The Journal Register Co., a media corporation hitting the skids because of flagging ad revenues, just hired a new CEO. James W. Hall, 60, inked a one-year deal for a base pay of $650,000 (I know, mere peanuts) with a lovely set of perks.
He replaces Robert Jelenic, acting CEO since June, who is battling cancer.
Mr. Hall’s compensation agreement (oh my gawd, wait’ll you see it) leaves me speechless considering the company’s financial condition. But first, we must eat our spinach and look at the finances of Journal Register. Then you get dessert. (Teaser: He gets a company-owned 2007 Chevy Envoy, which the company will sell him for $1 in November 2010, and up to $5,500 for lodging near the company’s headquarters.)
The Journal Register Co., according to its Web site, “owns 22 daily newspapers, with approximately 559,000 total daily circulation, including the New Haven Register, Connecticut’s second largest daily and Sunday newspaper. The Company also owns 346 non-daily publications, with total distribution of more than 6 million, as well as commercial printing and software development companies.”
It reports annual revenues in excess of $550 million, a small figure compared with larger media corporations but still a nice sum. But it appears to be insufficient for the company’s shareholders. Total revenues for the third quarter, according to a company press release, fell more than 7 percent from a year ago.
The company’s financial condition reflects the troubles of the newspaper industry.
In October 2006, Journal Register’s second-largest shareholder — Private Capital Management — bailed out. (PCM is the same management fund that forced “the former second-largest U.S. newspaper publisher, Knight Ridder Inc., to sell itself after failing to boost its lagging stock price.”
And the Journal Register’s stock price is tanking. From the AP story: “Shares of Journal Register rose by a penny to $2.01 on Tuesday. The stock has lost 90 percent of its value since closing at $19.33 on Dec. 31, 2004.” [emphasis added]
The company has sought to reduce expenses by cutting jobs and to raise money by selling assets.
For example, in September 2006, Journal Register said it would cut 82 jobs at newspapers in Michigan to save $3.2 million a year.
To raise money, Journal Register said in December 2006 it would sell seven papers in southeastern Massachusetts — including the Fall River and Taunton dailies — for $70 million to GateHouse Media (a Fortress company that actually makes money). In January, Journal Register said it would sell GateHouse three Rhode Island dailies for $7.6 million.
In November 2006, Journal Register joined a consortium of 176 newspapers to partner with Yahoo to share content, advertising and technology. But the company’s advertising revenues fell more than 9 percent in the third quarter from a year ago. That Yahoo move doesn’t seem to have paid off very well.
Internet to the rescue? Not yet. Although Web ad revenue rose nearly 25 percent in third quarter from a year ago, it represents only about 6 percent of all ad revenue.
Why is this company offering its CEO so much in compensation? Yes, the argument is you gotta pay high to get good talent. But Mr. Hall is existing talent: He has been part of a board of directors guiding the company’s current tumble. We’ll see a year from now what the company’s stock price does with him at the helm.
Here’s what Mr. Hall also gets for compensation:
• “Hall will get yet-to-be-determined cash bonuses this year and a performance-based bonus as high as $1.35 million in 2008. He also was granted 250,000 stock options and will receive another 250,000 next year.”
• “He also will be reimbursed for traveling to and from his home in Canada, capped at $6,000 a month or standard airfare rates. The company will also pay reasonable travel expenses for his spouse to attend business functions.”
• “Hall will get as much as $37,500 a year to defray tax differences between the U.S. and Canada. He also will be reimbursed up to $12,500 a year for tax planning and preparation.”
• “If Hall leaves the company, he may be hired as a consultant and paid $33,333 a month for the first year and $25,000 monthly for the second year in exchange for up to 15 hours of consulting work a month.”
Mr. Jelenic, the departing CEO, has been a director of the company since 2003. On his watch, the company’s stock price has fallen nearly 90 percent. Here’s what he gets as severance:
• “Jelenic … was given $4.76 million in severance. Vesting of his 192,500 restricted stock units was accelerated and outstanding vested stock options will remain exercisable until November 2010 or the options’ expiration, whichever is earlier.”
• “Journal Register will pay for Jelenic’s company car and country club membership until November 2010. The company also will sell the car to Jelenic for $1 after November 2010. Jelenic gets his company computer, printer, fax machine and similar items for $1 each.”
