Report regarding investigation directed to be made by the President in his Executive Order of November 27, 1933, approving the Code of Fair Competition for the motion picture industry (July 1934)

Reducing the ratios to those individuals who might be classed as direct production employees, by eliminating executives, supervisors, and clerical and office employees, the results show a representation of 40.1 percent for the remaining individuals in the aggregate. Compensation to all individuals in producing companies represented 52.8 percent of the gross receipts during 1933, 46 percent during 1932, and 39.3 percent during 1931. In other words, the spread between gross receipts and total compensation narrowed considerably from 1931 to 1933. Stating the converse of the foregoing proposition: Compensation to all individuals in producing companies increased 13.5 percent on the basis of gross receipts between 1931 and 1933, inclusive. Salary Ratios in Distributing Companies Total compensation to all individuals in distributing companies represented 25.3 percent of the gross receipts during 1933, 28.9 percent during 1932, and 24.7 percent during 1931. During 1933, executive salaries accounted for 5.8 percent of the gross receipts; salaries to supervisors for 6 percent; and clerical and office salaries, for 13.6 percent. Salary Ratios in Exhibiting Companies In exhibiting companies, during 1933, compensation to all individuals represented 25.6 percent of the gross receipts, with clerical and office salaries representing 6.6 percent; actors and actresses, 4.2 percent; musicians, 1.5 percent; and supervisors and executives, 2.3 percent. Observations on the Investigation The following observations on the investigation are particularly pertinent: (1) The tendency of an increased ratio of compensation in producing and producing-distributing companies in proportion to decreased gross receipts. (2) The general tendency in the industry in producing and producing-distributing companies for a greater share of salary costs out of gross receipts than is customary in other forms of enterprise, where the ratio of salary costs to receipts generally ranges around 25 percent. (3) The apparent absence of any standard cost accounting formula in the fixation of production costs, where ordinarily industries of the size and importance of the motion picture industry do generally employ a standard formula. ADEQUACY OF SUSPENDED CODE PROVISIONS TO CONTROL COMPETITIVE PRACTICES LEADING TO EXCESSIVE SALARIES Excessive Salaries Article V, division A, part 4, deals with unreasonably excessive salaries paid to executives and certain other classes of employees. It delegates to the Code Authority the power to investigate alleged cases of unreason ably excessive salaries and to assess the accused employer the amount of the unreasonably excessive payment, provided that such amount does not exceed $10,000. The exercise of this power of investigation and disciplinary action, however, is subject to the approval of the Administrator for Industrial Recovery. This agency is further permitted to make public the results of its findings. No action of the Code Authority under the provisions of this suspended section affects the validity of an existing contract. Even if payments under the contract are found by the Code Authority to be excessive, the contract remains binding upon both the employer and the employee. Two very simple considerations recommend the indefinite suspension of this section of the code, namely: (1) The power granted to the Code Authority under this provision is not contemplated under the terms of the National Industrial Recovery Act; and (2) The provisions are administratively impracticable. With reference to the first of these factors, it is significant to note that section 7 (c) of Title I of the National Industrial Recovery Act provides as follows: "The President may differentiate according to the experience and skill of the employees affected and according to the locality of employment; but no attempt shall be made to introduce any classification according to the nature of the work involved which might tend to set a maximum as well as a minimum wage." Even if the Recovery Act itself did not impose limitations upon fixing maximum compensation, the suspended provision dealing with excessive salaries would be undesirable because it is not capable of effective administration. It has already been pointed out that the management of individual concerns encounters difficulty in determining in advance the real commercial value of an artist to be used as the basis of determining salary arrangements. When the term "excessive" is further qualified by the term "unreasonably", any determination on the matter is of course placed upon a wholly speculative basis. The final determination by the Code Authority in any matter affecting excessive salaries would therefore have to be made on a wholly speculative basis. Thus, the administration of the suspended provision is rendered ineffective by virtue of the very reason that the problem of excessive salaries has developed. Leaving aside the question of social implications, a star or executive is worth as much as the public can be led to think he is worth by paying to see his offerings. If individual producers find it difficult to gauge in advance the possible value of these services, it is patently impossible for a Code Authority to exercise any more effective judgment in the matter. It is of course possessed of no better material than the cumulative guesses of its membership.