Moguls' Millions  | American Journalism Review
 AJR  Features
From AJR,   July/August 2001

Moguls' Millions   

Once you add up the salary, bonus, dividends and money from exercised stock options, the annual take of media company brass isn't too shabby.

By Alicia C. Shepard
Alicia C. Shepard is a former AJR senior writer and NPR ombudsman.     

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   » How Much Did They Make?


THESE ARE TRYING TIMES for newspaper company executives. Ad revenues are down, newsprint prices are up. Many have been forced to slim their products and slice their workforces.
Through somber-toned memos, executives tell employees that they deeply regret laying off colleagues. They know it's unsettling for those remaining.
But whenever budget cutting gets them down, they can find solace in reflecting on how much money they themselves are making.
The heads of 12 publicly held newspaper companies took home an average of $3.6 million last year. That average is what each corporate chieftain collected in salary, bonus, other compensation, dividends and from exercising stock options in 2000. While dividends are not part of a CEO's compensation package, AJR included them to reflect the total income of the CEOs and to provide a glimpse of how tied financially they are to their companies' performance. Washington Post Co. Chairman Donald E. Graham's stock, for example, earned $4.4 million in dividends last year. (The top official at E.W. Scripps isn't included in the average since he didn't serve for the entire year.)
The figures come from proxy statements newspaper firms send out each spring informing shareholders how they compensated their top five executives for the previous year. This year, the timing is particularly unfortunate as it spotlights CEOs' rewards for last year's impressive growth in profits and earnings at a time when many newspaper companies are experiencing painful and wide-ranging cutbacks.
The fact that the massive compensation was for last year provides little comfort to those who have lost their jobs or who worry that the omnipresent ax may strike them next.
"If I'm a reporter in Akron who moved there for a job [at the Beacon Journal] and a couple years later I find myself out on the street, and I see that Tony Ridder got this exorbitant pay [he collected $1.6 million], it doesn't make me feel better that he got it for last year," says Linda Foley, president of the Newspaper Guild-CWA. "The question is, if the bonuses in the corporate suites weren't so high, would they be able to keep more workers working?"
Most of the 13 companies AJR examined experienced double-digit growth in earnings in 2000. Their average operating profit margin was 22.7 percent--as high as it's ever been. This year's budget cutting is aimed at limiting the falloff from those lofty peaks.
Dow Jones CEO Peter R. Kann says he is not uncomfortable with the $3.6 million he collected for 2000. His company's operating profit margin hit a high of 26.3 percent--more than double the 11.1 percent reached in 1991. For that and other financial goals the company met, Kann got an $888,000 bonus (35 percent higher than 1999) on top of his $841,167 base pay.
His compensation for this year, he imagines, won't be as good. At Dow Jones, the Wall Street Journal's owner, earnings dropped to 17 cents a share in the first quarter of 2001. A year ago, a share earned 88 cents. "The year 2000 was, in many ways, the most successful in our history," says Kann, a former Journal reporter. "My compensation reflected that, to some degree. This year now seems very likely to be less successful for our company and industry. Again, my compensation will reflect that, as it should."
But the truth is that Kann and his counterparts often receive plump bonuses when times are good or bad. It's likely many will be rewarded this year, albeit not as generously as last year, for the flurry of cost-cutting measures.
Disturbing as layoffs are, they can be a quick way to reduce costs and keep profits up when revenue drops. They send a signal to Wall Street that the CEO is taking charge, which boosts stock prices. The Street rewards short-term gain, not long-term investment.
"Since Wall Street loves layoffs, that's an easy win for the CEO, to make it look like he's creating shareholder value without thinking about the long term or without trying to increase revenue," says Nell Minow, an executive compensation expert with the Corporate Library in Washington, D.C. And increasingly, newspaper CEOs are compensated based on stock prices and how well their companies perform financially--not for high-quality, public service journalism.
Says newspaper analyst and AJR columnist John Morton, "I personally doubt that what's happening to the newspaper industry this year will affect executive compensation negatively."

