Hollywood Wants No Part in SEC Plan

WASHINGTON â€”  A plan to force companies to disclose salaries of high-paid employees who are not corporate officers is in jeopardy after a backlash from Hollywood, where film and TV stars often get bigger paychecks than executives.

Opponents claim the measure could put media companies at a competitive disadvantage by forcing them to disclose detailed compensation packages for luminaries such as “Tonight Show� host Jay Leno, film director Steven Spielberg and “Today� anchor Katie Couric.

The new rule was proposed by the Securities and Exchange Commission this year as a means to ensure that top corporate policymakers cannot evade disclosure rules. But officials acknowledge that it could potentially expose the salaries of actors and athletes as well.

“My forecast is either the proposal will be significantly scaled back or it will be removed altogether,� SEC Chairman Christopher Cox said in an interview. “If one takes the commentary seriously, as the commission must, we have to recognize the validity of these concerns.�

The SEC currently requires publicly traded companies to disclose compensation packages for the chief executive and the next four highest-paid executives. The proposed new rule would force companies to make the same disclosures for as many as three additional employees if they take home more money than any of the five officers.

Under the proposal, these other employees would be identified only by their job description. Opponents, however, said that would be a dead giveaway to their identities. Moreover, critics argued that such disclosures would put companies at a competitive disadvantage by telling rivals what it would cost to steal a valued employee.

The rule would “invade the privacy of employees, reveal confidential and proprietary information to the company’s competitors

Others objecting to the SEC proposal included CBS Corp., Walt Disney Co., the NBC Universal unit of General Electric Co., News Corp. and Viacom Inc.

These companies argued that a disclosure rule would also be a practical burden, in part because of the assortment of deals big stars tend to have.

“It is not uncommon for ‘talent’ ... to have various employment relationships with a company covering a range of projects,� attorneys Linda E. Rappaport and George Spera wrote the SEC on behalf of the entertainment firms. Such a requirement “would likely impose significant additional costs and administrative burdens in order to achieve disclosure.�

The proposal “seems misguided,� Rappaport said in an interview. “It’s pretty clear that various members of the entertainment industry have rallied around the idea that this new disclosure requirement won’t benefit shareholders.�

Unlike executives, performers and entertainers may also enjoy significant compensation from future royalties, which by their very nature can be difficult to value at present.

“If somebody’s going to get 10% of DVD sales -- and DVD sales are going to happen next year -- do you have to value that today or do you value it next year when it happens?� asked Ronald O. Mueller, an attorney at Gibson, Dunn & Crutcher. “How do you calculate that?

Some point out that the proposal is broad enough to at least potentially include nonexecutives who may on rare occasions receive cash windfalls, such as salespeople, financial traders, investment bankers and even scientists who get huge bonuses for developing a new drug.

“It’s likely not going to be the same people year after year,� said Amy Bowerman Freed, an attorney at Hogan & Hartson and a former SEC official. “It’s hard to see why that disclosure is going to be relevant.�

Regulators proposed the new rule to address concerns that corporations could evade disclosure rules for highly paid company leaders by not classifying them as one of the five top corporate officers.

More detailed pay disclosure for highly compensated corporate insiders “has long been sought by stockholders,� Paul Hodgson, a senior research associate at executive pay tracker Corporate Library, said in a letter to the SEC.

Graef Crystal, a former executive compensation consultant who is now a columnist for Bloomberg News, said Hollywood had a weaker case in this regard than it did in arguing against disclosing deals of stars.

“The entertainment industry is the most secretive industry in America when it comes to talking about pay,� he said.

Cox did not rule out making changes to address that concern, but said he expected the proposal would have to be rewritten and resubmitted to win approval of the five-member commission.

The proposed change is part of a broader SEC initiative that would require greater clarity by public companies in the reporting of top managerial pay arrangements. The broader initiative has prompted more than 18,000 comments from the public, the most reaction received by the agency on a proposed rule.

Cox said that the agency’s final plan would promote “plain English� disclosures in regulatory filings, and that he hoped it would be ready by late summer. He said there was legitimate public interest in fully disclosing pay packages for top corporate executives, who traditionally have enjoyed close ties with the boards that pay them.

“Executives sit on boards of directors and in many cases control them,� Cox said. “In the case of professional athletes and actors there is much greater reason to believe that their salaries are determined by the market.