In a perfect (and sane) world, you'd think a CEO's salary would take a major hit if his or her company's performance kept swirling down the drain. That novel little pipe dream, "pay for performance," is actually gaining momentum these days -- but not in the troubled newspaper industry.
Bad news for some shareholders, good news for some CEOs
Alan Mutter dug up some startling statistics for a post on his blog Reflections of a Newsosaur. Many newspaper companies' CEOs actually got raises in 2007, even though a dozen newspaper companies he surveyed saw their share prices decrease by an average of 35.7%. (Granted, CEO pay in the group did decrease by 11.7% on average, but you wouldn't know it from some of the figures.) Check out some examples:
- News Corp.'s (NYSE:NWS) Rupert Murdoch got a whopping total payout of $32.1 million in 2007. That was a 24% increase over the prior year, even though News Corp.'s shares lost about 8%.
- Lee Enterprises' (NYSE:LEE) CEO Mary Junck gained a 17.8% increase to her pay, to about $3.4 million, even though Lee's stock price was chopped in half during the year.
- Here's a piece of news that might be more at home in a scandal sheet: Journal Register's former CEO Robert Jelenic enjoyed a 333.2% pay increase to $6.3 million, even though the company's shares shed three-fourths of their value. (He's gone now, so his pay included severance; Journal Register now trades on the Pink Sheets. Ouch.)
Nice work if you can get it, eh?
Extra, extra … and more and more extra
Situations like these tend to deflate the customary arguments that CEOs should make mad money. Some people argue that exorbitant pay for CEOs reflects the high degree of risk these individuals assume. I'm sorry -- risk?
We've all seen CEOs do an indisputably lousy job, then walk away filthy rich. They often get high-profile gigs elsewhere, too -- look at Home Depot's (NYSE:HD) former CEO, Bob Nardelli, who went on to Chrysler. And what about Merrill Lynch's (NYSE:MER) former CEO, Stan O'Neal? He almost immediately joined Alcoa's (NYSE:AA) board of directors after leaving Merrill. Sure, everybody makes mistakes, but given their rich rewards for underperformance, we can't exactly call these folks' positions "risky." And there seems to be little (if any) shame in accepting tons of money for public failure.
As for the argument that nobody would want these jobs in struggling industries if they didn't pay well, I have to believe that many passionate, talented people would be interested in taking on such challenges for a fraction of what many of these folks command. You can't buy passion -- although you might jump-start it if you truly do pay for real performance, and withhold the goodies for lack thereof.
Glimmers of sanity
On the bright side, Mutter pointed out a couple of newspaper companies on the other side of the spectrum, where stock performance and CEO pay more closely matched reality last year:
- Washington Post's (NYSE:WPO) Donald Graham's compensation fell 52.4% to just $411,700; the company's shares fell 17.9%.
- Scripps' (NYSE:SSP) CEO Kenneth Lowe's pay also dropped even more precipitously than his company's stock price. He took a 20.3% pay cut to $7.9 million, while Scripps shares fell 9.9%.
Mutter called Washington Post and Scripps "two of the most diversified and progressive companies in the publishing industry," and pointed out that their compensation policies are obviously set up to penalize the company leaders for not attaining tough goals. These CEOs took a hit to their wallets even though their companies' shares actually did better than many others in the industry.
Call me crazy, but that sounds like a common-sense policy for all corporations to me. "Our company's not as much of a loser as our peers, and that makes us a winner -- so pay up!" doesn't strike me as a path to greatness.
Better news tomorrow?
According to a recent Wall Street Journal article (subscription required), some boards of directors are beginning to wrest control of pay away from CEOs. This means they're not only tougher on base salary and bonuses in light of performance, but also sometimes taking away perks that many shareholders find absurd, if not offensive. Many of us hope that more corporate directors will follow their example, forging better, stronger, tougher boards that advocate shareholders' interests. With the newspaper industry in dire straits, it could certainly use a few tough boards to match CEO pay with market reality.
Hopefully, we're at the beginning of a sea change, where linking pay to performance will be considered the hallmark of solid, progressive companies, and paying big money for poor performance (or, heaven forbid, downright failure) will be a sure sign of a company that's old, bad news. Newspaper companies doling out big raises despite poor performance certainly look like they're woefully behind the times, in more ways than one. Given the state of the industry, that's probably not news to any of us.
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