A Dubious Sign of the Times

I've long wanted to own stock in New York Times (NYSE: NYT  ) for several reasons. I love the paper. I'm a big fan of About.com. And then there's sentimental angle: I'm a New York native.

But there's one big reason why I'm not buying the stock. A check of the proxy statement filed with the Securities and Exchange Commission (SEC) on Friday reveals that chairman Arthur Sulzberger Jr. and CEO Janet Robinson both received hefty bonuses despite meeting less than 60% of the company's earnings target for 2005.

Mr. Sulzberger received $1.6 million in total compensation last year. Ms. Robinson received $1.4 million. More than one-third of each of those totals was paid out in bonus cash. Page 28 of the proxy explains (emphasis mine):

We set a target amount of $950,036 for Mr. Sulzberger Jr. and $810,000 for Ms. Robinson. Earnings per share in 2005 resulted in achievement of 59% of the target amount, and, as a result, an annual bonus payment of $560,521 was made to Mr. Sulzberger, Jr. and an annual bonus payment of $477,900 was made to Ms. Robinson. The annual bonuses paid to Mr. Sulzberger, Jr. and Ms. Robinson in 2005 were based solely on 2005 earnings per share targets; no component was discretionary.

I've no doubt that both Mr. Sulzberger and Ms. Robinson deserve to be well-compensated for their jobs. Neither has a comfy perch. But this bonus arrangement is, well, bogus. If you're going to set a target, meet it -- or don't. But don't expect a bonus for failure.

I'd love to just leave it there, but I can't, because pegging bonuses to per-share earnings targets is silly at best and dangerous at worst. GAAP accounting is too easily manipulated over short periods, even a full fiscal year. New York Times' method might not only be deficient in measuring ongoing contributions to shareholder value (because of one-time gains, charges, and associated oscillations). It could also theoretically invite ugly conflicts of interest, tempting executives to massage the numbers solely to fatten their bonuses.

The failure of such a compensation structure to meet best practices ought to be obvious, especially to managers of a business that is competing against tough rivals in a very difficult market. Apparently, it isn't. Good luck changing that, too: According to the proxy, descendants of Adolph Ochs, who bought the newspaper in 1896, retain the right to elect 70% of the board of directors.

Mr. Sulzberger is Adolph Ochs' grandson, and he doesn't have to listen to you, the common shareholders, if he doesn't want to. That means this story might not make a lick of difference, which would be too bad. I think the bonus program needs reforming. Shareholders, and the reporters who have been on the losing end of job cuts in recent years, deserve nothing less.

Extra! Extra! Related Foolishness here:

Fool contributorTim Beyersis an avid reader of The Denver Post. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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