Tuesday, December 23, 2008

The Wise Old Movie Exec

I was dining the other night with my favorite retired movie executive (not only is he my favorite, he's the only one I'm friends with.) He shared his opinion about executive pay in particular and working persons' in general:

"Movie execs are way overpaid. They get a base salary, they get bonuses, they get stock options. They usually control the company's board of directors and mostly get everything they ask for, because the directors mostly owe the exec their directorship.

"And when they take stock options, they know how to influence the stock price so that they get the option at a lower point, and exercise the option at a much higher point. It's kind of a racket. [Obviously, this strategy hasn't worked too well over the last six or eleven months ... -- SRH]

"But this deal of $10 million in annual pay, options and bonuses? $20 million? $60 million? It's silly. I keep hearing: 'Oh, we've got to pay that to attract top talent,' but I've never believed it. There are plenty of qualified people who would love to have the job and get paid three hundred thousand or half a million a year. We've gotten into this mode where executives just assume they'll be getting a big pay package because every other executive gets a big pay package. It's the norm. And it's silly.

"I've thought for a long time we need to pay more for workers who are doing really tough, crucial jobs, teachers for instance, and less to executives who don't work nearly as hard and delegate a lot but make way more money because they're in a strategic, money-making place.

I know it's not going to happen, given the way society's set up, but it should happen. Because the pay structures we've got now are nonsense."

This from a guy who made a goodly amount of dough as an exec and is now comfortably retired. Clear-eyed but cynical. My kind of homo sapien.

But let's do a few math and history constructs, and see how things have stacked up through time.

Let us journey back to a halcyon time when the movie industry was roaring, earning money hand over bushel basket, when movie companies turned out nothing but hits and studio lots were paved with gold.

The time was World War II, and every major film company -- 20th Century-Fox, M-G-M, Warner Bros., Paramount -- was well into the black. The U.S. citizenry was fully employed winning the war, and everyone had cash for a theater ticket. It was no accident that the highest paid exec in the United States was one Louis B. Mayer, who made a whopping $1,250,000 per year.

Not too shabby. Adjusted for inflation, the million and a quarter would be $14,260,000 (rounded) in 2007 dollars. Also not bad.

But good old L.B., in the modern age, would have lost his standing as "best paid executive" to another high-flyer named Barry Diller:

The New York Times asks the question whether one-time Hollywood mogul Barry Diller -- presently chairman & CEO of IAC/InterActiveCorp -- is the highest paid chief executive in America...

[O]ne recent study that looked at a broader universe of companies estimated [Diller's] total compensation last year at $295 million -- while another recent survey -- using a different calculation -- figured he was paid $85 million" ...

So how did other U.S. executives -- non-movie executives -- do in the same time frame (2006-2007)? Pretty well, thank you.

The chief executives of America's 500 biggest companies got a collective 38% pay raise last year, to $7.5 billion. That's an average $15.2 million apiece. Exercised stock options again account for the main component of pay, 48%. The average stock gain was $7.3 million.

Good thing they got in before the downturn. Or most of these folks would have done worse than Louis.

But reading the above, there's clearly a difference of opinion between journals about who's got bragging rights for highest paid boss guy. Diller's up there, but of course there's this:

The highest-paid boss of the 500 companies we tracked: Apple (nasdaq: AAPL - news - people ) chief Steve Jobs. He drew a nominal $1 salary but realized $647 million from vested restricted stock last year ...

Steve is another one who's lucky to have gotten a big pay day from his options before everything tanked. But forget which of these two is on top. The interesting thing is, L.B. Mayer's paycheck, adjusted for inflation, would be right in the middle of the executive pack. Not the highest anymore, but certainly nothing to sneeze at.

So what about, you know, school teachers? How they have made out from 1941 to now?

In 1941, the average school teacher received a wage of around $2510 a year. (I'm extrapolating a bit from this report, but the range for white school teachers was around $1500 to $2600.)

And today? The average yearly salary is $51,493, with the low end at $40,800 and the high at $60,485.)

So what do you know? Adjusting for inflation, teachers in 2007 did better than their 1941 counterparts! Whereas the instructor who made $2510 around the time of Pearl Harbor would make $34,989.61 in 2007 dollars, his or her real world counterpart would be collecting 51 grand, a $16,000 bonus.

Not quite the bonuses that Steve J. and Barry D. pulled down in 2007, but hey! It's something!

However, I think the Wise Old Exec is going to have to wait awhile before his hope of school teachers overtaking American executives in annual salary becomes reality.

Like maybe three or four thousand years.


Anonymous said...