• “Jelenic keeps secretarial and information technology support until Dec. 31, 2009. He also received lifetime medical benefits.”
Mr. Hall, too, has been a long-time director of Journal Register. How does this pay package act as incentive for him to turn around the company’s stock price freefall? He gets his rising or falling.
The company’s mission statement says: “Our Mission is to be the leading provider of local news, sports and information in the markets we serve, both in print and online.”
It’s failing miserably. So it rewards a director of a faltering company with a massive compensation package.
As I’ve argued repeatedly, improving the product, i.e., better news stories, is the basis for shoring up revenues. Good journalism begets good business, argues Phil Meyer in his book “The Vanishing Newspaper: Saving Journalism In The Information Age.”
If you’re a fresh-out-of-college journalism major, how will you react to the company’s offer for an entry-level reporting position of, say, $26,000, a week’s vacation after a year, health bennies only after six months and nights and weekend duty?
When will newspaper companies learn to invest at the bottom rather than at the top?
Progressive Culture | Scholars & Rogues 
Q: When will newspaper companies learn to invest at the bottom rather than at the top?
A: Never.
Who gets paid the most at your university, Denny? Bet it’s the president/chancellor/whatever.
The rot is systemic.
I guess the answer is yes, I DO want one of these jobs. I was initially a little scared, because most of the jobs I’ve had tend to tie reward to performance. But if the worst thing that can happen to me is that they kick me out after a year and I get brazilians of dollars, I guess I could give it a chance.
Ahm, Dr. Denny? I’m going to disagree with you a bit, here.
First off, my gut tells me that a base of $650k for a company with $550 milllion in revenues is probably at or below market. (Note: executive compensation consulting is one of the things I do for a living). I haven’t done an analysis, of course, and any analysis would have to take into account the total value of the package, of which the perqs here are only a small part. Of much greater value, using a Black-Scholes-type model, are the stock options, and that calculated value will vary greatly depending on the predicted volatility of the stock. Of course, if the stock turns around, then the upside is tremendous.
It appears to me, just at first glance, that he has been given a substantial pay-at-risk package. In other words, if total market compensation for an executive at a media company with revs of $550 million is, say, 2.5 million for industry-standard performance, then about $1.8 million or so of his compensation is at risk. He doesn’t get it unless the stock increases in value.
As for his being “existing talent,” that’s partly true, but fails to capture what directors actually do. For all we know, he has been an ardent critic of the past CEO, and my guess is that he has a plan to turn the company around or he wouldn’t have been hired. His plan may not be a very good one (I wouldn’t know), but the directors must think he has a shot.
As for news organizations needing to turn out good content, I’m in complete agreement. But I also know some of the realities. Now that the Internet is so much better at classified ads than newspapers, that revenue is fast disappearing, and that’s a LOT of revenue. Newspapers have got to find a way to replace that revenue, and there’s no genius who’s been able to figure that out yet. So, they cut in order to retain profit margins. But, naturally, the stock is going to fall as revenues fall or stagnate, because there’s no growth potential on the horizon.
I feel for anyone caught between Scylla and Charybdis.
Not me. To me, it would be like being promoted captain of the Titanic AFTER it hit the iceberg.
I read a fascinating comment thread on Daily Kos sometime back dealing with John Ashcroft’s egregious conflicts of interest as a telecom lobbyist after he was Attorney General. Someone expounded on the Calvinist ethos of the “joyless acquisition of capital,” where the believer is constantly driven to acquire more material wealth as a sign of power and prestige–but can’t actually enjoy it, because pleasure is a sin.
I read stuff like this and that’s what I think of. How can anyone even have time to do anything with all that money?
Our entire society is wired to reward those people who do not create. The entire business process is designed to malign and overburden the actual creators and lavish perks on the paper-pushers and deal-makers. The entire life trajectory is all about going from truly earned wealth–wealth earned through hard work–to unearned wealth gained through entitlements and manipulating the system, or in this case, just showing up.
And “investing at the bottom” isn’t just a necessity in journalism, Denny. Think about how poorly compensated police, firefighters, EMTs, and nurses are. These are people who save lives and protect us, and their jobs have little to no financial value–at least not for people first coming in.
