Survival Of The Richest - Even As The Ship Sinks, Newspaper Execs Pocket The Silver

By Andy Zipser, Editor
The Guild Reporter

While Morgan Stanley, Goldman Sachs and JP Morgan Chase have become poster children for management greed run wild, their executive compensation practices are only the most extreme examples of a widening class divide.

What's endemic to the financial industry is nearly as ubiquitous to the newspaper publishing business, in kind if not in scale. And that avarice is nowhere more evident than in bankruptcy court.

Five employers of Newspaper Guild members are in various stages of trying to reorganize their finances, a process that inevitably rips up contracts, breaks promises and imposes new working conditions with only minimal input from those affected.

Although TNG-CWA has won a seat on all five unsecured creditors' committees wrestling with the ailing companies—Tribune Co., Sun-Times Media Group, Philadelphia Media Holdings, Journal Register Co. and Avista Capital Partners—the union is only one among many claimants scrambling for whatever crumbs they can salvage. Vendors, suppliers, utility companies, tax-collecting entities and landlords all have their hands out, and they stand in line behind secured creditors who in some cases will be lucky to get pennies on the dollar.

But there's one group that gets special preference at times like these, one group that apparently is more indispensable than any of the others just mentioned: top executives.

Four of the five publishers listed above have given or attempted to give raises and bonuses to their highest paid employees, even as they've slashed payroll through layoffs and buy-outs, unpaid furloughs, wage cuts and outsourcing.

While the numbed survivors struggle with higher health care premiums, loss of pensions and reduced work hours, those overseeing this wreckage have been telling bankruptcy judges that if they don't get more executive compensation, things will get really bad.

"Incentivizing employees is essential to Tribune's future success," Tribune's chief operating officer and its chief administrative officer wrote this month to a federal bankruptcy judge, seeking the court's approval of a plan to pay up to $47 million in management bonuses. "We must continue motivating our people to overcome obstacles, achieve our performance goals and take the company to the next level," they explained.

A hearing on that request is scheduled for Aug. 11 in Delaware, with the Guild prepared to argue against it.

It wasn't all that long ago that employees—even at the executive level—were expected to overcome obstacles and achieve performance goals because that was their job; that's why they were paid. Bonuses were reserved for extraordinary performance. Moreover, employees were motivated—or so one hoped—to do their best for a variety of reasons that had nothing to do with money: loyalty to the employer, pride in one's work, a sense of responsibility.

Today's executive mercenaries, on the other hand, aren't affected even by remorse or guilt for their mistakes. As observed by Guild President Bernie Lunzer, after a bankruptcy judge earlier this month rebuffed Guild attempts to block bonuses for Journal Register executives, "this was a heinous payout to the guys that basically ran the car into the ditch, and are now getting paid for having the ability to call a tow truck."When Journal Register filed for Chapter 11 protection in February, it was approximately $695 million in debt and was worth only an estimated $300 million. Its former chief executive, James Hall, had jumped ship mere days earlier, but only after entering into a "transition and separation agreement" with the company's lenders (but not its unsecured creditors) in which they agreed not to seek "disgorgement" of his separation package. The bankruptcy filing did not specify just how much the separation agreement was worth.

Also not listed in the filing were the names of 31 "key employees" to whom Journal Register wanted to give $1.7 million in an "incentive plan" so they would reach certain goals, although some of the deadlines for those goals had already passed. Among the tasks that needed this kind of incentivizing were the closing of some publications and the elimination of 450 full-time positions.

Joining the Guild in unsuccessfully opposing the bonuses were Central States, a multi-employer pension plan with $4.3 million in claims against the company, and the state of Connecticut, to which JRC owed $21.5 million in unpaid taxes. The state's assistant attorney general, Denise Mondell, argued that the "incentive plan" was a sham, given that the behavior it was supposed to incent had already occurred. Congress had attempted to outlaw such retention plans, Mondell argued, "as a result of increasing public sentiment against the practice of executives of bankrupt companies generously rewarding themselves during restructuring while at the same time the rank and file workers were suffering tremendous economic blows as a result of the bankruptcy." Score one more for the executives.

Management attempts to shovel out such rewards anonymously, or even without acknowledging them at all, are not unusual. The Sun Times Media Group, for example, in June suspended its attempt to give out $1.8 million in bonuses to "certain employees" after the bankruptcy judge in its case refused to seal the courtroom and keep the specifics of the plan secret. Susan Kaufman, an attorney for the Chicago Guild, told Associated Press that " the public should be able to evaluate this plan," adding: "By sealing it, it's certainly not helping the morale of the work force."

Less than a month later, Crain's Chicago Business reported that Sun Times had skipped paying its quarterly contribution into several employee pension plans, due April 15. The missed payments reportedly totaled more than $800,000.Philadelphia Media Holdings, meanwhile, tried to get ahead of the curve by giving publisher Brian Tierney a 38% pay raise—boosting his take to $850,000—two months before it filed for bankruptcy protection in February. News of the raise got out because it was disclosed in the court filing, but it took another month for the public to learn that the company's largesse hadn't stopped there: Tierney had also been given a $350,000 bonus, while two other top executives had received bonuses of $150,000 each. PMH chairman Bruce Toll, who first responded to media inquiries by saying no bonuses had been awarded but who then acknowledged they had, conceded that the company's board of directors knew that its finances were "obviously not good" at the time.

Nevertheless, he told Philadelphia Magazine, "we thought it was deserved," although "we can't get into the details because we're involved in bankruptcy proceedings."That's not dissimilar to the story of the boy who killed both parents, then threw himself on the mercy of the court on the grounds that he was an orphan.

It's also not atypical of an executive class that protects and rewards its own even as everything around them turns to ash: Toll, for example, retired as president of Toll Brothers, a publicly traded builder of luxury homes, more than a decade ago but continues to draw on its assets as though from a private bank account. In 2004 he was retained as a "special advisor to the chairman" at an annual compensation of $675,000 for three years—on top of the $230,000 a year he is getting for 20 years from the company's supplemental executive retirement plan.

In the end, it's really all about the money and nothing—nothing—else. That point was driven home yesterday in a CNBC interview with Sam Zell, the swashbuckling predator who in plundering Tribune Co. led it into bankruptcy court late last year. When interviewer Maria Bartiromo observed that he doesn't get emotionally attached to things, Zell demurred by saying he has an emotional attachment to his family. And to his motorcycles.

And what about a complex institution like Tribune Co., with its many properties, employees, customers, readers and other stakeholders? "I don't have any emotional attachments to assets," Zell declared.