, all the major studios such as Disney (NYSE:DIS), Time Warner (NYSE:TWX), Viacom (NYSE:VIA), CBS (NYSE:CBS), and News Corp. (NYSE:NWS) are dead set against such a concept. Besides not wanting to be told what to do, these media moguls say it will hurt competition for prime talent if salaries are known, because most stars would not want to work where such disclosure is required because of privacy issues and negotiating advantage. Also, the costs of talent could increase if every big star wants to make whatever the value of the latest deal is.
To borrow an exclamation from investor Jim Rogers -- balderdash!
I hadn't been aware that there was an SEC proposal in the works, but I've thought about having such a requirement on the books for a long time now. When it comes to the movie business, I'm a fan of as much disclosure as possible. In fact, as a shareholder of Disney, it always irks me that I don't have a true inkling about the details behind all the myriad deals in the background. I think I have a right to know if Cruise is getting $25 million up front and 20% of the first-dollar gross and back-end participation and all that stuff.
Why shouldn't I? Would the Disney or Viacom movie studios suddenly fall apart if they had to accurately report the budgets, marketing spending, and deal structures of the top talent involved in their celluloid/TV products? Nonsense. In fact, it's existential nonsense. People argue all the time that the world will end if a radical change is enacted. Remember how the world was supposed to end if stock options were treated as an expense? Or how about if Sarbanes-Oxley was passed? I'm still here, you're still here, and everybody's still investing on Wall Street. More information available to investors can only be a good thing.
Because top Hollywood stars can earn enormous sums of money at the major studios, they're not going to suddenly go on strike if an annual report has to reveal the millions they take home. Forbes already posts all kinds of lists about the incomes of celebrities -- and a lot of the individuals on these lists actually enjoy the fame. For those who don't, the compensation adequately makes up for such indignity. As for the argument that everyone will want to be paid what the other guy is paid -- well, all the agents and talent managers probably know that data already.
Simply put, knowing details of the various pay packages of highly compensated stars on movie and TV projects allows the investor further insight into the workings of these companies. It will not bring the business to a standstill; instead, it will force the media conglomerates to carefully evaluate the economics of each pitch with increased diligence. Sure, it'll add layers of bureaucracy. My response? Deal with it.
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Fool contributor Steven Mallas owns shares of Disney. The Fool has a disclosure policy.
