Several top officers of Tribune Co. have joined Chief Executive Dennis J. FitzSimons in limiting or declining their slice of a “transaction bonus pool” related to the company’s $8.2-billion bid to go private.
Tribune’s board established the special incentive in September to prompt management to seek the best deal for shareholders even though such a transaction might cost them their jobs, according to an April 25 filing with the Securities and Exchange Commission.
FitzSimons opted out of the pool, which was set up to pay $6.5 million to 32 unnamed executives if the transaction closed as planned.
The Chicago company’s latest filings show that Scott Smith, president of Tribune Publishing, has also forfeited his $400,000 bonus, while Donald Grenesko, senior vice president for finance and administration, and John Reardon, president of Tribune Broadcasting, will receive smaller bonuses than the company indicated in an earlier filing.
Grenesko will receive $400,000 instead of $600,000; Reardon will get $200,000 instead of $350,000.
The pullbacks reduced the total payout to $5.2 million, although the pool had been expanded to include 39 executives.
Smith said Friday that he didn’t know he had been included in the bonus pool initially. When he learned that FitzSimons had opted out, Smith said he believed it was appropriate for him to decline the payout too.
With Tribune going through a difficult period and “making tough decisions about staffing,” Smith said, it would be better for him to “focus on what was best for the company.”
Tribune newspapers, including the Los Angeles Times, recently announced a total of about 300 job reductions, and the company’s corporate office last week laid off 11 people. Against that backdrop, the bonus pool had created high resentment among Tribune’s rank and file.
Smith insisted, however, that the bonus pool was an appropriate reward for the rest of Tribune’s management team, given the premium they created for shareholders by signing a deal with billionaire Sam Zell that prices the stock at $34. “There were others who worked exceptionally hard and who are very deserving,” Smith said.
Even so, some compensation experts have questioned why Tribune believed that it needed the pool to reward senior executives and entice them to stay when there were plenty of other incentives in place.
Mark Reilly, a partner with Compensation Consulting Consortium in Chicago, pointed out that Tribune’s management team would also receive “share equivalents” equal to an 8% stake in the new company as part of an incentive plan to encourage strong performance.
That stake could grow to be worth hundreds of millions of dollars over time if Tribune can pay down the $13 billion in debt it will have after the deal.
“Why pay a bonus to make them stay until the merger closes? There’s a pretty big incentive for them because they’ll participate in this huge stock plan,” Reilly said.
Additionally, documents show that when the transaction closes, FitzSimons, Smith and Tribune’s three other highest-paid executives will cash about $65 million worth of stock, options and restricted shares they have accumulated over their long careers with the company.
The documents filed last week also provide new information about the payouts the top five executives will get if they leave the company.
The officers would be eligible for a total of $26.4 million in severance, the filings show. FitzSimons and Grenesko qualify for the payouts if they leave voluntarily within 13 months of the deal’s closing.
The other executives -- Smith, Reardon and Luis Lewin, senior vice president of human resources -- would be eligible for similar benefits, but only if they were let go or their positions in the company were diminished.
Tribune would also pick up a tax bill totaling $10 million that would be generated by those payments.
The tax “gross-up” numbers mean FitzSimons could choose to walk away from the company with $44.2 million. That includes severance of $10.6 million, options and restricted stock worth $6.9 million and $3.8 million to cover his taxes. He also will sell shares worth $22.9 million if the transaction is completed.
Grenesko could choose to leave with $20.1 million, including his $10.6 million in stock holdings. Smith could depart with $19.1 million, Reardon $11.8 million and Lewin $6.7 million if they are asked to leave.
The payments are large, compensation experts say, but they note that much of the total would come from sales of stock.