Fish Rot From the Head—Especially When Wrapped in Newsprint

In the great "Broadcast News," there's a scene in which the fictional TV network's anchor, played by Jack Nicholson, is discussing the company's latest layoffs with a network exec. 

"This is a brutal layoff," Nicholson murmurs. And the executive replies, "You can make it less brutal by knocking a million or so off your salary. ... Bad joke. I'm sorry."

If that network executive didn't have the balls to suggest that a bulging salary be cut to save some jobs, maybe somebody in newspaper board rooms should step up. Because as layoffs and cutbacks continue to course through newsrooms, in no small part because of longstanding and chronic management incompetence, newspaper company CEOs still are taking home the big bucks, and even getting nice raises in their base pay. 

Most newspaper CEO compensation packages still add up to millions of dollars per year, in fact, with an average among the 13 public-company newspaper CEOs of just under $6 million a year in 2007, according to corporate proxy filings with the SEC. A little belt-tightening among the fat cats might help to save some jobs–and that's no joke.

As Alan Mutter has documented, newspaper CEO salaries generally haven't taken the kind of hits that the companies' stock prices have. But stockholders, obviously, aren't the only ones suffering from the industry's problems. Employees are taking it in the chin–and CEOs who failed to take bold steps to innovate and transform their companies until it was too late are laughing all the way to the bank.

Take the 1,400 McClatchy employees who were recently targeted for layoffs. As they head for the unemployment office, they can wonder how many jobs might have been saved if McClatchy CEO Gary Pruitt had agreed to give up some of $4.6 million (salary, bonus and stock) he took home in 2007. Of course, Pruitt did take a nearly $1 million pay cut from 2006–but that's only because his 2006 compensation package included a cool $1 million special bonus for overseeing the company's acquisition of Knight Ridder (gee, how'd that work out?). Indeed, his base bay for 2007 went up $50,000, to $1.1 million, and he still scored a $800,000 bonus, awarded to him by the company's board even though McClatchy missed operating targets for the year. His 2008 base salary has been frozen at $1.1 million, according to the company's proxy filing.

You've got to wonder if Pruitt could manage to maintain his lifestyle on, say, $2 million less, a few more McClatchy employees might still have jobs. As noted previously, Pruitt's doing a helluva job–in addition to the Knight Ridder fiasco and those missed financial targets last year, McClatchy stock is down 90 percent in the past four years. You'd think he'd be due for a cut.

And then there's Journal Communications Inc., whose Milwaukee Journal Sentinel announced 10 percent staff cuts last week. CEO Steven J. Smith did take home 13 percent less in 2007 than he did in 2006 ($1.19 million vs. $1.37 million), but that was mostly due to variations in stock compensation. In fact, his 2007 base salary rose 10 percent, and his 2007 bonus was just slightly less than his 2006 bonus. Journal Communications' stock performance? Down 77 percent in the past four years.

Newsroom employees who have been lucky to see 2 or 3 percent raises over the past couple of years must really appreciate the pay hikes their maximum leaders are getting. Indeed, while variations in stock compensation reduced the take-home pay for a number of newspaper company CEOs in 2007, many of them nonetheless got raises in their base pay–even as the first signs of the industry's severe problems were appearing. Given the industry's problems and plunging stock prices, it's a bit of a stretch to see how these could be merit raises: Gatehouse's Michael E. Reed got a 13 percent raise, to $500,000 (and his bonus jumped to $350,000 from $200,000). Belo's Robert Decherd got a 6 percent raise in base pay (more on him in a bit). E.W. Scripps Kenneth W. Lowe got a 5 percent raise, to $1.1 million. CEO Mary E. Junck at Lee Enterprises got a base-salary raise of just 3 percent, to $825,000, but not to worry–stock compensation increased her overall pay package to $3.79 million last year, a 20 percent jump from 2006. 

To be fair, some newspaper bosses have seen hefty bonuses cut back as the industry has gone south. Junck's $300,000 2006 bonus evaporated in 2007, and Washington Post Co. CEO Donald E. Graham's $400,000 2006 bonus went to zero last year. (Graham is by far the lowest paid large public newspaper company CEO, with total take-home of $411,700 last year. Of course, he owns billions of dollars in Post stock.) At News Corp., Rupert Murdoch's bonus was slashed to a mere $15.8 million last year from $21.1 million in 2006. He can probably afford it–his base pay almost doubled, to $8.1 million from $4.5 million. On the other hand, New York Times Co. CEO Arthur Sulzberger Jr., while keeping his base salary steady at a bit under $1.1 million, saw his 2007 bonus increase to $1.2 million from $560,000–in a year when the company was under fire from dissident investors for underperformance.

At least one newspaper CEO has stepped forward and taken a voluntary pay cut: Earlier this year, Belo's Decherd asked to have his annual base salary reduced to $800,000 from $950,000. Of course, Decherd earned a total of $10.2 million in 2007 and $5.7 million in 2006, so he can easily afford it. But you have to appreciate the gesture, even though the cut might only pay for two or three extra employees.

