Suits vs. superstars: the new H’w’d math

The media likes to dwell on the idiosyncratic behavior of Hollywood superstars, but devotes vastly less attention to corporate superstars. Now the two forces are on a collision course.

Corporate CEOs have decided that stars make too much money — indeed, that Hollywood as a whole makes too much money — so they’re slashing superstar deals and laying off thousands of employees.

To be sure, the corporate CEOs themselves arguably are making too much money. A generation ago CEOs of the biggest corporations earned 40 times as much as the average worker, but that’s now risen to more than 300 times workers’ pay. Indeed, Tom Freston, the newly deposed chief of Viacom, will be paid more than $60 million a year not to work (his insurance and other perks, thank goodness, will also be covered by his former employer until 2009).

And none of this includes stock options. The original idea of stock options was that execs needed further incentives to make their stocks go up, but now we learn that options have been systematically backdated to guarantee huge paydays.

This corporate generosity knows no bounds: Cablevision even delivered backdated options to a dead executive to make it look as though he’d gotten them while still alive (ostensibly they were taking good care of his heirs).

All this is germane to Hollywood because giant corporations now run all the major studios and networks. Hence, a company like Viacom can decide that Tom Cruise makes too much money from his studio deal, then it turns around and pays a Cruise-like deal to a top executive, who isn’t even a star.

Of course, CEOs today live like stars in terms of power and perks — Barry Diller got by on a mere $295 million last year. And they also decide how the rest of us will live.

NBC Universal recently laid off 700 employees and restructured its TV schedule in order to satisfy the mandates of its GE proprietors, led by Jeffrey Immelt. The cuts seemed to be announced almost casually — Bob Wright, NBC U’s chairman, filled in a reporter for the Wall Street Journal on the details. At least Disney’s Bob Iger disclosed his firings of 650 in a semi-ceremonial manner, and didn’t dress it up as Disney 2.0.

All of which raises the interesting question: Who creates the criteria for corporate belt-tightening? What determines that profit margins must be improved and, hence, heads must roll?

The answer, of course, is that the CEO superstar invents his own criteria. Presumably he consults with his aides and perhaps with corporate directors. He also checks with his investment bankers, who themselves are perpetually scouting for reasons to arrange a new merger or divestiture to further levitate their fees.

Wall Street has made it quite clear that the profit margins of networks and studios (and newspapers, for that matter) are utterly insufficient. The economic models for determining all this remain shrouded, to be sure, but the upshot is the same: layoffs and reduced compensation. Except for the corporate superstars making the decisions.

The studio czars of Old Hollywood also coveted lofty profit margins. But they were addicted to making movies and thus to paying the big paychecks to make them possible. Hollywood operated like a free-spirited club, paying its own far more generously than those in the outside world.

But Hollywood woke up one morning and found it had become Detroit, as this newspaper pointed out a week ago. That came as a big shock to the community, causing a great deal of unrest in the ranks and even threats of future strikes.

That’s because lots of people in Hollywood believe that they’re really the CEOs, even if they’re merely CEOs of their films or TV shows or, indeed, their scripts. In their mind, they’re still the stars.

And they can’t accept the proposition that the only real stars today are the corporate stars.

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