I remember another comment thread on a different blog where someone was bitching about a cop earning $100,000 a year through extensive overtime and twenty years of pay raises. You should’ve read the comments–“I HAVE A COLLEGE DEGREE! I SHOULD BE MAKING MORE THAN THAT! COPS ARE USELESS DONUT EATERS!”
Sorry for the epic comment, Denny, but shit like this makes me want to kill someone. Thanks for posting it.
Martin,
I realize you aren’t the idiot who said â€I HAVE A COLLEGE DEGREE! I SHOULD BE MAKING MORE THAN THAT! COPS ARE USELESS DONUT EATERS!†but as an ex-cop who has a college degree and the brother of a long time cop I have to say whoever it was who did say it needs to go live in somewhere like Venezuela where the cops don’t protect the citizenry as they do in our country for a couple of years and then I guarantee he will change his tune.
While it’s unreal that Jelenic or Hall could possibly get so much for their participation in the collapse of Journal Register Company and the destruction of dozens of newspapers, it is not shocking. This is how this company has always done business. Company leadership, for years, has rewarded itself while no money was invested back into the company’s crumbling properties, equipment and employees.
http://jrcbites.blogspot.com
JS,
I agree with your analysis. We part company somewhere between your and Martin’s position. (Frankly, I may just be envious. I’d love a job with all those perks.)
But Perry’s on the mark, too. I’ve spent too much time in and studying the news biz to see demoralizing impact of top executive pay packages on the folks that do the journalism, seek the ads, print the paper and deliver it.
I’ve put this date in my tickle file for a year from now. I’ll check the stock price, the number of papers JRC continues to own, their circulation, increase in online ad revenue vs. all ad revenue, number of layoffs or buyouts … and see if he’s earned his compensation.
But I’ll take bets he doesn’t.
Thanks to all for their comments.
Martin raises a point I’ve wondered about. I don’t personally get how you can have more than you could ever spend and still lay on the whip to get more. I’m lazy, and suspect I have a fairly low quit-and-go-lay-on-the-beach point. It’s NOT about the money. With some of these people it’s about the power and prestige, and maybe control. But at the core of some of these cases I suspect is an addiction. It’s a pathology when you start acting like Skilling and Lay.
Some comments:
Dr. Denny: I, too, have seen the demoralizing aspects of high executive pay in a large number of companies (focus groups and/or surveys), not just the newspapers for whom I’ve done work in the past. I have been in meetings with execs (many of whom hired me) in which they showed me nothing but raw greed, usually trying to get me to do proxy analysis for high-paying companies who really aren’t their competitors for talent. I have also been in meetings (rarer ones) where the CEO complained about the idea of taking a raise, but was forced to by the simple fact that, if he didn’t take a raise, he was compressing all the salaries below him and making it easy for competitors to cherry pick company talent.
Like many, I have a healthy skepticism about the “value added” the highest-paid executives bring to the table. Unlike many, I have actually been in the trenches on this stuff, and I understand too well that the market pressures are what they are. I can wish they didn’t exist, but they do. Any company that substantially underpays its executives is begging them to leave for greener pastures. And a lot of these people really are quite talented, and can usually not be adequately replaced by paying below-market total comp for a position.
It is what it is.
General: Over the years, I have done … oh … maybe 700 – 900 focus groups and maybe 40-50 quantitative surveys on employee opinions about pay. Not surprisingly, almost everyone always wants more and thinks they should be paid better than other employees with similar job responsibilities. File clerks will tell me that their jobs are more important than the CEO’s job (really, I’m not making that up). I’ve had people tell me they should be paid more money because of their years of service, because of how many children they have, or just because they somehow “deserve” it.
In the end, the only rational way to determine ranges of pay is what particular, demonstrated skills bring to an organization. In essence, we are all selling those skills to the highest bidder, and the bidders won’t go any higher than what they feel those skills are worth. I’ve seen markets for particular skills soar and I’ve seen them nosedive.
JS: I appreciate the time you took with your comment. Obviously you have the experience to back up your argument. But it is in the last graf that I differ: You used “rational.”
In the news biz, I’ve seen too many “irrational decisions” regarding compensation and desired skill sets.
