In the aftermath of McClatchy’s big layoff announcement, attention naturally turns to top management, and its culpability for the state of affairs. Despite the continued decline in the business, and the awful performance in the company’s stock, CEO Gary Pruitt took home an $800,000 bonus in 2007, on top of his base salary of $1.1 million, according to the company’s proxy statement. The justification for the bonus: although cash flow results fell short of goals, management was able to cut costs, while making some qualitative accomplishments, like continuing to integrate print and online operations and running “leading” local internet sites. Of course, various local newspaper guilds are slamming Pruitt and the company over pay and bureaucracy, E&P notes.
A few things to consider, first in Pruitt’s defense: He’s the beneficial owner of some 13 million shares of McClatchy (NYSE: MNI) stock, so the decline in company shares from nearly $29 to under $8 has inflicted its financial pain. Also, even if the newspaper industry is going through a horrible period, the company still wants to retain an experienced CEO, so that means paying a competitive salary, either to Pruitt or someone else. And it’s not clear that McClatchy has done that much worse than the rest of the industry, which should insulate Pruitt from some criticism.
On the other hand, Pruitt helmed one major error (in retrospect): the acquisition of Knight-Ridder was a major doubling down on the decaying industry. Sure, he wasn’t alone in failing to grasp the extent of the industry’s coming woes, but ideally the CEO should be held to a higher standard. And the year-to-year compensation goals could be linked to more quantitative measures. What is a “leading” local internet site, anyway? Presumably that’s based on some measure of relative page views, compared to other sites in the area, but if digital is so important to the future of McClatchy, why not set a real dollar benchmark as opposed to a soft goal? In an interview, Pruitt told Reuters that digital would come in “around a couple hundred million dollars this year,” but that it would not match the decline of print for some time. That’s understandable, but at that scale, the company should be able to set a target so shareholders can get a legit answer to this question: Is management succeeding in the digital arena or is it not?
In the meantime, expect cost cuts to continue, including more layoffs. As the business shrinks, that’s one of the few objective things that management can point to to demonstrate the kind of success that earns bonuses.