May 3, 2019

Gannett and McClatchy did not have especially good years financially in 2018 — revenues down, posting a loss and stock price sliding.

The pay envelopes for the men who run the two companies remained plenty healthy nonetheless — $5,257,224 for Bob Dickey at Gannett and $2,877,450 for Craig Forman at McClatchy.

Neither is in the obscene range that caused a Disney heir to deplore CEO Bob Iger’s $65 million payout. Still, the awards reflect corporate compensation practices that are odd at best. Or, you could say, outrageous by comparison to layoffs and stagnant pay for newsroom rank and file.

Both men’s 2018 salaries included performance bonuses for meeting a set list of tasks — $1 million in Forman’s case — such as measuring performance better or accelerating the shift to digital news.

I asked corporate governance expert Charles Elson, a longtime academic critic of CEO compensation, how pay is determined at smaller public companies like these. It’s straightforward, he said, but not in a good way.

“It’s all about peer groups,” said Elson, who directs a study center at the University of Delaware. Consultants and a board compensation committee first compile a list of as many as a dozen comparable companies and what their CEOs make. “Then they pay their own CEO 50 percent of that figure or higher.”

The rationale is that average or better pay is essential to attracting and retaining talent in the corporate suite. Elson doesn’t buy it. Only very rarely does a CEO jump to a similar job at a similar company, he said.

So in essence, the system for CEOs is “heads I win, tails I win.” And it’s self-perpetuating.

Information about CEO salaries is contained in required Securities and Exchange Commission filings for public companies. They are filed in March or April and tied to annual meetings, typically held in May. Pay for some other top executives is included, too.

For the five other publicly traded newspaper companies (private chains like Hearst or Advance need not file), reported 2018 total CEO pay was:

  • Mark Thompson of The New York Times Co.: $6,138,483. Alone among the companies, the Times had a strong year of revenue growth and share price increases. Chief Operating Officer Meredith Kopit Levien received 150 percent of a target bonus, set at the beginning of 2018, because revenues exceeded goals. She was paid $3,068,979.
  • Jim Moroney, who retired mid-year as CEO of A.H. Belo, which owns The Dallas Morning News and some digital advertising businesses: $2,172,895.
  • Kevin Mowbray, CEO of Lee Enterprises, a chain of small and mid-sized papers in the Midwest and West: $1,351,175.
  • At New Media Investment Group, CEO and President Mike Reed’s pay was not disclosed because the GateHouse chain technically contracts for his management services. Kirk Davis, the top executive at GateHouse, was paid $1,703,092.
  • At Tribune Publishing, CEO Justin Dearborn was let go at the end of 2018 and earned only his salary of $611,000. But he had received $5,257,250 in a stock bonus when he was hired in February 2016 and qualifies for severance payments.

The exhaustive criteria for these payouts run to 20 to 30 pages in the SEC filings.

I asked Bernie Lunzer, president of the News Guild, for a comment, and he said that the principle that should apply is much simpler:

“Turbulence in the news business has resulted in massive layoffs. Among the journalists and other staff that remain, many have gone a decade or more without a raise.

“But CEOs don’t seem to be suffering. (For instance) Tribune execs were notorious for high earnings — higher even than their counterparts at bigger, more successful publications — and for the golden parachutes lavished on them when they departed in 2018.”

Fixes for excessive pay have been on the table for decades. Elson first proposed in a 2003 journal article that the peer group standard be ditched and that CEOs instead be paid on the same basis as other employees — for shared internal goals.

Fortune weighs in critically every year. A stinging 2017 piece said that with the labyrinth of goals and payout categories, “boards generally peg annual bonuses to a series of customized and too-easy benchmarks.” The article cites a former CEO who has proposed that prevailing compensation levels be downsized and that the process be simplified: just pay salary and restricted stock options awarded if share prices rise.

In practice, boards, including those of newspapers, continue to keep pay levels up and even sometimes increase the complexity of payouts. A wrinkle several of the news companies now use involves adding new categories of goals for extra pay. So even if overall results are bad, their CEOs could earn hundreds of thousands of dollars, for instance, for increasing digital subscriptions.

The $1 million bonus McClatchy CEO Forman earned is a case in point. The board established five “categories of objectives” for 2018, potentially worth 30 points each:

“(i) enhancing overall corporate performance through sophisticated digital measurements and accelerating ‘One Team’ corporate structure, consisting of 30 points; (ii) enhancing employee management via creation of systematic performance review architecture and succession planning, consisting of 30 points; (iii) achieving financial goals, such as achieving the budgeted operating cash flow and accelerating the rationalization of the Company’s capital structure, consisting of 30 points; (iv) maintaining and enhancing journalism quality and accelerating the digital progress of news and information operations, consisting of 30 points; and (v) achieving certain technology development and collaboration goals, consisting of 30 points.”

Forman was successful on each, according to the board, so he got the full bonus amount.

To me these sound like what Fortune called “too-easy benchmarks,” the executive equivalent of showing up for work and doing your job.

But a McClatchy spokesperson offered this comment:

“The goals, set by the board, are tied to operating financial performance, acceleration of our digital transformation and other metrics related to improvements in our capital structure including debt reduction. We made significant progress on all of the above in 2018.”

Gannett spokespersons were asked for comment but did not respond.

My two cents: Newspaper CEOs are not nearly as overpaid as those in some other industries. But the prevailing bonuses and reward categories are badly out of sync with the sacrifices reporters, editors and others down the organization chart have made over the last five or 10 years.

Moreover, the general case for CEO pay reform is plenty persuasive. But boards remain stubborn in their resistance. Everyone else is doing it, and that seems rationale enough.

I’m not holding my breath for even one board to pick up on these concerns and toughen the hurdles for multi-million dollar pay packages. If so, however, I would like a $100,000 bonus.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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