For example, from the late ’60s to the mid-’80s, newspapers enjoyed a reputation as “cash cows” with profitability hitting 30 to 40 percent. It would have been an ideal time to adjust compensation schemes. It did not.
Wall Street discovered newspapers. The emphasis shifted to “maximize shareholder value.” Executives were hired with that emphasis rather than the “public interest” (with a decent profit) of earlier generations of executives (mostly from controlling family ownership).
Newspapers have diminished in value as provide of news, a bearer of ill tidings, a record of government proceedings and increased their value as shills for celebrities, corporate favorites and political entities.
Obviously, I digress. But larding up at the top and devaluing the bottom ain’t gonna save newspapers. Their ability to fulfill their centuries-old tradition of holding government accountable has faltered because of investment (payoff?) at the top and cuts at the bottom.
Too much “irrational” thinking rules media corporation boardrooms and executives suites. That’s my focus group response. 🙂
Dr. Denny,
Like you, I mourn the demise of newspapers. Really, really mourn. But how else could it have gone?
I’m going to go over stuff you already know, but I need to do that to make my case, OK?
Imagine that the average price to earning ratio on a newspaper stock is 20/1. That would be high, but newspapers have, historically, had very high margin.
If a newspaper has 1 million shares of stock outstanding, has revenues of $2 million and makes a profit of $1 million, that’s a dollar per share, so the stock price is $20. It’s an extremely profitable organization, because it has a 50% profit margin.
Eureka!
Now, let’s say that it maintains its 50% profit margin, but revenues decline to $1 million. That $500,000 in profit, which is only $.50 per share, so the stock drops to $10. Or does it? No, it probably drops a lot harder because, without the growth potential, the price to earning ratio drops. So maybe the stock drops to $4 or something.
The whole issue here that’s driving every damn thing at newspapers is revenue, revenue, revenue. The ads are going away. People are less willing to pay for newspapers. And even IF you could get more people to buy them, it’s not going to bring back the classified ads, because there are better forums for those, now.
The newspapers are not going to increase stock price by hiring file clerks at $200,000 a pop because … well … just because. It’s barely possible that they will increase stock price by hiring more jounalists and covering the news better, because that MIGHT increase readership. Or, it might not. But increased readership is not going to bring back the classified ads. Most of them are gone forever.
Newspapers simply HAVE to find a new business model to increase revs. I really think that’s the entire issue. To me, complaining about executive compensation at a newspaper is like complaining about the pilot’s salary on the Hindenburg. If he brings the thing home safely, he’s earned his pay.
JS:
Good analysis…you know your stuff.
Jeff
JSO:
Your financial analysis is dead on, but you’re leaving out a lot of important realities about the newspaper industry. A lot of the financial slippage you describe happened as a result of sloth and ignorance on the part of the industry. Craig’s List stole classifieds – which is massive money – because news execs were ridiculously slow to realize the Net’s potential. They failed – and are still failing – to invest in NEWS, which is the thing that lets them differentiate. Instead of investing in the newsroom they’re slashing and burning, laying off even more people every quarter. Which leaves fewer people, which means more and more wire content, which means why should I buy a newspaper when they have nothing to offer that I didn’t already get for free yesterday.
The industry is in trouble because it’s in the hands of some of the dumbest, most hidebound execs in all of the business world.
Dr. Denny,
Yep. It’s a death spiral. Whether local newspapers (or more than one) could have outguessed Craig’s list, monster.com, and others, I don’t know. Those things are national, and I doubt more than one far-sighted newspaper could have taken that place. Which still would have left all the other newspapers at sea.
Have newspaper execs been slow to respond to the realities of the new marketplace? Probably. Are they now re-fighting the battle of Thermopylae? I hope not.
At this point, I don’t see any saving option except non-profit and/or community ownership.
Dr. Denny,
I gave this some thought last night, and it seems to me that one way to turn this around is to find a way to get paid more for uncovering and disseminating information. This may involve changes in copyright law, small royalties to the organization that initially breaks a story, etc. That way, journalists would be direct revenue producers instead of “cost of doing business” as so many newspapers believe them to be.
As I thought through it, I realized that it’s a can of worms when you get to the details, but it might be worth pursuing, anyway.
