(FORTUNE Magazine) – EVEN BY Hollywood standards, Steven Ross of Warner Communications is legendary for lavish living. The chief executive of the giant movie, cable, and recording empire shuttles celebs via company helicopter from Manhattan to his East Hampton estate 100 miles away. The company also picks up the tab for a bodyguard who travels with the chairman. Indeed, when the dashing, silver- haired Ross jets with such stars as Clint Eastwood to Warner's six-bedroom villa in Acapulco, set on a cliff overlooking the Pacific, it's tough to tell which of them is the matinee idol. Ross's latest perk has the back lots buzzing and Wall Street entertainment analysts fine-tuning their spreadsheets. In February at a heated board meeting at the company's New York City headquarters, Warner directors approved, by a vote of nine to six, a ten-year employment contract that should make Ross, 59, the highest-paid C.E.O. in the country. Under the new contract, if the price of Warner stock and the company's net income should rise, say, a moderate 10% a year compounded annually, the chief executive will make an average of $14 million a year in salary and bonuses (see chart below). Ross had been earning $3 million. To put that $14 million in perspective, the entire United States Senate gets paid only $9 million a year. Victor Posner, the chairman of DWG Corp. and America's highest-paid C.E.O., pulled in only $12.7 million. Even if Warner stock and earnings remain flat over the next ten years, Ross gets an estimated $5.8 million annually. Says Jude Rich, president of Sibson & Co., a Princeton, New Jersey, consulting firm specializing in compensation: ''If that's an incentive, I'm confused about what incentives are supposed to be.'' The contract has already attracted a shareholder suit. Jerome Blumenthal, a real estate investor who owns 200 shares of Warner stock, charges in his complaint that Ross's compensation is ''excessive.'' He wants the contract set aside. Blumenthal isn't the only outraged shareholder. Says Herbert J. Siegel, a Warner director and chairman of Chris-Craft Industries, a television broadcasting company that controls 18% of Warner voting stock: ''Steve is a good piece of manpower; he deserves a lucrative but fair contract. Do I think he's worth three times Iacocca? The answer is no.'' Over the past two years, Ross and Siegel have increasingly been at each other's throat as Ross's extravagant management style clashed with Siegel's cost-cutting penchant. Says the head of another entertainment company: ''These two fight like the Hatfields and the McCoys.'' Once on friendly terms, the men now communicate largely through their lawyers. A brilliant dealmaker, Ross parlayed a car rental and parking lot chain into one of the country's premier entertainment companies in roughly a decade. Then Warner's Atari subsidiary, which had provided 62% of the company's profits in 1982, began hemorrhaging money when capricious children tired of Pong and Pac-Man. Between 1983 and 1984, Warner lost $1 billion from Atari and other businesses that didn't pay off. The company was becoming takeover bait for press lord Rupert Murdoch, and to fend him off, Ross sold Chris-Craft Industries some 18% of Warner voting stock. Chris-Craft later upped its Warner holdings to 30%, only to have them diluted last summer back to 18%. Over the past three years Ross sold Atari and other assets, cut costs, and eventually restored the company to health. Siegel put pressure on Ross to hasten and broaden the restructuring. Says Mara Balsbaugh, Smith Barney's entertainment analyst: ''It's the most fantastic turnaround I've ever seen.'' In 1986 Warner earned $186 million on $2.8 billion in revenues, and Balsbaugh predicts that income will grow at a 20% annual compound rate for the next five years. She expects that the price of the stock, recently $31.25 a share, will increase 60% by 1989. BY THE TIME the board members met on February 25 in the Warner board room on the 28th floor of the company's Rockefeller Center headquarters, it was obvious that the two camps were headed for the O.K. Corral. Ross, however, was not present at the meeting, having disqualified himself from the voting. He was unable to respond to FORTUNE's request for an interview, said a Warner spokesman, because he was ''on vacation in either Japan or Europe, where the phone systems are bad.'' The dissenting directors, led by Siegel, claim that the contract was railroaded through the board and that all the directors were given only a week to study the complicated 