Katzenberg’s Suit Offers Sneak Peek Into Pocketbooks of Studio Execs

If nothing else, Jeffrey Katzenberg’s lawsuit filed last week claiming Walt Disney Co. should have paid him more than $250 million in bonuses after he quit in 1994 accomplishes one thing: It gives an exceptionally rare look at the kind of dollars a studio chief can make.

There are few more closely guarded secrets in Hollywood. What “division heads”--which is what studio chiefs technically are--make is a detail kept not only from a nosy public and journalists, but from the company’s owners as well. That’s because there’s a fat loophole in Securities and Exchange Commission laws requiring companies to disclose to its stockholders not the highest paid executives, but just its highest paid corporate officers.

Thus, if you’re a Time Warner stockholder, you know that Tod R. Hullin, the company’s senior vice president of communications and public affairs, in 1995 made $1.075 million in salary and bonus.

You didn’t know that Doug Morris, fired last year as the company’s top music chief, had a deal entitling him to a “guaranteed bonus” of at least $4 million a year, a salary of more than $750,000, a $5.5-million bonus just for signing his contract, deferred compensation equal to half his salary, stock options, a personal chauffeur and “access to corporate aircraft.”

Hullin’s pay is revealed in Time Warner’s most recent proxy statement, and was revealed publicly because he’s a corporate officer. It took a wrongful termination lawsuit by Morris, who wasn’t a corporate officer, for the details of his contract to be made public. Settling Morris’ contract for about $25 million also won’t have to be disclosed either. For all we know, the jet fuel Time Warner has to buy to fulfill its jet-access obligations to executives probably exceeds Hullin’s annual pay.

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If public documents from lawsuits such as the Morris one are any indication, an inverted pyramid of sorts exists in the pay structure in entertainment, with division heads and others below the top often making a lot more than the corporate officers--and even CEOs--whose pay is disclosed to stockholders. It’s widely assumed, for example, that Time Warner’s division heads--such as Warner Bros. Co-Chairmen Bob Daly and Terry Semel--make a lot more than the $5 million in salary and bonus that Time Warner Chairman Gerald M. Levin took home last year.

According to Katzenberg’s lawyers, he was entitled to 2% of the operating profit of the company’s filmed entertainment division in the 10 years he was chairman of Walt Disney Studios, the company’s film and TV unit. In 1994, figures filed in his lawsuit indicate that he would have received a bonus of about $17 million. For the record, the documents indicate Katzenberg’s bonus was more than $6 million in 1991, the year he wrote his infamous 28-page memo criticizing Hollywood spending. None of those numbers include basic salary, perks and stock options.

That’s not to pick on Katzenberg who, like highly-paid Walt Disney Jeffrey Katzenberg

Chief Executive Michael Eisner, took a languishing business in 1984 and was rewarded handsomely under a formula tied to performance when the company results improved. Unlike Eisner’s pay plan, Katzenberg’s was never made public to stockholders because he was never a corporate officer.

Katzenberg’s lawsuit also is a reminder that one of the bigger black holes for stockholders in entertainment stems from entertainment’s place as the only business in which everyone from the senior janitor on up has an employment contract.

Fire the executive vice president for janitorial services, and the guy’s remaining two years of his contract are settled out. Fire the head of your music operations, as Time Warner did three separate times last year (cutting loose Robert Morgado, Morris and Michael Fuchs), and you’re on the hook for about $100 million in severance.

If you own Disney stock, last week’s lawsuit by Katzenberg is the first sign that you potentially may be on the hook for an amount that far exceeds the domestic box-office take of the huge hit film “Toy Story.” (Disney executives, who aren’t commenting on the suit’s specifics, have insisted that Katzenberg isn’t owed what he claims.)

Entertainment companies don’t disclose the pay of division heads for a simple reason: They don’t have to. A Time Warner spokesman also points out that they are loathe to reveal pay levels to competitors. In other words, another company may try to lure your executives when it’s revealed that they don’t get unlimited jet rights.

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There is, of course, an unspoken reason: The reaction of stars and agents bargaining for a better deal amid the chorus of whining by studio executives on how much stars and directors make. It’s a little hard to make that point while defending your own lucrative contract.

Executive pay expert Graef S. Crystal, who has been a consultant on Eisner’s contract and is a frequent critic of corporate pay policies, has been trying to interest the SEC in taking up the case, using Time Warner as a catalyst. Crystal has even bought Time Warner shares, hoping to put a resolution calling for more disclosure on the agenda of a future annual meeting.

“We don’t know the true cost of managers at the top,” Crystal says.

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Thanks, Sly: Ailing Cinergi Pictures, which had three straight box-office disappointments with “Judge Dredd,” “The Scarlet Letter” and “Nixon,” released its fourth-quarter and year-end results showing it posted a $2.1-million quarterly profit thanks to an unusual twist in movie finance.

The results were based in part on video sales of “Die Hard With a Vengeance.” But the company likely would have been in the red had it not been for $5 million that Cinergi received last October “from a major studio in exchange for an actor relinquishing an acting commitment” to Cinergi. Sources confirm that the actor is Sylvester Stallone, and the studio paying the sum was Warner Bros.

Sources say the company also wrote down “Nixon” to the tune of about $4 million--it was protected from bigger losses by selling the film in advance in foreign markets--and said it is rethinking its strategy of making three to five big-budget, “event” pictures annually.