Jeff and the giant breach: opening old wounds

“KATZ CHASING MOUSE TO COURTHOUSE,” heralded the facetious headline in Daily Variety, but the subtext to the litigation between Jeffrey Katzenberg and his former Disney boss, Michael Eisner, is not exactly humorous. This is an ugly lawsuit that spotlights Hollywood’s most unattractive trait — avarice. Considered purely as spectator sport, of course, the suit, filed last week, poses extraordinary possibilities. One can imagine feisty Bert Fields, Katzenberg’s lead attorney, demanding to see not only Disney’s financial records but also Eisner’s phone logs, lists of passengers on the Disney jets and other personal information. One can also imagine DreamWorks’ TV shows mysteriously dropping off the board during ABC scheduling meetings (Katzenberg is a partner in DreamWorks and ABC is owned by Disney). “Given the intense hatred between the two principals, the suit will be more interesting than any movie Disney’s ever made,” says one Hollywood figure who knows the litigants well. At the same time, the litigation could cast a pall by focusing still greater attention on an industry hot button — executive compensation. Insiders point out that morale at some studios already has declined markedly as a result, not of spiraling star salaries, but of spiraling top executive salaries. As one high-ranking studio hand puts it, “How can you build a loyal team when the so-called team leader earns a movie-star salary and is obsessed about whether anyone else in town is making more money than he?”

TO BE SURE, HOLLYWOOD IS NOT ALONE when it comes to celestial compensation. The chairman of an obscure mobile home company called Green Tree Financial Corp. earned an incredible $65.6 million pay package last year, most of it in bonuses , the Wall Street Journal disclosed last week. Michael Eisner’s bonus, by comparison, was a paltry $14 million. Nonetheless, insiders tell us that Bob Daly and Terry Semel of Warners could earn some $150 million between them over the next five years thanks to their comp plans — neither Daly nor Semel comment about their pay. And Katzenberg, in his lawsuit, insists he is due no less than $250 million, thanks to an extraordinarily unusual provision in his Disney deal granting him 2% of the profits from Disney productions. Last week I asked several industry savants whether they had ever heard of this sort of “cut” applying to other executive comp plans, and all responded “no.” Katzenberg possesses a hand-written memo from the late Frank Wells spelling out the specifics of his deal. Michael Eisner apparently claims he never saw such a note , but others who had dealings with Wells say he had a rather eccentric habit of dispatching important hand-written deals to key executives, scribbling them in hotel rooms or on planes. Wells, after all, was a dedicated mountain climber who seemed always on the move.

ASSUMING KATZENBERG CAN PRODUCE this piece of paper, certain major issues nonetheless remain. Was the bonus intended to cover everything released or acquired during his reign? Was the deal structured like Eisner’s — that is, the company had to clear a certain profit level before his percentage kicked in? Moreover, Katzenberg, who bolted Disney in 1994 under rancorous circumstances, seems to claim that his portion of the profits are payable in perpetuity, at least in the case of projects hatched on his watch. He also suggests that a final lump sum payment is due two years after his departure based on estimates of these future profits — hence the $250 million figure. Disney refutes all of this out of hand, but efforts to mediate this disagreement have proved unsuccessful. Michael Ovitz, the new Disney president, apparently failed in his effort to negotiate a settlement.

SO HOW DOES THIS AFFECT the rest of us? Why not let Eisner and Katzenberg duke it out while Hollywood goes about its business? Here’s the rub: With headlines blaring these astronomical numbers, how can the studios persuasively claim that Tom Cruise or Harrison Ford is demanding too much money? Studio chiefs go crazy when filmmakers want a jump in pay from picture to picture, but these are the people who actually make the product, not just watch the rushes. Throughout American industry, the pay gap between the CEO class and the ordinary chumps who work for a living has been widening dramatically — a fact that has not escaped the scrutiny of Hollywood’s unions and guilds. Along America’s Rust Belt this is accepted as a fact of life, but Hollywood has traditionally existed by a different set of rules. The executive class has always been well paid, but the artisans, too, have lived very, very well. An unspoken rule to “share the wealth” has maintained the peace. Now these rules are being broken. The Eisner-Katzenberg case, as it unfolds, will serve as a vivid reminder of the widening gap between the ruling elite and the apparatchiks. It will also remind us all, however, that, even at the top, people are almost always petulant over whether they are getting their fair share, even if they already have a few hundred million tucked away. Walt Disney, for one, would not have been happy watching this spectacle: He had an eccentric habit of doing the work and not even noticing whether he’d been paid at all. A funny guy, old Walt.

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