Read all about it…
We all know the newspaper industry is in trouble, right? We see the headlines everyday, read the tales of woe, including this one in the premier issue of Portfolio and the cover story that I wrote in the current issue of Worth (not available online — sorry) with Mark Cuban’s thoughts on reviving newspapers.
So what is newly public Gatehouse Media (GHS) doing handing out a $1.5 million sign-on bonus to its CEO, Michael E. Reed? And more specifically, how many reporters at small papers — people in places like Utica, New York or Huntington, West Virginia, where the company last week purchased four papers from Gannett (GCI) Co. Inc. for $410 million — could be hired for that amount? (A brief aside: one of my old editors, who was one of the biggest kiss-asses out there, used to make me spell out the full name of the company each time I reported regurgitated the company’s earnings verbatim from the press release). While I don’t have specifics, based on my experience, it’s hard to imagine most of these reporters making much more than $35K a year, even with benefits.
By most accounts, Reed is an impressive executive, so perhaps he deserved the money. Then again, as the proxy that Gatehouse filed yesterday spells out, the 300,000 shares of restricted stock that Reed received, which the proxy values at $4.3 million, should be enough of an incentive if newspaper companies really do start bouncing back. Or, if Gatehouse, whose focus is on small markets that haven’t suffered as much turmoil as larger papers, gets acquired by someone else.
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April 19th, 2007 at 2:33 pm
In theory, wage earners can’t be paid more than they are worth. That’s the argument against minimus wages, i.e. if the clerk at TGT only helps TGT make $6, it is uneconomical to pay them $10, and clerks don’t get hired if employers are required to pay them more than the benefit they provide.
On the other hand, if an employee is underpaid, they can go work somewhere else, so $35,000 for a reporter is what they are worth, at least in the current industry structure. (I know good reporting is worth more that $35,000 with the appropriate distribution/audience.)
I guess I’m just getting tired of the socialistic bent to this website. It easily conceivable that a CEO of even a small company can add $1.5M of value to the company through wise capital allocation decisions. Since a CEO can make or lose the company many multiple of his/her salary, I don’t see what’s wrong for paying a CEO a fraction of the value they should be creating for me as a shareholder. However, paying too much for someone who creates no value, that I have a problem with. So the angle I would have appreciated in this article is looking back at a CEO’s career and seeing how much value he/she created OR LOST in his/her prior positions of leadership.
Thank you
April 19th, 2007 at 8:48 pm
Sorry, Carlton, if you confuse my questions over unusual bonuses in an industry that’s facing significant challenges, with socialism. It’s not and shouldn’t be taken as such. If you want to continue to buy the “sports stars and celebrities get paid a lot too” line that’s used to justify all sorts of strange payouts, that’s certainly your perogative. My point of view is different. As I noted in the post, Reed seems to be an impressive executive and perhaps he is worth that $1.5 million. But given the current appetite for newspaper stocks, he’ll definitely need to work whatever he has in his bag of management tricks.
April 20th, 2007 at 12:49 pm
Carlton fails to take into account the fact that the dollar value of a CEO’s contribution to corporate net worth is heavily influenced by the opinion of the CEO. I suppose a board can’t entirely escape that influence. However, it’s simply common sense for other interested parties to apply a discount rate to over-generous self-evaluations.
Carlton also ignores the many cases where executive pay keeps spiraling up in period of time when corporate sales, income, and total worth are spiraling down.
It might be tagged socialistic if Michelle urged government action to align executive pay with some measure of objectively evaluated corporate contribution. I’ve never seen her do that. What she does is bring anomalous facts and figures, pay items that don’t look quite right, to stockholders’ attention. Beyond that, each stockholder must decide whether to hang in there or bail out.
That’s not even close to socialism, Carlton. It’s an informed free market decision. And that’s called intelligent capitalism.