Getting fired best way to get rich quick in Hollywood

What's the surest way for top Hollywood executives to get rich quick? Get fired. That's the lesson taught most recently by the case of Mr Frank Biondi jnr, whose ousting last week as chairman and chief executive of Universal Studios is expected to net him a severance package valued at about $30 million (£20 million) in cash. For Mr Biondi it is the second such settlement in the last three years, following a more than $15 million pay-out when he was fired from Viacom Inc.

The champion of Hollywood executives to leave a top job with an eye-popping golden handshake remains former talent agent Mr Michael Ovitz, who ended an ill-starred 14-month term as president of Walt Disney Co with a cash and stock package currently worth about $130 million.

Another dramatic pay-out is certain to go to former Disney Studios chairman Mr Jeffrey Katzenberg, who has won a lawsuit entitling him to damages for his 1994 ouster and is now negotiating a settlement that could run to hundreds of millions of dollars.

But dozens of other top-level executives, including operating division heads who would be considered relatively low-ranking officers in most other industries, have carried off seven- or eight-figure severance deals after being terminated.

Even though some of these packages are confidential or difficult to value, it is clear that Hollywood has doled out more than a half-billion dollars in severance to high-ranking executives just over the last few years, when a ferocious round of mergers in the entertainment industry has made top-level management re-shufflings even more conspicuous than usual.

The process has done little to change Hollywood's reputation as a centre of greed, frivolity and excess. And for shareholders of the major entertainment companies, lavish severance payments are becoming an increasingly hot issue because of their aura of corporate waste.

Disney's pay-out to Mr Ovitz, who had been granted a five-year contract and touted as a sterling corporate catch, provoked outbursts from shareholders at the 1997 annual meeting in Anaheim, as well as a shareholder lawsuit that is still wending its way through the courts.

Mr Biondi's severance is certain to irk shareholders of Seagram Co, Universal Studio's Canadian parent. "We'd like management to explain how this benefits us," remarked Mr Tom Gunn, senior vice-president of investments at the Ontario (Canada) Municipal Employees Retirement System, the holder of about 4.5 million Seagram shares.

Executive severance clauses are common in virtually every industry, but several elements set Hollywood apart. For one thing, management talent is in short supply - so executives with proven track records have an exceptional ability to write their own tickets.

"It's a question of supply and demand," says Mr Bertram Fields, one of Hollywood's most powerful attorneys. "Very few people are qualified to run a studio. It's a very short list, and everybody on that list is generally making a lot of money doing something else, so you have to pay a lot to get them."

What rankles compensation experts and shareholder-rights advocates about the richest severance deals is the absence of so-called "mitigation" and "offset" clauses that require the recipient to actively seek new employment and that reduce the pay-out if he or she finds another comparable job within a reasonable period.

Some observers say that is a serious cost in the entertainment business, where ousted executives often find new employment within months or weeks. In Hollywood it is almost an article of faith that fired executives don't fade away - they just turn up elsewhere.

But others say the mobility of top executives is exactly what makes severance clauses so important to them.

"I've been at meetings at Universal and CBS where the new head of production starts his first meeting with the words, `While I am here . . ."' says Mr Stephen Unger, managing partner of the worldwide entertainment and communications practice of Heidrick & Struggles, the multinational executive search firm.

Given such a mindset, Mr Unger says, it is almost inevitable that "when people negotiate their (employment) deals they spend the most time not on the function of their job, but on what will they get paid if and when they're fired."

Yet Hollywood sometimes rewards executives more for failure than for success. One celebrated recent example is when ousted Sony Pictures chairman Mr Peter Guber was granted a lucrative production deal at the studio at the same time it was posting a $3.2 billion loss.

In many cases the risk of failure is even specifically anticipated in an executive's contract.

Mr Ovitz, for example, pre-negotiated an exit package guaranteeing him a huge pay-out if he was forced out of Disney for almost any reason before his term expired - a so-called "non-fault" clause that resembles the "pay or play" deals granted the most prominent stars and directors. The clause guarantees their fees even if they get fired from a production or if the movie gets cancelled. Still, the main factor driving executive severance packages into the stratosphere today is the inclusion of stock options, which have inflated the value of many pay-outs in the wake of the 1990s' bull market.

The three million Disney stock options Mr Ovitz received in his departure package were at one point worth so much that the entire package was valued at $200 million. Disney stock has declined by 25 per cent from its peak, however.

Yet for all the shareholder concern and public misgivings about Hollywood's methods of compensating its successful - and failed - executives, few in the industry see much potential for change, especially as long as those making the deals are concerned that they may need their own golden parachutes.