This story was originally published on Reuters.com.
With the firing of New York Times Executive Editor Jill Abramson last week, a dispute broke out over whether her ouster by publisher Arthur Sulzberger Jr. had anything to do with a complaint she reportedly made to Times executives that she had not been paid the same as Bill Keller, the man she succeeded.
Disclosure: Abramson is a good friend, so I have a favorite in this dispute. But I do know a way to figure it out objectively — with some simple reporting by a competent business reporter. The result would be a story that I’m sure many people would like to see.
The New Yorker’s longtime media writer Ken Auletta reported in two Web dispatches (here and here) this week that, shortly before her firing, Abramson had complained to Times executives — and even hired a lawyer to discuss the complaint for her — about her compensation. She reportedly discovered that her salary in 2013 (and through this year) was significantly less than Keller made during his last year on the job in 2010 — $503,000 for Abramson in 2013/2014 and $559,000 for Keller in 2010.
Yet Sulzberger, responded, through his spokesperson, with this statement, that Auletta duly reported:
It is simply not true that Jill’s compensation was significantly less than her predecessors. Her pay is comparable to that of earlier executive editors. In fact, in 2013, her last full year in the role, her total compensation package was more than 10 percent higher than that of her predecessor, Bill Keller, in his last full year as Executive Editor, which was 2010.
Struggling to square Abramson’s complaint with Sulzberger’s categorical statement, Auletta went on to note,
[Times spokesperson] Murphy cautioned that one shouldn’t look at salary but, rather, at total compensation, which includes, she said, any bonuses, stock grants and other long-term incentives. This distinction appears to be the basis of Sulzberger’s comment that Abramson was not earning ‘significantly less.’ But it is hard to know how to parse this without more numbers from the Times.
Auletta is right. We need more numbers from the Times — and I nominate the Times’ most savvy, take-no-prisoners financial reporter, Gretchen Morgenson, to take over the story from the Times’ media reporters and get the facts.
Here are some hints for where she should start.
In most public companies, an executive’s total compensation has three basic elements: salary, bonus compensation (which can be in the form of additional cash, stock or stock options), and pension contributions.
It appears clear from Auletta’s reporting, and the Times non-denial denial, that Abramson’s salary was, indeed, lower than Keller’s.
As for their pensions, in a prior statement the Times acknowledged that Keller’s was higher. But a Times spokesperson explained this credibly by noting that Keller had been employed by the company longer and had benefitted from a pension plan that had been cut back in recent years as the Times faced the financial headwinds afflicting all newspapers.
So, as Auletta speculates, that would leave the two executive editors’ annual bonuses as the element that could allow Abramson to end up with more money while getting a lower salary.
Annual bonuses are typically set at a percentage “target” of the executive’s salary, often 50 percent to 100 percent. So if the executive makes a salary of $500,000 and the target is 50 percent, then the target bonus is $250,000. Whether one hits the target depends on the criteria the board sets.
Though it is vague on specifics, the company’s 2010 and 2013 proxy statements say that bonuses for senior executives, which can be in cash or stock, are largely based on the company’s performance. Typically, in a public company that can mean that maybe 25 percent to 50 percent of an executive’s annual bonus could be based on his or her personal performance while the other 75 percent or 50 percent would be based on how the company did overall.
The Times’ board seems to believe strongly that the company’s performance is key. As the Times’ 2010 proxy statement puts it, the purpose of the Times’ Incentive Compensation Plan is to “(a) to attract, retain and reward directors, officers, other employees and persons who provide services to the Company and its Subsidiaries, (b) to link compensation to measures of the Company’s performance in order to provide additional incentives, including stock-based incentives and cash-based incentives, to such persons for the creation of stockholder value…”
So, if the executive is making $500,000 and his or her target bonus is, say, 75 percent, and 50 percent of that 75 percent is based on how the company does overall — not on the executive’s own performance — there can be large swings in compensation that have nothing to do with whether the company has determined, through its setting of the executive’s salary, the relative value of that executive compared to another.
Whether it was Keller’s fault or not, there was not a lot of stockholder value created at the Times in 2010, especially as compared to 2013.
On January 4, 2010, Times stock opened at $12.65. On December 31, 2010, the stock closed at $9.80 — a 23 percent drop.
In 2013, the year Abramson’s last bonus was determined, Times stock opened on January 2 at $8.79. It ended the year at $15.87, an 81 percent rise.
So, let’s assume — this is all speculation, I’m counting on Morgenson to get the real numbers — that Keller and Abramson both had target bonuses of 75 percent of their salaries, but 50 percent of that target depended on the company’s performance.
Obviously, Keller would have gotten little or none of that company-performance- based 50 percent, while Abramson would likely have gotten all or most of it.
Let’s further assume (more speculation) that each made 100 percent of the personal-performance-based part of the target. Abramson’s bonus would have been 75 percent of her $505,000 salary, or $378,000, bringing her total compensation to $883,000. But Keller would have gotten only 50 percent of his 75 percent target, or 37.5 percent of his $559,000 salary, for a bonus of $210,000, making is total annual compensation in 2010 $769,000.
So, Keller would have earned a lot less than Abramson — though the Times paid him more in earnings attributable to the paper’s assessment of his relative value compared to Abramson, rather than earnings attributable to how the company fared.
Indeed, if Abramson had simply earned the same salary in 2013 as Keller earned in 2010, her total annual compensation would have been $978,000, not $883,000, because her the yield from hitting her 75 percent target bonus would have been based on the higher salary. And that’s not even taking inflation - roughly 7 percent from 2010 to 2013 — into account the way we might because we’re comparing 2010 dollars to 2013 dollars.
Yes, it’s hard to feel sorry for her in either case. But those differences would be her pay equity argument.
If, as could easily be the case because lots of companies do this, their target bonuses were, say, 100 percent with 75 percent based on company performance, Abramson would have made out even better than Keller while still getting that lower salary. Again, that would not be because the company put the same or higher value on her work but because the company did better, while placing a lower value on her (as expressed in her salary).
The differences would have been still more pronounced if part of the bonus award was in a set number of Times shares — because the shares were worth twice as much for Abramson than for Keller.
So, what Morgenson, Auletta, or another business reporter needs to do is ask the Times what the target bonus percentages were for 2013 and 2010; what portion of that target was attributable, not to the executive’s personal performance, but to the company’s performance, and whether any of the awards were in pre-set numbers of shares of Times stock.
Or, Morgenson could do what she does so well: Get a leak from a board member or executive in the know.
That’s the way to resolve whether the Times did pay Abramson fairly — or whether the company shortchanged her but can now camouflage it because of factors having nothing to do with the price they put on her services.