The reason for high executive salaries...its called free market capitalism. The Board of Directors sets the pay for a Chairman, President and CEO. Once a year the shareholders get to vote for the BOD (Board of Directors) and Chairman etc. If the shareholders don't like it the can always vote them out.

As far as paying more money to attract good people the answer is yes a company needs to pay higher salaries for talented people. One company's refusal is another company's opportunity. Its called competition.

I feel that a CEO's pay should be tied to the performance of a company. Afterall a CEO's major responsibility is corporate governance. They must deliver value to shareholders.

Shareholders don't really give a damn about CEO salaries as long as they are making money on their investments.

Notice that the subject of executive salaries has never really entered the public discourse until the economic downturn and Govt bailouts. Only now are people really engaged about how much a CEO makes.

Your historical account of Hollywood in its heyday is quite obvious. The reason why Hollywood did so well way back when was because of the lack of entertainment choices for the consumer. TV was in its infancy, the internet did not exist nor Cable, DirecTV, Xbox360, Playstation, Wii and DVDs.

As you have stated, Executives will continue to have high salaries, bonuses and options no matter what. Welcome to capitalism.

Happy Chrismahanakwanzaka

Anonymous said...

The statement that executive compensation was a non-issue until the downturn is complete horsesh*t. There's been a growing drumbeat about the way exec pay has far outstripped worker pay over the last couple of decades, and a growing number of macro-economists were citing exec pay as not only out of balance, but as a looming problem for the economy.

When top executives can make enough money in a single year that it doesn't matter how their company does in the long run, then that exec is not going to be making good long-term decisions. That's just what we've seen for the last decade.

And, c'mon, anyone who followed the Eisner debacle knows it's virtually impossible for shareholders to meaningfully reconfigure a board of directors or oust a loser CEO. Get real.

The deck has been stacked so that many of our brightest have been attracted to the quick and obscene money to be made by as business executives, and a lot of that brainpower has gone not into creating anything of worth, but instead has gone into self-enrichment schemes.

Anonymous said...

The drumbeat has been muted for many years. Have people questioned exec pay vs employee pay through the years yes but it has never gotten to such a fever pitch as it has been because of our econ crisis and bailout. This issue has never gotten the attention as it recently has.

The average investor does not have the power to make a difference as a shareholder, institutional investors do. As long as they are making money they don't care about exec pay.

Anonymous said...

W's time in office will always be thought of in the same way as Nero's. Fiddling while America burns.
If the US survives it will be in spite of W and Cheney

Anonymous said...

What has happened while W was in office isn't a direct result of his doings...this stuff has been going on for YEARS. You think Clinton's helping to deregulate didn't have a hand in this? You think Bush Sr's policies didn't have a hand? You can go back pretty far with this stuff...it's been a LONG time coming.

However, it doesn't come to full light until the party's over and the hangover's in full effect. When EVERYONE who isn't a high-falutin' exec is getting screwed by said exec's purposeful shortsightedness on how the companies they're supposed to take care of gets thrown under the proverbial bus for personal stock gains. And that kind of greed ain't affiliated with a particular political party...selfishness is a human trait, not a political party one.

Anonymous said...

The economy was doing gangbusters until the Dems took over Congress two years ago. Don't blame W for this mess. And speaking of Dems...Barney Frank was supposed to be keeping an eye on Fannie Mae/Freddie Mac, but he repudiated any efforts, including those of John McCain, to rein those entities in. He was completely clueless...or perhaps he was conflicted, given that his boyfriend worked at Freddie...and now we're all paying the price. But has he been punished in any way? No, he's still in power. I cringe every time I see his Elmer Fudd face and hear his Elmer Fudd voice on TV. I guess the reason he hasn't been disciplined for his incompetence is because of gratitude...maybe the Dems feel they should reward him for helping bring about the economic disaster that put one of them in the White House!

Guess I got off on a political digression...but hey, we WERE talking about how arrogant, overpaid executives aren't held accountable for their blunders, right?

Anonymous said...

And a partridge in a pear tree!

Anonymous said...

I could give a crap about any exec. who states after his retirement is secure that what he was paid was too much. That doesn't make him a wise old anything. It makes him a wise old guilty lonely mother.

The only way he would be wise were he to state he was paid too much WHILE HE WAS ON THE JOB. You know - when it would have made an actual DIFFERENCE.

Anonymous said...

Sounds like Robiscus has learned to post anonymously....8:17:00 AM

Anonymous said...

"The economy was doing gangbusters until the Dems took over Congress two years ago."


(snort, giggle...)

Oh, my sides...

Anonymous said...

The economy, through history, has done far better under Democrats than repugnicans. That' is a simple fact, undisputable. The theory of trickle down economics is just that: a theory.
Good riddance to bush. May he rot in hell with reagun and saddam hussein.

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