McClatchy Says Another 1,600 Jobs – 15% Of The Workforce -- To Go And CEO Gary Pruitt Cuts His Salary 15% -- That Pay Cut Should Have Been Closer To The 55% The Guild Suggested

Philip Stone March 11, 2009

Besides the bonus that the McClatchy board says CEO and chairman Gary Pruitt won’t get this year, he still draws a $1.1 million salary which the Guild at his flagship Sacramento Bee suggested should be cut by half, to the $500,000 limit the Obama administration is placing on banking top executive salaries who take government money. Instead, Pruitt gave up just 15% and still earns $935,000.

There just seems something very wrong about top executive salaries being in high six-figures or in seven figures when a company keeps firing people because the company’s economic situation is so dire. The conservative former British Prime Minister Ted Heath had an expression for it – “The unacceptable face of capitalism”. 

And yes we understand why top executives are paid handsomely – at least we understand during the good times – but it is harder to accept those salaries when things have tanked as they have, that McClatchy’s share price is at 42 cents, that since 2006 the company, with the current layoff announcement will have gotten rid of fully 41% of its employees – from around 16,800 to 9,900, and the company is frankly trying to conserve every penny it has to pay off debt so it can avoid bankruptcy. Pay the CEO less and there is more for debt payments!

Of course there are those who say you need highly paid executives with the knowledge of how to keep such a  company afloat, but something just doesn’t seem right when it is those very same executives who were at the helm when things went from good to bad to worse, to terrible to unbelievable.  Not saying it’s their fault, but it did happen on their watch and they should pay accordingly. It doesn’t take a rocket science business plan to know what McClatchy has to do now – ensure it has enough cash on hand to pay debt as it falls due, and do whatever can be done to renegotiate debt to give more time for cash flow to get better.

Pruitt and his executives can rightly turn around and say they underwent  pay freezes starting in 2007, Pruitt himself took no bonus in 2008 nor will he in 2009, and there was no 2008 bonus for other senior executives, but as the Sacramento Guild pointed out in a letter to Pruitt, its members, too, have undergone frozen salaries,  the company has stopped matching contributions to the 401k pension plan,  and more employee cutbacks have been agreed in Sacramento and all other McClatchy newspapers are again taking out the knife.

But for all that, Pruitt still had his $1.1 million salary – now reduced to $935,000 -- and while we accept he has mortgage payments and the like just as everyone else does, a seven figure, or a high six-figure salary given his company’s plight just is not on. So the Guild asked him in a letter to cut it by 55% to the $500,000 the government has suggested for top banking officials taking government money – even in California’s capital of Sacramento one can still live well on $500,000, no? (especially as one sees the huge tent city that has spurted up in a suburb full of middle class people who have lost everything, sleeping in a field with tents for cover, something probably not seen since the Great Depression and it is where President Obama should be making his next speech about helping people!)

The Guild wrote in its request that Pruitt take a serious pay cut. “It would not be a symbolic move. We don’t want symbolism. It’s about dollars and cents at a moment when every dollar counts. A voluntary reduction on your part would save jobs. Simple as that!”

What the union got instead is basically symbolism. Sure, $165,000 saved is $165,000 saved – two or three jobs there could have been paid with that – but Pruitt still gets $935,000 annually. Is that really the right remuneration given the company’s current situation? Nothing wrong with contract clauses that as things get better his salary gets better, but right now things are rock-bottom – so should be executive salaries, too.

Why not a reduction to $1 and some sort of bonus plan -- which is what Emmis Communications boss Jeff Smulyan did -- he ended up with $337,376 in fiscal 2008 as head of a company that has leading radio stations across America, but with debt payments and the fall-off in advertising his share price has dropped to just 26 cents – McClatchy closed Tuesday at 44 cents -- (there’s a lot of similarity in what Emmis and McClatchy do in the US except one business is radio and the other is newspapers).  If $1 plus bonus doesn’t sound so good so take the $500,000 and no bonus but amounts higher than that when announcing an additional 15% cull in the work force just is not right.

And, of course, this is a message that should not be lost on other media companies. Take Gannett, the largest US newspaper company, where last November CEO Craig Dubow took a voluntary $200,000 annual pay cut – a 17% salary reduction which would hold through 2009. But that still means he has a $1 million salary plus whatever bonus and other compensation may be floating around. Back on November 1 Gannett’s shares were at near $11 and on Tuesday they closed at $1.99 (could any reader ever imagine seeing Gannett shares priced at less than $2?). Not only that, since November the major debt rating services have classified Gannett’s debt as junk.  The company is making staff take unpaid furloughs and all the rest – is it really right its CEO is still pulling down a seven figure salary?

With so many media companies doing all that they need to do to ensure they can meet debt payments, and that means laying off huge numbers of staff, pay freezes, unpaid furloughs and all the like, it’s a wonder that the shareholders of public companies are not demanding reviews of executive salaries, and the government’s benchmark for banking executives is as good a place as any to start.  At least those bosses who manned the bridge from good times to bad times have for the most part kept their jobs – the least they can do is suffer, really suffer, financially like their colleagues, instead of just giving up some gravy.