55-page document. They were also surprised to learn that the contract would not be put to a shareholder vote. One Warner director livened things with the comment that Ross deserved to be richly rewarded because ''Steve is godlike.'' Martin Payson, another board member and Warner's general counsel, justified Ross's compensation to FORTUNE this way: ''The board understands it is a rich contract. Steve Ross is the founder of the company, a unique executive with unique skills. Warner would have a serious problem if Steve Ross dropped dead tomorrow.'' Indeed, Ross has already had a mild heart attack. Skeptical board members pointed out that while Warner stock has recovered from its post-Atari low of $8.50 to its recent price of $31.25, an investor who bought the stock five years ago has only now seen it return to its pre- Atari level. They also complained that Ross's contract is far too rich for a company Warner's size. If Ross makes $14 million a year, he'll be earning more than Warner's entire publishing division earned in 1986. Says dissident director Howard Arvey, a partner at Arvey Hodes Costello & Burman, a Chicago law firm: ''I don't care how capable an executive is. No one deserves a contract like that.'' The controversial agreement pays Ross a base salary of $800,000, plus | $400,000 a year in deferred compensation. Ross, who owns less than 1% of Warner stock, also receives a bonus of 1% of Warner's net income each year and a long-term bonus that pays him cash based on the movement of Warner stock and earnings. Then there is the golden parachute or, in this case, platinum parachute. Should Warner be taken over this year at $50 a share, a 60% premium over the current price and an amount thought reasonable by industry analysts, Ross gets about $90 million for pulling the rip cord. The most sensational set of silks to date belonged to Revlon's Michel Bergerac, who was paid $35 million when Pantry Pride took over Revlon in 1985. OF THE NINE DIRECTORS who voted for the contract, most appear to be beholden to Warner financially. William vanden Heuvel, the chairman of the compensation committee, is a partner at Stroock & Stroock & Lavan, a law firm that receives fees for doing some of Warner's legal work. Vanden Heuvel personally received nearly $1 million from Warner in 1984 for some work on acquisitions. Another four directors are Warner executives whose own compensation is heavily influenced by Steve Ross. The dissenting board members argued that these four should have disqualified themselves. ''If I were a director who had to report to a C.E.O. and who had his own livelihood set by the C.E.O., how could I comfortably vote on that C.E.O.'s salary?'' asks director Norman Perlmutter, the chief executive of Heitman Financial in Chicago. But if the four Warner executives had disqualified themselves, the board could have voted down the contract six to five. Warner's Payson, one of the four insiders who voted in favor of it, vigorously denies any conflict of interest, arguing that the managers were keeping the best interest of the shareholders in mind. He explains, ''When you have six directors who can block the business of this company, you have to let the managers vote.'' There is no telling what Ross's next move will be, but he finds Siegel's presence on the board irksome. Ross may try to take Warner private in a leveraged buyout, as he considered doing at least twice before. Even if Ross is the one who instigates the takeover, Warner is still obliged to honor the contract, thus making it an asset that Ross could convert into his share of the equity in a buyout. In April 1985 and November 1986, Ross discussed the possibility of an LBO with Drexel Burnham. If he does take Warner private, Chris-Craft will receive at least $1 billion for its shares; Ross will get Siegel off his back and the freedom to live like a movie mogul without shareholders to spoil his fun.

CHART: A FISTFUL OF DOLLARS FOR THE CHAIRMAN

YEAR BASE BONUS LONG- TOTAL SALARY* TERM in millions BONUS

1987 $1.2 $2.1 $0.0 $3.3 1988 $1.2 $2.3 $0.0 $3.5 1989 $1.2 $2.5 $11.8 $15.5 1990 $1.2 $2.7 $0.0 $3.9 1991 $1.2 $3.0 $13.1 $17.3 1992 $1.2 $3.3 $0.0 $4.5 1993 $1.2 $3.6 $17.8 $22.6 1994 $1.2 $4.0 $0.0 $5.2 1995 $1.2 $4.4 $23.5 $29.1 1996 $1.2 $4.8 $31.7 $37.7 TOTAL $12.0 $32.7 $97.9 $142.6

*Salary plus deferred compensation. CREDIT: NO CREDIT CAPTION: Having survived a heart attack and a corporate debacle, Ross should live well. The table assumes Warner stock and earnings will rise 10% annually. DESCRIPTION: See above.