UPDATE: First Layoffs Coming At Family-Owned 'Daily Herald'

By: Mark Fitzgerald Through repeated newspaper industry slumps triggered by the 1970s oil shortages through the post-9/11 trauma, the Paddock family-owned Daily Herald in suburban Chicago proudly avoided involuntarily laying off any employee.

That tradition is almost certainly going to change, Paddock Publications President and CEO Doug Ray warned Friday.

"We hate to even use the word 'layoffs,'" Ray said in an interview with E&P. "We think it's important for the future to continue to invest in the areas that we have, and the only way to do that really is to shift some people around. We don't know how we're going to do this. We will be going to performance-based evaluation of all our employees."

In a memo Thursday, Ray told employees that all of them will have their pay cut by 5% starting Aug. 12. The paper hopes to restore pay by early next year. Employees will receive an extra week of paid vacation in the second half of 2008, Ray said.

All departments were also ordered to cut their non-payroll expenses a further 10%.

Ray's memo did not spell out how the paper intended to "permanently reduce payroll expense" -- but in the interview he emphasized that the newsroom will be spared deep cuts.

"We do not intend to go into the editorial department, and say, we need X percentage of employees," he said. The paper will continue to maintain a newsroom larger than the industry standard, he added.

"I won't say nothing will happen inside the editorial department because that wouldn't be honest," Ray said.

The Daily Herald, Illinois' third-largest daily at 151,191 circulation, is suffering from the same cyclical downturns and fundamental business change as other newspapers, Ray said.

But one ad slump that has particularly hurt is the precipitous fall-off of new-home advertising -- an especially critical category for a newspaper that has grown by expanding into places where cornfields are turning into cul-de-sacs.

"I frankly thought we'd go through this year fine, but frankly the last 60 days have been very challenging," Ray said.

In the memo, Ray warns staffers that the current downturn is different from past cyclical dips, in which expenses were cut only to be restored later. Some advertising categories will not "snap back" this time, he wrote, so the paper must institute not only short-term expense reductions, but "long-term structural adjustments" to the way it does business.

He wrote: "In order to meet this challenge, all of our competitors and most newspapers across the country have reduced staff. We must do so now as well. Because revenue is falling and is expected to continue with the structural changes in our business model, we no longer can avoid staff reductions. I have directed the senior management team to develop strategies to permanently reduce payroll expense."

Daily Herald employees have been through a pay cut once before. For nearly all of 2002, employees had to take a half-day off every other week, with a proportional drop in salary.