How the Strikes Could Impact Lavish Hollywood CEO Pay

As Hollywood actors and writers strike together for the first time in more than half a century, executive pay is in the spotlight. Talent are posting residuals checks barely worth the postage it cost to mail them alongside captions criticizing Hollywood execs’ eight-figure pay packages.

SAG-AFTRA and the Writers Guild of America didn’t strike because of C-suite pay, of course, but the optics of such disparity are fueling the flames.

More from The Hollywood Reporter

“What’s happening right now in Hollywood is a microcosm for what’s happening across America,” says Robert Reich, former U.S. Secretary of Labor and co-founder of the Economic Policy Institute. CEOs of major corporations often earn hundreds of times the salary of the typical worker, he notes, and some entertainment companies have ratios even more jarring.

“Is this fair? Fairness is in the eyes of the beholder, obviously, but it certainly doesn’t feel it and it does rub a lot of people the wrong way,” says Reich. “It seems like the game is rigged against average working people and in favor of people at the top. You have a lot of anger, a lot of frustration, and you ultimately have work stoppages and strikes.”

When the writers and actors struck in 1960, top executives made a mere fraction of what they do today and only about 20 times the pay of the typical worker. According to a 2022 study from EPI, CEO pay increased 1,460 percent from 1978 to 2021.

In those intervening years, Reich notes, there was an increase in executive pay coming in the form of stocks and stock options. That created an incentive for CEOs to increase the price of shares through things like stock buybacks, which not only made the executives money but also made them seem more valuable to the business.

“If they have a record of being able to push stock prices up, that makes them somebody who their directors want to pay more,” says Reich. “No set of directors in any corporation is going to want to tell shareholders that they held back and didn’t get the best top executive they could.”

Steven Kaplan, a professor at the University of Chicago Booth School of Business, notes that now the median salary for CEOs at S&P 500 companies is about $15 million. “People have complained about [those salaries] for decades, and it doesn’t change because that’s the market,” Kaplan says. “They’re very rare, it’s a very hard job and that’s what they get paid. The entertainment CEOs are paid, in many cases, a lot more than that.”

Hollywood Pay Ratios: 2022 - infographic

Hollywood Pay Ratios: 2022 – infographic

In 2022, total compensation for the highest-paid Hollywood execs was more than $240 million — and nearly $314 million if you add in NBCUniversal parent Comcast. The median compensation among those featured on THR’s CEO scorecard in June was $32 million. (Note: The figures in this paragraph do not include Endeavor CEO Ari Emanuel, as the agencies are neutral parties to the strike.)

“Let’s say you’re paying somebody $20 million, which is not unusual,” Kaplan posits. “Let’s say a company is worth $100 billion, and a good CEO is going to make that company worth 10 or 20 percent more. If the person is going to increase the value of your company by $20 billion, giving that person $20 million is a bargain.”

In a rare move, after the WGA strike was called, Netflix shareholders rejected the pay packages for top executives at the company.

This came even after the streamer’s compensation committee reworked the packages to increase the proportion of stock options and lower annual salary. For 2023, executive chairman Reed Hastings, co-CEO Ted Sarandos and co-CEO Greg Peters must each take at least half of their pay in the form of stock, and the co-CEOs’ salary is capped at $3 million with the balance coming in the form of those target bonuses.

Under the proposed packages, those three plus CFO Spencer Neumann, chief legal officer David Hyman and chief communications officer Rachel Whetstone would bring in a combined $109 million in total compensation — with a cumulative $23.2 million in salary and $54.6 million in stock options (plus a combined $31.3 million in target bonuses for Sarandos and Peters).

In June, the streamer’s executive compensation packages failed by a wide margin — with more than 71 percent voting no. It remains to be seen how Netflix’s board of directors will respond to the feedback.

“That’s the shareholders telling the board, ‘We think you’re overpaying these folks,’” says Kaplan. “Usually what happens when you get a negative shareholder vote like that is the next year the board does something, takes some action. Occasionally, they ignore it. Although, then the risk is that someone will run a proxy fight.”