We don't know what the CEO salaries are for the private newspaper companies like Tribune and Hearst, but we can trust that they're generous. In Silicon Valley, it's not unusual for top executives like Steve Jobs to work for $1 a year so that they can plow cashflow back into the business (in fairness, Jobs and the other dollar-a-year CEOs have enormous stock holdings). But in the newspaper business, handsome pay packages still are the norm. 

Given the industry's problems, it's a little hard to see why more newspaper CEOs aren't stepping forward to take a little less swag in exchange for keeping more of their valuable human assets on the payroll. Just imagine the goodwill, good morale and good press that would be generated if some newspaper CEO said, "You know what? If it means saving the statehouse bureau, the copy desk and our features section–and making some smart investments in the Web site–I'm going to take a couple million less next year."

Comments

[Garbanzo]

There's always a dual-edged sword for CEOs in most industries, not just newspapers, in that their comp keeps going up regardless of conditions. When stocks rise (usually due to macroeconomic conditions over which they have no control), their comp goes up. When things go south (either due to broader trends or specific problems with a company), boards usually grant them exemptions and pay them anyone. Oddly, most of the academic research shows that BAD CEOs have a significant impact on companies, but CEOs viewed as excellent have more or less the same corporate returns as CEOs who are viewed as average.

One item that wasn't included here was Russ Lewis, the former NYT CEO, was paid for at least a year or two AT FULL PAY after he retired so that Janet Robinson could step in early and hasten the downturn of the NYTCo (personal disclosure: I lost about $80K due to the stock declines under Ms. Robinson's watch).

Finally, Steve Jobs doesn't get $1 per year because of cash issues (hah!), but because there's a handsome equity component that he's benefiting from. Ditto for much of the older Microsoft crowd, the top Googlers, etc.

[ed]

You should take bonuses and stock gifts into account because newspaper companies are wise to all the howling and have been loading their execs up with those sort of salary bonuses rather than straight salary. For e.g., Scripps' Lowe got $6.7 million last year, if you take that into account. Plus he is sitting on stock options and stock gifts worth $96 million. Yes, $96 million, and he never went to business school. Take a look at the disclosure statements Scripps filed with the SEC in connection with the recent split, and you will see.
A lot of that is spendable money, yet these masters of spin control (they do know how media works) are hiding their true salary levels.
After this year's disastrous stock performances, many of these execs are certain to be heading out to pasture. That triggers early retirement goodies and severance goodbye gifts which SEC filings show are truly staggering. These gifts are ordinarily ignored when discussing executive salaries, but some I see are in the $40 and $50 million range. That comes directly off a company's bottom line.
I think this period we are going through is going to end the newspaper industry's love affair with Wall Street. It was great when it was going good and these captains of industry got pats on their backs when they went to their clubhouse on weekends. Now their stocks are in the tank, they are pariahs in monied ranks, and they know it. Who wants to associate with such losers?
If there is no revolt in the corporate rooms, then you are sure to see a shareholder backlash year-end. It doesn't take much pressure, as was shown in the case of Tony Ridder and the former Knight-Ridder.

[Thecookie]

Excellent

[lucy]

Paul Tash, editor and president of the St Petersburg Times is taking a five percent pay cut this year....while other salaries at the paper are frozen for one year and some staffers are being offered enhanced pension benefits

[Kevin Crawford]

After 32 years in newspaper advertising, at the age of 48, I took a big pay cut. I Quit!
Got hired back, then quit again. There is life after newspapers.

[Testudo]

Agree with the basic point that a leader should demonstrate to their team that they are willing to take a bullet too. But a quick question - does it take more talent to run a business in distress, or a business in an industry that is flourishing? Should a mediocre CEO in a big growth industry get paid more than a good CEO in an industry in decline? I'd argue that good newspaper CEOs SHOULD get paid well, certainly their pay should be tied to reasonable operational metrics rather than stock performance. Yes, the CEO's job is to run the company to enhance value for shareholders, but in theory they should be paid according to their IMPACT on stock price (ie, what would the stock have done in their absence vs. what did it actually do). Compared to other US corporations, newspaper CEOs, with a few exceptions, don't get paid that much. In general CEOs are pretty highly skilled. If you pay them less, they will get jobs elsewhere, and you will get stuck with a less talented person running the show. The newspaper industry is a bit different, more newspaper lifers, fewer "professional CEOs", but you get my point.

[Rick]

If executive compensation in the newspaper business is like other businesses, we may see boards of directors boosting CEO pay BECAUSE these executives cut staff and employee costs.

There's a major auto supplier in Detroit called American Axle & Manufacturing. The company, which is profitable, recently took a three-month strike by the United Auto Workers union. The strike ended only after the UAW hourly workers agreed to $10-an-hour pay cuts, a reduction in benefits and an agreement to allow the company to close a couple of plants. American Axle's board was so pleased with the outcome that it gave CEO Dick Dauch an $8.5 billion bonus for achieving that feat.

[Brian]

Decherd's salary was initially set at $800k. In the latest 10-K, it states he actually lowered it to $250k. Obviously he can afford the cut, as you've mentioned, but a positive gesture.

[Rick]

Oops. In an earlier post, I meant to type that Dauch's bonus was a mere $8.5 million, not $8.5 billion.