CEO COMPENSATION PACKAGES in all types of companies began changing markedly in the 1980s as stockholders complained that top management wasn't doing enough to increase shareholder value. Activists pushed to have CEO compensation tied more directly to a company's financial performance.
So instead of paying higher salaries, compensation committees for public newspaper companies began offering larger and larger stock-based incentives. The leadership team will work harder to increase shareholder value, the thinking goes, if executives themselves gain financially when the company does well. If it doesn't, management suffers along with stockholders.
A provision in the 1993 Omnibus Tax Bill also altered the way top executives are paid. Designed to address shareholder concerns about bloated salaries, the measure appears to have backfired.
The law limits the income-tax deduction a corporation can take for salary to $1 million per executive. Nothing more than that can be deducted.
So corporations sought other ways to richly recompense their executives while avoiding hefty tax bills. They found one. Under the 1993 law, any bonus based on a performance formula that can be calculated by a third party is tax-deductible.
Not surprisingly, only two officials at the 13 newspaper chains AJR studied earned a salary more than $1 million last year. Gannett CEO and Chairman John J. Curley received $1.1 million in salary--a figure dwarfed by his $8.3 million in bonuses, dividends, exercised stock options and other compensation. Douglas H. McCorkindale, who succeeded Curley as CEO in June 2000 (and who this year replaced him as chairman), received a salary of nearly $1.1 million and a bonus of $2 million.
And so the "reform" has hardly forced executives to search for second jobs. At the nation's 365 largest companies, the average CEO earned an eye-popping $13.1 million last year, according to Business Week's 51st annual Executive Pay Scoreboard.
Critics consider the "pay for performance" model shortsighted. They say the model rewards actions that rapidly boost profitability yet may hurt the enterprise in the long run by diluting its quality. Yet the approach's popularity has soared since it came to the fore in the mid-1980s, about the same time that the bull market began taking off.
If quality journalism plays a role in determining newspaper executives' compensation, you wouldn't know it from reading the explanations offered in proxy statements. The "performance" being measured has much more to do with the bottom line.
For example, in determining how much to pay Curley and McCorkindale for 2000, Gannett's compensation committee "considered the company's performance in the following areas: earnings per share, operating income as a percent of sales, return on assets, return on equity, operating cash flow, stock price, and market value," according to its proxy.
Each fall, compensation committees made up of three to five nonemployee directors meet to settle on executive salaries and target goals for the coming year. They put together a pay package for the top five executives consisting of salary, an incentive bonus, stock options and restricted stock. They also set long-term performance incentives for a three-year period.
For their part-time work, directors are handsomely rewarded in cash, stock, stock options and other benefits. A compensation director at Dow Jones earned $64,000 in cash and stock and got 1,250 options. For each of eight board of directors' meetings attended, Dow Jones directors such as former President Clinton's pal Vernon Jordan received an additional $1,500. Compensation directors received $1,000 more for attending compensation meetings.
To figure out the base cash salary, directors analyze survey data for comparable positions at U.S. companies with similar revenues, including other media companies. Salary, which is guaranteed, is fairly insignificant when compared with the total amount of compensation that's dependent on meeting or exceeding financial goals.
The New York Times sets its cash compensation "generally within the mid-range of companies surveyed," says its proxy. McClatchy sets its base pay "at the median pay levels" of similarly sized companies, including peer media companies.
But it is the incentive bonus that determines how much a CEO will earn and effectively creates a vested interest in driving up the stock price.
Last year, earnings per share for the New York Times Co. grew 18 percent. The company's target was 10 to 15 percent growth. Because Times Chairman Arthur Sulzberger Jr. and CEO Russell T. Lewis beat their target, each earned a $1.3 million bonus for 2000.
Since earnings dropped 26 percent in the first quarter of 2001, and the Times predicts second-quarter earnings will be down, it's unlikely either man will be as handsomely rewarded this year. At Dow Jones, its four directors set these criteria last year for Kann's 2001 bonus: earnings-per-share growth, increasing economic value of the company and improving the cash-flow margin.
When Kann was asked what the downside would be if he took a smaller bonus or less salary to avoid cutbacks or layoffs, and whether Wall Street would be impressed if he did so, he replied: "My compensation is tied closely to our performance and, barring a sharp and sustained turnaround from current conditions, my incentive compensation (including my bonus) will likely decline in 2001 from 2000, as it should. This is true for other executives as well. And we do factor these 'savings' in when we consider what additional cost-cutting may be necessary."

