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.