By: Mark Fitzgerald
Tribune Co. Chairman and CEO John W. Madigan got a pretty good annual review last year. True, his pay increase of 4% barely beat inflation, bumping his salary up to $851,349. But with the increase in Tribune stock price, Madigan earned a $2-million bonus under the executive incentive plan. Tribune’s Governance and Compensation Committee was so tickled with his performance in landing the biggest newspaper deal ever — the $8-billion Times Mirror Co. acquisition — that it cut him another check for an additional $1-million bonus.
Next year will not be so lucrative for the chief of the Chicago-based newspaper, entertainment, and broadcasting giant. In a memo to employees last week, Madigan and his heir apparent, President and Chief Operating Officer Dennis J. FitzSimons, announced that they and about 140 other senior executives will cut their salaries by 5% next year. Six top executives, including Madigan, FitzSimons, and Jack Fuller, the president of Tribune Publishing, also will not receive bonuses for this year.
This executive-suite sacrifice came simultaneously with the announcement that, effective Jan. 1, all 18,000 nonunion Tribune employees will have their wages frozen for one year. To soften the blow, Madigan and FitzSimons said nonunion employees will be eligible, based on merit, for a special one-time grant of stock option. No other details were released.
Hiring will virtually cease for the next year, and the company said it would be “seeking compensation cost savings” from the approximately 4,000 unionized Tribune employees. Even so, it said there were no guarantees these moves will forestall layoffs at Tribune, which had already shed some 1,700 positions this year through a voluntary retirement plan.
“As you know, the economy has been in a downturn this year, and we are experiencing the worst advertising environment since the Depression. The Sept. 11 terrorist attacks in New York and Washington only made a bad situation even worse,” Madigan and FitzSimons wrote to employees.
The decision by top executives to cut their own salaries and forgo bonuses underscored how different this economic swoon is from those that preceded it. No one felt compelled to fall on his sword then: “If you look back to the recession of 1991-92, there were efforts to curtail layoffs by wage freezes and buyouts. … But if you look back at the salary and bonuses for executives, they had modest increases in 1991 — and then in 1992 they started climbing up again,” said Mary Sepucha, director of employee relations at the Newspaper Association of America.
“An executive salary cut is pretty rare. That’s why it’s in the news,” said George Harmon, an associate professor of journalism at Northwestern University. “Usually, these people are trying to walk away with more money no matter how badly they do. To me, it showed leadership. It’s a quaint concept — leading by example.”
The Tribune move is rare, but not unprecedented. Just last month, Belo announced that its top executives were immediately taking a 5% cut in wages that would last until at least 2003. There was no mention of whether bonuses would be affected. Last year, Chairman, President and CEO Robert W. Decherd earned $863,200 in salary, a bonus of $635,900 and was awarded options for 410,000 shares, according to a Belo filing with the Securities and Exchange Commission.
As with Tribune, the announcement came as Belo unveiled a companywide pay freeze for nonunion employees through next year, and a virtual halt to hiring. The company also said it would ask unionized employees “to take the same action voluntarily.” In addition, 160 jobs were eliminated.
If executive salary cuts are still rare in the newspaper industry, they are not likely to remain so for long, according to one expert in executive compensation. Dan Dalton, dean of the Kelley School of Business at the University of Indiana, said corporations in all sorts of businesses are reconsidering what they’re paying their executives. “What you’re seeing now is boards of directors across the U.S. and elsewhere are being very, very cautious about bonuses and [salary] increases and, especially, new stock options,” Dalton said. “Board compensation meetings are starting just about this time of year — and I think it’s a very good bet that they will be very, very conservative.”