Tribune Co. Bonus Plan Draws Questions

U.S. Bankruptcy Trustee And Four Unions Object To Payment Request

The U.S. Bankruptcy Trustee in Tribune Co.'s Chapter 11 case and four of the company's unions have raised objections to management's plan to pay out tens of millions of dollars in performance bonuses.

The filings came Tuesday and Wednesday in response to Tribune Co.'s July 22 request for authorization from the U.S. Bankruptcy Court in Delaware to pay from $21.5 million to almost $67 million in bonuses to more than 700 managers and other key employees.Tribune Co., which owns the Chicago Tribune, also sought to pay nine of its top 10 executives $3.1 million in belated 2008 bonuses.

In its response to Tribune Co.'s motion, the U.S. trustee said the company didn't provide enough data to justify its incentive plan. The trustee said there is "insufficient information" in the motion to prove that the payments are for what management called "bona fide incentive programs and awards based on real performance targets."The trustee, which is charged with enforcing bankruptcy laws, said the awards are based on meeting specific cash flow targets but that Tribune Co. does not "give any factual and/or historical context to back up their characterization of that performance target as being 'real.' "

It also questions whether the awards are in the "ordinary course of business," as required by law.

Consequently, the trustee said the company should provide cash-flow targets for 2006 through 2008 and actual performance against those targets. Likewise, Tribune Co. should provide projections and actual results for 2009.

The trustee said it reserves the right to supplement its response once it has more information. It objected to Tribune Co.'s request to seal parts of a consultant's report filed in support of its motion.

Tribune Co. said in a statement: "The motion now before the court has the support of our senior lenders and the unsecured creditors committee. Importantly, the bulk of these incentive programs benefit more than 700 employees across the company and are performance-based. We believe our 2009 incentive program is both moderate and reasonable."

Four of Tribune Co.'s unions, meanwhile, lodged their own objections to the plans. The Washington-Baltimore Newspaper Guild, which sits on the unsecured creditors committee in Tribune Co.'s case and represents employees at The Sun, Tribune Co.'s daily in Baltimore, filed an objection which was joined by local units of the International Brotherhood of Teamsters in Baltimore, the Communications Workers of America, and the International Brotherhood of Electrical Workers, in New York.

"At a time when media companies are suffering incomparable losses and struggling to survive, the Debtors have proposed spending $69.9 million to reward their top management for financial performance that, year-over-year, evidences declining fortunes," a union filing said. "While creditors face limited recovery on their claims and most rank-and-file employees live with frozen pay and benefits, the Debtors believe a proper exercise of business judgment results in millions of dollars distributed to management."

Among other claims, the unions question whether the goals set by the bonus plans are challenging enough. "The [bonus plan] is not designed to drive employee performance toward challenging goals which are subject to the risks of the marketplace," the filing said.

Tribune Co., which filed for Chapter 11 protection last December because it was struggling to manage the heavy debt it took on in going private a year earlier, has said that the bonus payments are needed to motivate managers working under difficult conditions. They will only be paid in full if the company well exceeds performance targets.