THE DEGREE TO WHICH remuneration is centered on financial performance rather than product excellence becomes clear in proxy statements. That's where compensation committees spell out how bonuses depend on increasing shareholder value, with little or no mention of journalistic accomplishments.
In explaining how compensation packages are determined, 10 of the 13 proxies studied fail to mention the quality of the news product. Only Dow Jones, the Washington Post Co. and McClatchy make any kind of assertion that executive compensation is tied to the product, and even in those companies it is clear quality is a minor part of the formula.
Kann's compensation committee refers to "quality of Dow Jones' publications and services" only when discussing Kann's long-term criteria.
At other companies, the language speaks for itself:
At Knight Ridder, 65 percent of a top executive's bonus is tied to financial performance, according to its proxy for 2000. Chairman and CEO P. Anthony Ridder's bonus was $506,339. In 1999, a stellar year for the stock market, Ridder received an $804,169 bonus and was granted 150,000 stock options.
Annual bonuses at the New York Times, says its proxy for 2000, are paid only if financial targets are achieved.
At Belo, owner of the Dallas Morning News, Providence Journal and 17 television stations, executive compensation packages are used "to encourage coordinated and sustained effort toward enhancing the company's performance and maximizing the company's value to its shareholders," according to the recent proxy. Getting a bonus, says the proxy, depends on whether financial targets are met.
At E.W. Scripps, 100 percent of 2000's bonus was predicated on meeting targets for operating cash flow and earnings per share, the proxy says. The purpose of the bonus "is to support the company's objective of enhancing shareholder value directly linking incentive pay to selected financial goals."
When newspaper executives make pilgrimages to Wall Street to entice investors, their presentations center on market share, circulation, ad revenues, lineage. Numbers, not news. "They hardly ever talk about news content or investment in staff training or the knowledge base in a newsroom," says Bob Giles, curator of the Nieman Foundation and former editor and publisher of the Gannett-owned Detroit News. "So analysts come away thinking this is like any other bottom-line industry and that there's no difference between newspapers and making widgets."
But Giles knows there is. He advocates that compensation committee directors make quality of news coverage a more significant performance measure. "Maybe I would want an outside auditing committee to come in once a year to make an assessment on the quality of the news coverage, paper by paper, and make that one of the major measures," says Giles. "That would bring a better balance to how performance is evaluated."
But that won't happen anytime soon. "Just look at the boards of directors," says Giles. "All the outside directors are businessmen and the inside directors are from the business side. A CEO who runs a first-rate newspaper company deserves to be well compensated. I'm complaining about the values of what goes into deciding what a successful newspaper company is on Wall Street."

LARRY JINKS IS A MEMBER of the compensation committee at McClatchy, a Sacramento-based chain whose 11 dailies include the Sacramento Bee, Minneapolis' Star Tribune and Raleigh's News & Observer. Unlike many of its peers, McClatchy has decided to avoid laying off workers and taking other draconian steps to meet towering profit targets in a slumping economy.
At 72, Jinks is a respected former editor, publisher and corporate executive who logged 37 years with Knight Ridder and one of its predecessors, Knight Newspapers. Since 1996, he's helped formulate pay packages for CEO Gary B. Pruitt and other top McClatchy decision makers.
Proxies may mention revenue growth and operating profit as standard measurements, but Jinks says, "I can't remember ever using earnings per share in talking about Gary's bonus. We really talk about our overall sense of how he performed. We do put together a set of criteria that measures economic performance as a basis for the bonus minimum. It does measure year against year and improvement in operating performance, so one would assume if this is a really down year, it will affect his compensation."
For 2000, Pruitt collected a total of $1.2 million. "I would say I'm making more money than I ever imagined," he admits. "Executive pay in the U.S. is generally quite high. In my particular case, for 2000, my salary was $775,000 and my bonus was $425,000 and I received 75,000 stock options. My bonus was down $100,000. We didn't do as well as a company versus our economic forecast or budget. That was the primary reason."
Pruitt, now 43, moved from giving legal advice as McClatchy's corporate counsel in 1984 to running the company 12 years later.
How much of his bonus is tied to financial performance? Pruitt says the compensation committee considers "editorial quality and circulation growth and other financial factors."
What about content? What about brilliant stories that change the fates of the impoverished or overturn fraudulent elections or revamp the way we evaluate our schools?
At McClatchy, says Jinks, the compensation committee can take editorial excellence into account. The company spotlights award-winning stories in its annual report, which cites a 2000 story that appeared in the Bee papers in Sacramento, Fresno and Modesto on how methamphetamines were devastating California's Central Valley.
Yes, Pruitt's bonus is primarily tied to meeting financial goals, "but his overall compensation is determined by general leadership of the company, how well we think he had lived up to the standards of the company," says Jinks. "I don't mind telling you, it's unanimous: We think he's an extremely talented CEO."
Talented or not, CEOs' compensation in the newspaper industry still galls the rank and file who make breathtaking profits possible. Top executives are rewarded for raising profits in good years and for cutting costs by sacking employees in bad years. But employees never get six-digit bonuses even in superlative years, and when they do get raises, they are in the neighborhood of 3 percent at union papers.
Only one of the 13 publicly held newspaper companies--McClatchy--offers a companywide profit-sharing program when goals are met.
"I do think it's obscene that these CEOs make the kind of money they make and it's not tied to performance of the company at all," says Foley of the Newspaper Guild. "The bonuses just come as a matter of course regardless of how the company performs. The amounts are obscene compared to what the workers make."
Pearl Meyer, who runs a New York City compensation consulting firm, Pearl Meyer & Partners Inc., suggests it's time for a change. "We fully support the concept of paying top executives for results," she writes on the company's Web site. But corporations, boards and management need to "correct their single-minded focus on pushing up short-term stock prices," and extend the rewards down through the ranks.
"Employees who have had to make financial sacrifices and surrender old notions of job security should share with stockholders and senior management in the rewards of increased productivity and profitability," she says. "As each new proxy statement is released, the sense of scandal grows. The way we see it, let's fix things ourselves before it's too late."

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