This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week, I plan to highlight both the former CEO of New York Times (NYSE: NYT ) , Janet Robinson, and current CEO, Arthur Sulzberger.
The dunce cap
Traditional publishers have had a rough go of things over the last half decade as content has shifted predominantly to online markets and advertisers have moved their dollars to where the content has headed. That move has left print publishers like New York Times, Gannett (NYSE: GCI ) and McClatchy (NYSE: MNI ) scrambling to digitize their content. In its latest quarter Gannett announced a 25% reduction in profit as ad sales slumped while McClatchy reported a similar 5% drop in sales and a 7% reduction in ad revenue.
Now that you have a better background on the overall health of the print newspaper industry, let's take a look at why New York Times has shareholders burying their heads under the blanket in shame.
This tale of woe begins in March 2009, during the height of investor pessimism, when then-CEO Janet Robinson asked the labor unions representing the Boston Globe newspaper (which New York Times owns) for significant pay concessions on the order of $20 million (roughly 23%). After months of back-and-forth negotiating, management got their wish and pay levels were reduced across the board to save $20 million.
Now let's fast-forward to December 2011, when Janet Robinson was forced out of her CEO position. I wouldn't call it "forced" so much as coerced as the former CEO walked away with a... can I get a drumroll please... $23.7 million severance package. I know what you're thinking, "Poor baby!" Robinson's package included $11.4 million in pension and supplemental retirement income, a $5.39 million performance award, $1.07 million in restricted stock, $694,164 in stock options, and $4.5 million in consulting fees!
That's right folks, Janet Robinson orchestrated a $20 million pay cut for the Boston Globe, then robbed from the poor and added to her coffers with her departure. "And what of that performance award and consulting fee," you ask? Well, here's a rundown of how The New York Times performed under her leadership:
|Revenue (in millions)||$3,373||$3,290||$3,195||$2,949||$2,440||$2,393||$2,323|
|Free cash flow (in millions)||$73||$90||($270)||$81||$206||$120||$29|
Oh yeah, great job! Revenue declined every year under Robinson's leadership, shareholder dividends disappeared, profitability was hit-and-miss, and New York Times' stock lost 80% of its value. I really want to pay her a consulting fee to help guide the company's future direction! Please note, that's heavy sarcasm on my end.
To the corner, New York Times execs
But wait -- there's more!
It's sad, but there really is more. Not only did Robinson receive a pay severance that was higher than its demanded pay concessions in 2009, but other New York Times executives received healthy pay bonuses in the wake of lackluster results.
Now, mind you, these pay raises came at a time when The New York Times is still in the process of laying off workers -- mostly non-journalists and reporters -- and veritably freezing wages.
The crème de la crème pay raise comes from chairman and interim CEO Arthur Sulzberger, who received a whopping $2 million bonus for achieving a paltry 1.6% return on invested capital. Better yet, for hitting the "considerably harder-to-achieve" level of 2.5% ROIC, he'll receive another 75%! And as you might have guessed, these bonuses factored into Robinson's severance as well.
What's truly interesting about this new bonus schematic whereby execs get an extra 175% on top of their salary for merely hitting an ROIC of 2.5% is that these bonuses were considerably higher in previous years! According to figures at Morningstar, New York Times' trailing-12-month ROIC is negative 0.19%, while peers News Corp. (Nasdaq: NWS ) and Washington Post (NYSE: WPO ) boast ROICs over the trailing-12-month period of 7.83% and 4.28%, respectively.
I guess some businesses are shooting for the stars, while others are just happy to get out of bed each and every morning. Who needs initiative when you have cookie-cutter bonuses like these?
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.
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