HOW THE GAME IS PLAYED:

WRITING in the July/August 2001 issue of the American Journalism Review, Alicia C. Shepard tells of a major economic disconnect in the newspaper business. With ad revenues down and newsprint prices up, newspapers are crying poor, laying off workers and cutting back on the amount of news they print.

Despite the gloomy economic trends, however, Ms. Shepard reports that the heads of 12 publicly held newspaper companies took home an average of $3.6 million last year. That’s each, mind you.

This gargantuan sum is a combination of salary, bonus, other compensation, dividends and from exercising stock options in 2000.

Washington Post Co. Chairman Donald E. Graham’s stock dividends alone earned him $4.4 million last year.

The average operating profit margin of the 13 companies AJR examined was 22.7% in 2000.

“Disturbing as layoffs are,” writes Ms. Shepard, “they can be a quick way to reduce costs and keep profits up when revenue drops. They send a signal to Wall Street that the CEO is taking charge, which boosts stock prices. The Street rewards short-term gain, not long-term investment.”

The 1993 Omnibus Tax Bill changed how top executives are paid. The law, designed to address shareholder concerns about bloated salaries, limits the income-tax deduction a corporation can take for an employee’s salary to $1 million. Any portion of a salary higher than $1 million cannot be deducted. However, the law allows companies to write off as a tax deduction any bonus based on a performance formula set up by a third party.

Only two officials at the 13 newspaper chains AJR studied earned over $1 million in salary. Gannett CEO and Chairman John J. Curley, for example, received a $1.1 million salary, but got $8.3 million in bonuses, dividends, exercised stock options and other compensation.

Newspaper execs are not alone. Business Week reported that the average CEO at the 365 largest U.S. companies earned $13.1 million last year.

“Critics...say the model rewards actions that rapidly boost profitability yet may hurt the enterprise in the long run by diluting its quality,” Ms. Shepard reports.

Newspaper CEOs are increasingly being compensated based on stock prices and how well their companies perform financially—not for producing quality journalism.

Ms. Shepard found that “Only Dow Jones, the Washington Post Co. and McClatchy [a Sacramento-based newspaper chain] make any kind of assertion [in their proxy statements] that executive compensation is tied to the [quality of the] product, and even in those companies it is clear quality is a minor part of the formula.”

Bob Giles, curator of the Nieman Foundation and former editor and publisher of the Gannett-owned Detroit News, told Ms. Shepard, “They hardly ever talk about news content or investment in staff training or the knowledge base in a newsroom. So analysts come away thinking this is like any other bottom-line industry and that there’s no difference between newspapers and making widgets.”

Only McClatchy has announced it will avoid laying off workers and “taking other draconian steps to meet towering profit targets in a slumping economy,” according to the AJR story. McClatchy is alone among the 13 chains studied to offer a company-wide profit-sharing arrangement when earnings goals are met. Typically, even in the best years, rank-and-file newspaper employees receive at best a 3% raise, according to Ms. Shepard’s findings.
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