Newspaper Stocks Down 3x More Than CEO Pay

Things were so tough last year that the top executives of eight of 12 publicly held newspaper companies suffered a pay cut. But things were even tougher for their stockholders.

That’s because the shares of the dozen newspapers dived an average of 35.7% in 2007; at the same time, the average compensation of the chief executives fell by a more moderate – but not insignificant – 11.7%.

The incongruity in pay and stock performance occurred even though all the companies have elaborate compensation packages to incentivize their top executives to build shareholder value. The disparity suggests some of the plans could be in for a tweaking.

Public corporations are required by the Securities and Exchange Commission to disclose the compensation of their senior managers in the proxy statements they file prior to their annual meetings, which typically occur in the spring. After the last of the proxy statements became available on Thursday, it was possible to compare the pay of each CEO to the performance of her or his stock. (The Sun-Times Media Group [SVN] was not included in the survey because its CEO changed between 2006 and 2007.)

The proxy statements reveal that the most highly compensated publisher of all last year was Rupert Murdoch, who banked $32.1 million in wages, benefits and other compensation at News Corp. (NWS). Although Mr. Murdoch enjoyed a 24% raise over his 2006 pay, the value of his company’s shares slid 8% in 2007.

The other big winners were:

• Robert Dercherd of Belo (BLC) got a 77.8% raise to $10.2 million in spite of 5.1%-dip in his company’s shares. Earlier this year, the company’s newspaper assets were spun into the new A.H. Belo Corp. (AHC), where Mr. Dercherd has moved as CEO.
• Mary E. Junck of Lee Enterprises (LEE) pocketed a 17.8% increase to earn a bit less than $3.4 million as her company’s stock skidded 52.3%.
• The pay of Robert E. Jelenic, the former CEO of Journal Register Co. (JRC), soared 333.2% to $6.3 million despite a 75.9% plunge in his company’s shares.

Mr. Jelenic is a special case in that his pay envelope was fattened by the $4.9 million severance payment he received last fall when he exited the company he ran for two decades. Since then, JRC has been booted off the New York Stock Exchange and its shares, which traded as high as $18.39 in 2006, now are 24 cents apiece on the Pink Sheet (JRCO.PK). The company also has warned that it may default this summer on the hefty debt it assumed on Mr. Jelenic’s watch.

Mr. Jelenic’s severance payment from JRC, which happens to be equal to 52% of the company’s present $9.2 million market capitalization, was not counted in calculating the average pay of the publishing CEOs, because it inordinately skewed the results. (The full amount of the payment is presented in the graphics below.)

Although the rest of the CEOs made less money in 2007 than in the prior year, their pay cuts in many cases were not nearly as steep as the losses booked by their shareholders. Most notable are:

• Gary E. Pruitt of McClatchy (MNI), whose pay tumbled 17.3% to $4.6 million while his company’s shares slumped 71.1%.
• Craig A. Dubrow of Gannett (GCI), whose comp fell 7.4% to $7.5 million as his shares plunged 35.5%.
• Steven Smith of Journal Communications (JRN), whose pay fell 13.4% to a bit under $1.2 million while his company’s shares dropped 29.1%.

The declines in the pay and stock prices of the top officers at Media General (MEG) and the New York Times Co. (NYT) were fairly closely correlated. In both cases, though, shareholders took a slightly larger haircut, percentage-wise, than did the executives.

While all of the above managers enjoyed compensation surpassing the performance of their shares, three CEOs suffered significantly more than their investors in 2007. They were:

• Michael E. Reed at Gatehouse (GHS), whose pay swooned 85.7% to $925,633 while his company’s stock fell 52.3%.
• Donald E. Graham of the Washington Post Co. (WPO), whose comp dropped 52.4% to $411,700 as his shares slid 17.9%. (Mr. Graham also is, by far, the worst-paid member of the group.)
• Kenneth W. Lowe of Scripps (SSP), whose pay fell 20.3% to $7.9 million while his stock dropped 9.9%.

It may be just a coincidence, but Mr. Graham and Mr. Lowe head two of the most diversified and progressive companies in the publishing industry. Even though their sagging shares performed better than the average for their peers, the compensation programs at their companies evidently penalized them for failing to achieve the undoubtedly loftier goals set by their boards.

Disclosure: I own shares of JRC, MNI and SSP.