JS,
Your logic is impeccable, but the management news biz is decidedly irrational. It had sufficient opportunities to act much sooner, but believed that the Internet had no promise. Even when the early signs of the demise of classifieds appeared, it had opportunities (because of economies of scale and familiarity) to develop much better online advertising programs before eBay, Craig’s List, et al. expanded as they have today.
Perhaps the biggest blunderer has been Gannett. I had not realized this until recently, but in the ’70s and ’80s, Gannett acquired so many papers (think print sites for USA Today) that it promoted people rapidly to executive positions (top editor, publisher, etc.) but failed to fully train them as executives. Too many, too high, too fast. They become beholden to HQ rather than independent thinkers and analysts of developments affecting their industry.
Even though your economic analysis is spot on, I remain angry at the arrogance of newspaper corporate management over the past three decades. For an industry supposedly adept at spotting patterns and trends that others don’t, its blindness to a developing online advertising model has literally doomed it to the situation it now finds itself it.
Like Sam, and now you, I have been yelling for a new business model for years. But no one wants to shake the gravy train — even though much less gravy is forthcoming.
Phil Meyer warned the news industry of all this in 1995:
http://www.unc.edu/~pmeyer/ajrprofits/profits1.html
Bob Picard’s 2006 Neiman Report explains how institutional investors have further handicapped the news biz:
http://www.nieman.harvard.edu/reports/06-4NRwinter/p10-0604-picard.html
As to what that new model ought to be, I’m relatively clueless. I don’t have the skill set of analysis that others do.
But I do remember independent newspapers. So I would first argue: Break up the chains! Remember, that’s already happened to Knight-Ridder.
Thanks again, JS. I’m a-learnin’.
Denny:
The news industry’s execs clearly have a long-term strategic plan here: ride the gravy train until the horses die.
They’ll get theirs. Fuck everybody else.
“if he didn’t take a raise, he was compressing all the salaries below him and making it easy for competitors to cherry pick company talent.”
I don’t understand this. If the CEO side steps a raise, can’t he put that money into the operating fund of the employees so they get a better raise? How would that make them “more ripe for picking” if their company is giving them -bigger- raises (because the CEO decided he didn’t need another $1.5 mil/yr)?
And, I’ll point out that there is a fundamental flaw in how all of this is being viewed. Everyone brings everything back to “the market” and “stock prices” and cheers them the holy grail of industry. Yet, we don’t need the market for profitable companies to function, nor do we need them for companies to start up. We have a lot of “private companies” out there that DON’T have ties into the market, so it’s clearly not a requirement for existence or prosperity. .. What we’re dealing with here is greed, nothing more. Companies that lay off employees to be “more competitive” when they are already PROFITABLE are actually saying “we want our stocks to go up so we have to give people not related to this business a way to [think they can] make some free money so they give us money [to use to pay the CEOs and Board Members and diffuse the money back to -other- stock holders]”.
I have to say.. it looks to me like so much robbing paul to pay peter, and doing it by crapping on those doing all the real work.
$650,000 for one year? I’d take that job for 1 year, and would be able to live for a DECADE on that. add in the paid travel? No cost for a car? No lodging expenses while in town?.. this guy gets to live like a king for a year and -still- make 10 years worth of normal salary. Plus another $500,000 in stocks (if they don’t completely tank)? This guy is getting at least 15 years of normal wages for one year.. and his job is to find a way to get more people to give free money to a business that could function a lot better if it wasn’t giving lifetime perks (medical for life for the outgoing CEO.. must be nice in a world where insurance is “too expensive” for companies to pay for their employees) out to the leaders? leaders that are killing the company?
” . . . we are all selling those skills to the highest bidder, and the bidders won’t go any higher than what they feel those skills are worth” .. well, since employee “worth” isn’t actually tied to anything in reason, and since the “market” they are being compared to included people from overseas willing to work for pennies on the dollar, that leave us “screwed”. There’s nothing rational about it, from a “worker” standpoint. The companies pushed for open trade around the world so they could pay less, that lessor pay wasn’t needed to be viable, it was needed to get more contractual perks into the hands of the execs. The stock market combined with letting corporations dictate their policies is being used to fleece the country. Any discussion about such activities that doesn’t include the intended abuse of the population isn’t rational. Trying to say that companies some how are “fair” by nature, or pay “what you are perceived to be worth” without specifically acknowledging that it’s a rigged game being played by the ruling elite is what ends up being irrational.
