How directors decided on Dubow's $875K bonus

Gannett's board sought advice from at least two different teams of outside consultants, as well as from management itself, before deciding to pay Chairman and CEO Craig Dubow an $875,000 all-cash bonus last year, public documents show.

In its decision, the board's four-member executive compensation committee (left) used industry data collected under the direction of Dubow and other top executives getting the biggest paychecks, according to the documents, known as proxy reports to stockholders.

Meanwhile, Dubow and the executives retained Hewitt Associates to bolster their case before the committee; Hewitt is the same benefits management firm giving poor post-employment help to GCI workers who lost jobs in the big December layoffs. The proxy reports also show Gannett is paying as much as $25,000 a year for personal legal and financial advice given to Dubow -- advice that could easily include strategy on dealing with the compensation committee.

This clubby circle is hardly surprising, given runaway CEO pay inflation across American businesses for decades. The trend has been fed by a small but growing executive compensation consulting industry that corporate boards seem happy to patronize. A measure of the stakes this year: Gannett's executive pay section occupies most of the 57-page proxy report, running from page 18 to page 49.

Gannett sends the reports to stockholders each spring for the annual meeting; this year, April 28. It gives the meeting's agenda, which includes the re-election of Dubow and seven other directors. Three are on the compensation committee, which determines base salaries and stock options for executives on the influential Gannett Management Committee.

GCI paid four members $612K last year
These new disclosures, which emerged today in my review of proxy reports, are likely to further anger rank-and-file workers, after the second round of furloughs Dubow and the other five top-paid executives just ordered for the second quarter. Plus, it's frustrating to see the committee spend untold thousands of dollars on consultants -- when Gannett paid its four members a combined $612,012 in director's fees last year alone, the documents show.

It also is noteworthy that the only two directors on the 2005 Gannett board that promoted Dubow to CEO are members of the compensation committee. They are its chairman, Duncan McFarland, and Karen Hastie Williams, the longest-serving and highest-paid director on the full, 10-member board. The other two committee members are Arthur Harper, and Marjorie Magner. (Up for re-election next month: McFarland, Williams and Magner.)

Under a notable recent decision, the committee agreed to let Dubow and the other five highest-paid executives take their 2008 bonuses entirely in cash; previously, a minimum 25% was paid in company stock.

Here is how the committee established 2008 pay for Dubow (left) and the other five top-paid executives, called named executive officers, or NEOs, for short:

"In determining NEO compensation,'' the proxy says, "the Committee relies on its collective judgment of each NEO’s performance in light of the challenges confronting our core business and our progress toward achieving our strategic plan, which is focused on competing successfully in digital businesses. The Committee weighs subjective and objective information regarding our NEOs, including their leadership, innovation, collaboration, management experience, performance history, complexity of position and responsibilities, term of service, competitive alternatives in the marketplace, achievement of individual performance goals, and internal pay equity."

The section continues: "Individual performance goals include, where appropriate, revenue and operating income goals for the Company and the respective divisions and functions over which each NEO has operational or overall responsibility, new products and programs in support of the Company’s strategic plan, leadership and diversity initiatives, First Amendment activities, and other significant qualitative objectives."

Board replaces Hewitt
In November 2007, this year's proxy report says, "the Committee hired independent consultant Pearl Meyer & Partners (“PM&P”) to advise on executive compensation matters." In fact, Corporate first disclosed the Meyer contract a year ago.

"Prior to hiring Pearl Meyer & Partners,'' the 2008 proxy statement says, "the Committee retained Hewitt Associates to provide various executive compensation services, including advising the Committee on aspects of new employment contracts with Mr. Dubow, the Company’s Chairman, President and Chief Executive Officer, and Gracia C. Martore, the Company’s Executive Vice President and Chief Financial Officer, designing the long-term incentive plan implemented in 2006, and various other matters."

The report continues: "The PM&P consultant participates in Committee meetings as requested by the chairman of the Committee, and communicates directly with the chairman of the Committee outside of meetings." Last year, the proxy report says, the PM&P consultant provided the following services:

• Participated in committee executive sessions without management present to discuss CEO compensation and other relevant matters, including the appropriate relationship between pay and performance.
• Provided advice to the committee regarding other aspects of the company’s executive compensation program, including the Digital Long-term Incentive Plan ("DLTIP") -- whose sole current beneficiary is Chief Digital Officer Chris Saridakis. The consultant also advised on "special projects, plan design, best practices and other matters as requested by or on behalf of the Committee."
• Reviewed the compensation, discussion and analysis section of this year's proxy statement.

Unraveling consulting costs
Meanwhile, the report says, Dubow's senior team "retains consultant Hewitt Associates from time to time to provide various executive compensation services. Hewitt Associates assisted in designing the DLTIP terms and conditions."

Those services don't come cheap. Yet, after sifting through several proxy statements, I could only find a cost estimate for Dubow's "legal and financial services." That benefit is included in a miscellaneous category -- "all other compensation" -- which for Dubow alone, totaled $144,002 last year, the proxy's summary compensation table shows. Dubow's total Gannett compensation last year, including the $875,000 bonus and other payments: $3.1 million.

But dig a lot deeper, and you'll arrive at my $25,000 estimated stockholder cost for giving Dubow personal legal and financial advice. It's laid out in footnotes and footnotes-within-footnotes, across this year's 57 pages. As before, the document references the top-paid executives using shorthand: NEOs, or named executive officers:

Page 43, footnote (1): "All NEOs receive the following post-retirement perquisites if they terminate employment after attaining at least 55 years of age and completing at least five years of service: (i) legal and financial counseling services on the same basis as available to an active executive at the time his or her employment terminates, until April 15 of the year of retirement or the year following retirement."

Page 44, footnote (2): In addition to the benefits described in footnote 1, Dubow would receive "the following additional perquisites under his employment contract following his voluntary termination or retirement,'' the report says. Among them: "Legal and financial counseling services on the same basis as available to an active executive at the time his employment terminates, for three years after his employment terminates, at an estimated incremental cost to the Company of $25,000 annually."

But wait -- there's more!
After he leaves Gannett, the proxy report says, Dubow also gets "use of Company aircraft for three years after his employment terminates, at times not inconveniencing the Company, the cost of which would be reimbursed by Mr. Dubow at the Company’s then-effective incremental hourly rate; ownership of existing home office equipment would be transferred to Mr. Dubow; home computer assistance, for three years after his employment terminates; use of an office, secretarial assistance and access to Company facilities at no charge for three years after his employment terminates."

Continuing, the report also says Dubow gets access "for three years after his employment terminates, to one country club selected by Mr. Dubow of which the Company is a member at the time of his retirement and to which Mr. Dubow had access during the time of his employment, the cost of which would be reimbursed by Mr. Dubow. These post-retirement perquisites would terminate in the event that Mr. Dubow provides competitive services to a competitor of the Company, as described in his employment contract. We estimate annual incremental costs to the Company associated with these perquisites of $47,000."

Please post your replies in the comments section, below. To e-mail confidentially, write gannettblog[at]gmail[dot-com]; see Tipsters Anonymous Policy in the green rail, upper right.