The switch took place with the $2 million in bonuses just paid for 2008, and was quietly disclosed in the new proxy report to stockholders issued last week.
The four-member executive compensation committee setting pay for Dubow (left) said the change came because "most executives have substantially met" the 25% threshold, the report says. The directors did not identify any of the five "named executive officers" (NEOs) who had not completely met the requirement.
The report strongly suggests a more likely explanation, however. Directors wanted to offset The 11th Floor's enormous paper stock losses, 79% last year alone -- a decision that defeats the very intent of those original stock incentives.
"None of the stock options our NEOs received during the last eight years currently have any value,'' the committee said in last week's report. Meanwhile, directors said, the restricted stock units (RSUs) the board gave to the executives since 2005 "have experienced a decline in value the Committee did not and could not anticipate."
The pay policy change emerged today as Gannett disclosed it had frozen wages for the coming year, and ordered a second round of unpaid furloughs for tens of thousands of U.S. workers.
Proxies show policy change
Following are screenshots from the two most recent proxy reports with the U.S. Securities and Exchange Commission, showing the cash/stock mandate in 2008 -- followed by its omission from this year's filing.
2008: CEO Craig Dubow and Gannett's other five top-earning executives were paid bonuses in cash and stock, that year's proxy report to stockholders said (detail, above). This was to "promote ownership,'' the committee said: "We are committed to fostering a compensation structure that aligns our executives' interests with those of our shareholders. For example, 25% of annual bonuses are paid in the form of Gannett stock, which may not be sold for six months from the acquisition date. In addition, we expect our NEOs to increase their stock ownership until they reach a guideline amount of five times their base salary midpoint."
[2009 omitted: 'payable 75% in cash and 25% in stock']
This year: Dubow and the other five highest-paid could take their bonuses 100% in cash, the proxy says, citing the committee's new principles: "Since most executives have substantially met their stock ownership guidelines, the Committee no longer requires 25% of an executive’s bonus to be paid in the form of Company stock."
The four compensation committee members; from top, left to right: Arthur Harper; Marjorie Magner; committee Chairman Duncan McFarland, and Karen Hastie Williams.
Board: investors 'deeply disappointed'
Following is from the "executive incentive bonuses'' section in this year's proxy report; it starts on page 23. (Quick glossary: NEOs are Gannett's five top-paid employees known as named executive officers. RSUs are a gift of company shares called, restricted stock units.)
"Our Company’s stock price performance in 2008 deeply disappointed all of our shareholders, the Board and management included. Each Company director saw his or her investment in Company stock fall dramatically in 2008. Each member of Company management, including each NEO, was personally and significantly impacted by the decline in our stock price."
The text continues: "As a result of a combination of the Committee’s executive compensation policies -- paying a substantial portion of NEO compensation in the form of Company stock, paying 25% of NEO bonuses in past years in the form of Company stock, and through stock ownership guidelines requiring each NEO to retain Company stock notwithstanding the decline in stock price -- each NEO has a large percentage of his or her personal net worth tied to our Company’s stock price. None of the stock options our NEOs received during the last eight years currently have any value. The RSUs our NEOs received since 2005 have experienced a decline in value the Committee did not and could not anticipate when those awards were made."
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