These Say on Pay votes were established in 2011 by the SEC after the passage of the Dodd-Frank Act and require most public companies to give shareholders periodic input on the pay of the CEO, CFO and at least three other highly compensated executives. How often the votes are taken varies by company, but the minimum is every three years. They’re advisory only — meaning the company has no obligation to change its pay structure if shareholders vote against the plans — but typically a no vote will spark some kind of action.

“If the shareholders approved it, that’s the acid test,” says Kaplan. “The shareholders are saying, ‘We’re getting value for this.’ If the shareholders vote against it, then you have to think maybe you should make a change.”

Comcast shareholders in June overwhelmingly supported the company’s executive compensation packages, but this spring, Warner Bros. Discovery’s Say on Pay vote eked out an approval with about 50.8 percent.

In addition to the scrutiny on executive compensation, the strikes are also correcting some misconceptions about what life in Hollywood looks like for most people.

“Most of America thinks that writers and actors in Hollywood are all famous and bathed in money and glory,” Reich says. “But the typical writer is one of many people trying to get into the business of writing, and therefore is competing like mad with other writers — and soon to be competing with artificial intelligence — and that’s pushing down the writers’ salaries. In fact, there’s been something like a 23 percent drop over the decade. At the same time, most actors are not stars.”

According to the U.S. Bureau of Labor Statistics’ July 18 report, the median U.S. worker’s weekly pay is $1,100 — the equivalent of $57,200 per year or $31.43 per hour. (The hourly rate was calculated using the BLS minimum of 35 hours per week for full-time employment, though the average private sector employee works about 34.4 hours as of June 2023.)

As of May 2022, the BLS estimated the median actor pay was $17.94 per hour. According to SAG-AFTRA members who have spoken out amid the strike, many working actors struggle to make the minimum of $26,470 per year that’s required to qualify for the union’s health plan.

“A lot of people are not in a position to live without money coming in,” says Reich. “People tend to lose track of the fact that strikes are hard on workers. If you are only earning $26,000 a year and you go on strike, how are you going to continue to live? The typical worker in America is living paycheck to paycheck, and that’s even truer of workers in in Los Angeles.”

It’s difficult to truly compare the incomes of working writers and actors with studio executives because a lot of the information isn’t public, but there is some data that highlights the disparity between top brass and the general workforce at entertainment and tech companies.

Companies are required to disclose each year to the FTC the ratio of CEO compensation to the median employee pay. The lowest ratio for 2022 was Amazon’s Andy Jassy — who in 2021 with his one-time stock award worth about $212 million had the highest ratio in the S&P 500 at 6,474:1 — while Apple’s Tim Cook saw an almost nine-figure pay package and more than double the ratio of former Disney CEO Bob Chapek.

When split between two co-CEOs, Netflix’s ratio is below average, but when you consider that the total CEO compensation packages for 2022 were about $101.4 million, that puts the streamer at 464:10, which is second only to Apple.

Most Hollywood companies won’t have to face a Say on Pay vote until early next year, and it remains to be seen how heavily the strikes and salary criticism will weigh on shareholders or how much that will ultimately matter.

“[Most] shareholders don’t really have very much power. What can the typical shareholder do? At most just sell the share,” says Reich. “The real power is in the institutional shareholders, the big pension funds that dominate Wall Street.”

So far, the strikes haven’t spooked Wall Street too much, with most entertainment and media shares holding steady or seeing low single-digit drops, but Kaplan says eventually they will have an impact.

“The strike, if it goes on for long, hurts the company,” he says. “When the company value goes down, the shareholders are not happy — and the CEO’s shares also go down.”

Kaplan continues, “We don’t know how it’s going to turn out. We have the actors saying, ‘Look, we’re worth more than you’re willing to pay us.’ And the CEOs are saying, ‘No, you’re not.’ We’re going to see who’s right. That’s what you get in a market system.”

Adds Reich: “Economics is not just supply and demand. This is all about power. These giant companies have extraordinary power by virtue of their size. On the other hand, individual workers, individual actors and individual writers have extraordinarily little power. If they join together in unions, and if the unions join together as the actors and the writers have done for the first time since the 1960s, that is potentially a lot of power that can change the rules of the game.”

CEO Scorecard infographic

CEO Scorecard infographic

Best of The Hollywood Reporter

Click here to read the full article.

Leave a Comment