Under pressure from its creditors and unions, bankrupt Tribune Co. agreed to cut back on the bonuses it would pay under its proposed 2010 management incentive plan.
The move comes as the Chicago media company seeks to win approval from creditors for a reorganization plan that would allow it to exit a bankruptcy case that has dragged on for almost 20 months.
Management bonuses have been a flash point in the Tribune case since the company entered Chapter 11 proceedings in December 2008. Since then, U.S. Bankruptcy Judge Kevin Carey has approved bonus payments totaling $57.3 million, including a payout of $42.1 million for 2009 performance.
Tribune, which owns the Los Angeles Times and Chicago Tribune, in May inserted two more bonus plans in its proposed restructuring that would grant an additional $14.9 million to its top 35 executives, related to the company’s 2009 restructuring efforts. Several creditor groups voiced opposition to those plans.
It then proposed a bonus plan that would reward 2010 performance with a potential payout of $42.9 million for 640 company managers. That is the plan Tribune is now proposing to adjust based on negotiations with creditors.
According to a filing in the U.S. Bankruptcy Court in Delaware, Tribune raised its performance targets for the plan somewhat and trimmed the potential bonus payments for the broad group of 640 managers. The company raised performance targets for top executives too but the potential bonus payments of $2.2 million to $5.7 million remain the same.
Under the new plan, Tribune managers could still earn $42.9 million in bonuses if the company were to generate $685 million in operating cash flow in 2010 — about 37% more than in 2009.
But at lower performance levels the payouts would be reduced.
If the company generates $500 million in cash flow — about flat with 2009 — operating managers would get $14.3 million and top managers would get $2.2 million. Under the plan Tribune originally proposed, the performance target was $425 million and the larger group would have gotten $28.6 million. Top managers would still have gotten $2.2 million.
Likewise, if the company generates $550 million in cash flow, the broad management group would get $28.6 million and the top managers would receive $4.4 million. Those numbers were $33.7 million and $4.4 million in the old plan.
At the top cash-flow target of $685 million, operating managers would get $37.2 million and top managers would get $5.7 million, the same as in the old plan.
The filing said that the Official Committee of Unsecured Creditors in the case would support the new plan. The Washington-Baltimore Newspaper Guild “does not object” to the plan, the document said.
“We’re certainly not delighted with it, but we think it’s gotten a lot better,” said William Salganik of the guild.
Tribune said Mercer Inc., which the company hired to benchmark the plan, has determined that the new payouts are “within reasonable market ranges at all levels of performance.” Mercer said the original plan was also within reasonable ranges.
Tribune said it intends to seek approval of the new plan at a hearing in Delaware on Aug. 9. The company’s reorganization is currently out for vote, and confirmation hearings are set to begin the week of Aug. 30.