The financially troubled Tribune Company had asked a federal bankruptcy court in Delaware to permit the company to give bonuses to a group of high level executives for 2010.  The court approved the bonuses yesterday. The requested bonus amounts to $43 million, if the company reaches an operating cash flow target of at least $685 million.  Since last summer the U.S. Trustee in the bankruptcy proceeding has objected to the Tribune’s filing. Creditors and unions feel that the company doesn’t “get it,” that is, the company is finding money for its executives while union members and lenders take financial hits.  Naturally, the company makes the argument that it needs to incentivize its employees and that its bonus proposals are reasonable.

According to news accounts, the company has agreed to claw back bonus payments made to certain executives who breached their fiduciary duties or otherwise perpetrated wrongs in effecting the 2007 leveraged buyout of the company.  The claw back in this instance is a good thing.

However, what’s wrong with most of this picture?  The optics are terrible.  With the economy moving sideways and the unemployment rate remaining stubbornly high, now is not the time to highly compensate executives of a failed company seeking to reorganize.  In the present economic climate and executive labor market, I do not buy the argument that the company needs generous bonuses to keep its present talent.  Frankly, the present talent should be grateful to be employed.  To borrow a phrase from the first Bill Clinton presidential election, “It’s the economy, stupid!”  Look no further than last week’s midterm elections to see and hear the angst of Eddie Everyman, who voted against the Democrats for their perceived failure to address job creation among other economic worries.

Under ordinary economic circumstances, I am certainly not one to question a company’s judgment or right to provide appropriate compensation to attract and retain talent.  In fact, all things being equal, I advocate it, as I am an unrepentant capitalist.  I certainly do not favor our federal government dictating how much private companies can compensate their executive when those private companies  are not being bailed out by taxpayer dollars  –  let the executive labor market and the board of directors make that determination.

I do, however, think it is absurd from a public relations point of view and an equitable point of view (a bankruptcy court is a court of equity) that  the Tribune Company, while pursuing the benefits of a reorganization under bankruptcy, also seeks to give financial preference to its executives to the detriment of its creditors and unions.

My two cents worth:  In these extraordinary times, the Tribune executives should tighten their belts and make sacrifices like most everyone else.


  1. Gail,

    I concur with you that most of the Tribune executives are honorable people who are working hard to turn the company around. I do think some executives and some company cultures develop a sense of entitlement to high compensation whether or not earned and justified. Many times compensation systems become self-perpetuating and unrelated to real meaningful performance or increased shareholder value. It sometimes becomes an arms race between companies’ boards of directors about who has the more highly compensated executives, i.e., who has the more prestige. There can be a non-existent correlation between high compensation and a well managed company. In the Tribune Company’s case, I think the latest bonus round creates resentment and skepticism amongst the rank and file and corporate reform activists. The idea is that a troubled company is using diminished revenue to give money to executives who are probably already in the top 5% of Americans in terms of income. AIG and Merrill Lynch ran into similar critcisms, although the difference is that they were the beneficiaries of taxpayer funded bailouts.

    I don’t begrudge the Tribune having incentive driven compensation, I just think the bonuse are premature. In business as in life, timing is everything.


  2. G.A.,

    Normally I would agree with your point of view that executive compensation must be linked to performance. But in this case, I think the courts recognized that there were players around that table who didn’t and carved them out of the pool.

    There are many talented writers and editors at The Tribune Company who have kept their heads in the game and continued to produce one of best newspapers in the country despite the firestorm that has surrounded them since the initial sale.

    Recent stories about what had been happening in the executive suite since the sale make me think that many of these executives have already made a “sacrifice” in putting up with such behavior day after day. It makes their commitment even more impressive.


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