I can do the job of a CEO, and probably do it better than most CEOs. The problem is, I’d be doing my job for the employees, not share holders. If I can make profits and pay a good portion of that to those doing the work, that’s all I’d strive for. Of course, that’s why I’ll never be a CEO.. I care about the wrong people.. I’m not all about enriching my friends at the expense of the masses.
The byplay between Dr. Denny and JSO on the ins and outs of the newsroom and the boardroom have me wide-eyed.
One layman’s observation about finances: When we’re young we choose a field that seems interesting. Dealing with money as a banker, investor, or manager does not, except to a very few.
It’s only when people accumulate some money that they realize how easy it is to become utterly absorbed in this pasttime that did not seem so interesting when they didn’t have much. That’s when the addiction kicks in.
Dr. Denny,
No doubt, newspaper management screwed up big time by not giving enough thought to how information delivery works and would work in a world in which info would be available with the click of a mouse. I know this is no comfort to you, but I’ve seen this same tendency of management in every industry or company I’ve ever been in that’s doing well at the moment. Perhaps my favorite story is being at a place callled Lotus Development shortly after they created the first killer app called “Lotus 1-2-3.” I asked them to name their competition. They said they didn’t have any. I said, “What about Microsoft?” They laughed. “They’re just an operating system company. No threat at all.”
I think you SHOULD be angry at a management so arrogant that they assumed the reason they were making so much money is because they’re so good (instead of because they were in a business that was a license to print money). I know hearing that stuff angers me. I was at a little place called “Nike” about 15 years ago working with THE most incompetent HR people on the face of the planet, but they were sure they were damn good because Nike is an extraordinary marketing and operations company. Since they worked for Nike, they must be da bomb, right?
Ah, well, it’s a pattern.
The time to invest in more journalists, better news, getting a foot in the door in new media, etc. was back when newspapers were flush with cash. Now that they realize what they need to do, they can’t do it. That’s why they all seem to be going to being the best at local coverage and running AP and Reuters stories for everything else.
To me, the issue is, “What the heck to do now?” I don’t know the answer, but I suspect it lies in being able to turn journalists into revenue producers by changing royalty laws in some way.
Savanster:
That’s a lot to respond to. I will try, just as soon as I can get the time to address what you say adequately in a blog entry. It will probably be a few days.
Stay tuned, please.
“To me, the issue is, “What the heck to do now?†I don’t know the answer, but I suspect it lies in being able to turn journalists into revenue producers by changing royalty laws in some way.”
Actually, with such a small portion of the population reading newspapers and rags these days, I’d say part of the solution is to get a populace that wants to read (news). i.e. you need to have an educated public that cares about the world around them. Given the average American, I’m guessing that isn’t gonna happen any time soon. How do you compete with Fox News and their “infotainment”? I suggest you can’t, not without a real desire by the public to want the truth.. and clearly, the truth is too painful for most Americans. After you get them interested, you have to make sure they have -time- to sit and read.. Another herculean feat that I doubt will happen any time soon given the way we’re being asked to work longer for less pay and benefits. More chaos means less accountability and less time to “look behind the curtain”, as it were.
Savantster,
The “small portion of the population reading newspapers” isn’t that small. At the moment, daily paid circulation of American newspapers is about 53 million, down from an historical high of 63 million in 1984. So there’s still substantial money to be made from print tree papers.
(http://naa.org/TrendsandNumbers/Total-Paid-Circulation.aspx)
Right now, the industry is averaging about 17 percent in profit, down from highs in the 20s. So media corporations are making money. (See Picard link in earlier comment.)
The crucial social, political and cultural points resound from this: The QUALITY of the journalism in those 53 million papers has fallen markedly because of the business model discussed here earlier.
The situation will not change as long as larger institutional investors find newspapers the quickest way to extract the largest profit. Only when that equation changes — and institutional investors act on that concern — will a new business model emerge. (I think.)
JS has a better handle on the economics of this — but I’m Jefferson. Give me newspapers, not a nation without them. And make them meaningful adversaries of government.