How the Teamsters nearly beat Gannett's board; 'golden parachutes' vote was surprisingly close

In an unusual rebuke to the board of directors, shareholders last week came within striking distance of passing a Teamsters union proposal to trim the "golden parachute" severance packages that Gannett's top executives could get if the company was sold, according to a new regulatory filing.

The vote came at the annual shareholders meeting Tuesday morning. In a press release that afternoon, Corporate said only that stockholders had "rejected a shareholder proposal and supported management’s position" on the vesting of stock awards in the event of a change in control.

But it wasn't until late Friday afternoon that Corporate filed a regulatory notice revealing the actual tally was unexpectedly close: only 55.7% voted against the proposal, even after directors had made a lengthy argument opposing the measure.

To be sure, it failed. And a non-binding advisory resolution on how much CEO Gracia Martore and other senior execs got paid last year in salary, bonus and other perks won 93% of the vote.

Still, the outcome on the Teamster's proposal shows many stockholders remain unhappy about how much the board is paying execs when revenue growth is anemic and profits still require cost-cutting. Indeed, the discontent was reflected elsewhere: in the way the vote split on re-electing the nine directors themselves.

Thumbs down on three

In the press release, Corporate said each director had received "at least 96.6% of the votes cast." However, three directors -- all members of the committee that decides executive pay -- got twice as many "against" votes as the other directors. There were Chairman Marjorie Magner, plus Howard Elias and Duncan McFarland, according to the U.S. Securities and Exchange Commission filing.

Magner

(A fourth member of the executive compensation committee last year, Arthur Harper, did not stand for re-election, and has since retired.)

This isn't the first time the compensation policy and committee members have drawn opposition. Two years ago, when shareholders got their first chance for a say-on-pay resolution, about 20% of votes were cast against the policy. A year later, with Craig Dubow's retirement as board chairman and CEO, the compensation policy got a big overhaul. The board, it appeared, had taken notice.

Last week, the International Brotherhood of Teamsters in Washington, which owns 180 shares of stock, was the vesting proposal's author. The union targeted a provision of the enormous severance packages -- called golden parachutes -- that Martore and other top executives would get if they lost their jobs after a change in GCI's ownership. (Text of the proposal, and the board's opposing statement, starts on Page 58 of the 2013 proxy report to shareholders.)

Under that severance provision, millions of dollars worth of stock awards -- including options and restricted shares -- would vest immediately, rather than over a period of years. That stock would be included in their severance if they were fired by new owners -- or even, for certain executives, if they voluntarily resigned soon after the first anniversary of the company's sale.

Martore's $46M 'chute
The financial stakes are enormous. In Martore's case, her golden parachute was worth $46.4 million as of March 22, when the proxy report was published. That report details how much executives get paid, plus matters coming to vote at the annual meeting -- including, last week, the Teamsters' measure.

Martore

Of Martore's payout, as much as $11.7 million would be in stock awards subject to the immediate vesting provision, according to the report. (The lion's share, nearly $18 million, would be the value of her pension.)

In their proposal, the Teamsters took pains to say Martore and other top execs might, indeed, be entitled to severance under a change in control. But, they said, unvested awards should "vest on a partial, pro rata basis up to the time of the senior executive’s termination."

"We do not question that some form of severance payments may be appropriate," they said in their supporting statement. "We are concerned, however, that current practices at the company may permit windfall awards that have nothing to do with a senior executive’s performance."

Coming from the Teamsters -- a group known for hardball tactics -- that's hardly an intemperate, unreasonable request. And I imagine that's why it received so many favorable votes.

What's next?
I suspect the union will feel emboldened by the close results, and so will return next year with a similar proposal. But if history is a guide, the board may negotiate an agreement before it comes up for a vote again.

That's what happened when a different shareholder took aim at another part of those golden parachutes. At the 2009 annual meeting, a proposal to eliminate tax gross-ups in change-of-control situations won an unusually large 48% of shares. The next year, the Amalgamated Bank LongView Large Cap 500 Index Fund came back with the proposal for the 2010 annual meeting.

Sensing defeat, the board agreed to drop the tax gross-ups, where the company would cover income taxes on the parachutes. Martore and a handful of other executives were grandfathered in, however.

(And I'm sure they're happy about that. For Martore, the gross-up would be worth $9.3 million in a change of control. For Bob Dickey, president of the U.S. community newspaper division, the gross-up would be $3.7 million of the total $18.4 million value of his parachute. For all the details on those and other execs, see Page 54 of the proxy report and the table under the heading, "Potential Payment Obligation Upon Change in Control.")

In a settlement of another Teamsters proposal next year, Martore & Co. might also get grandfathered in on the vesting of stock.

A negotiated settlement would be an important strategic step. In theory, directors represents the interests of stockholders. But in practice, they're often beholden to management. Neither directors nor top managers want shareholders dictating the agenda, including especially about executive pay.

The board -- and Martore -- came too close to that last week.

Tribune, others in play
Whatever happens next year, the possibility Gannett might be sold is still remote -- although not as much as it was only a few years ago, when the entire newspaper industry was in free fall. The market for media properties has warmed up.

Tribune Co. has exited bankruptcy, and has a reasonable chance of selling The Los Angeles Times, Chicago Tribune and other titles. Legendary investor Warren Buffett has been snapping up newspapers. News Corp. expects to sell its U.S. community newspaper chain in New England. And broadcast TV stations are once more being shopped.

To be sure, GCI could be an acquirer as much as a takeover target. With GCI shares at $22, up more than 60% from a year ago, the company's market capitalization is now $5 billion, making it a very large fish to swallow.

But that doesn't mean it can't happen, another reason why we probably haven't heard the last of the Teamsters.