Reporter Dan Browning’s piece on coming newsroom cuts at the St. Paul Pioneer-Press contains a curious detail that perhaps will encourage rigorous thinking in articles covering compensation.
“The company said it wants… the elimination of merit pay….” Browning wrote, paraphrasing Guild officer Dave Orrick.
The term “merit pay” usually means that management rewards superior performance with superior compensation. It is the theory behind all those executive compensation schemes which mountains of empirical evidence shows are often anything but, with executives seeing their compensation soar even as stock prices collapse.
That is perhaps best exemplified by the experience of John Snow, whose pay soared, even as he ran CSX shares down, before leaving the railroad to become Treasury secretary in 2003. Later, he ran the firm that owns Chrysler and IAP Worldwide (supplier of the ice that never got to New Orleans and rebuilder of the mold-infested lodgings at Walter Reed Army Medical Center).
There is an adage among business owners—one long absent from news reports—that properly priced labor pays for itself. Workers whose pay equals their economic value-added receive just what they contribute and, in effect, cost the employer nothing. Those who are underpaid, however, damage profits through inefficiency, because when you underpay you attract less efficient workers. On the other end, those like Snow who are overpaid rob the owners of part of their profits.
So what does it say that Pioneer Press owner Dean Singleton, assuming this morning’s article is accurate, wants to stop rewarding superior performance with appropriately superior pay?
In theory, the best workers will go elsewhere. After all, the highest performers will be in demand and others will bid for their talent. The theory of market economics says that the market will punish Singleton and MediaNews for violating a principle of competitive market economics. Over time the quality of the labor he buys will diminish, with appropriate damage to his equity.
But the real world is not an economic textbook, however much journalists who never cracked one portray it to be. To those who write about economics, it would be good to read up on the much studied Theory of the Second Best, which has been around for more than a half century, but rarely informs news reports and commentaries.
In reality, stopping merit pay may not result in the market punishing the owners, assuming the merit pay was proportional to merit. Just the costs of selling a house, moving household furniture, and the disruption to family works against departure for all but executives, who usually get such costs covered along with a so-called gross up for taxes.
For anyone making the roughly $80,000 all-in average compensation of PiPress journalists, the costs of moving are inhibiting, the reality of family is inhibiting, and the risks of a new job not working out are daunting since, unlike senior executives, their new jobs rarely come with guarantees if things do not work out.
Because of high transaction costs and high risks, some of the best PiPress journalists will stay in place, choosing getting stiffed over attempting to maximize the value of their labor.
But there is another factor at work, one that has hit many millions of other workers for decades and is now beginning to strike newsrooms. It is a trend that hardly anyone but Louis Uchitelle has covered in a sustained way, one of the great stories that are remaking America, but that are ignored in favor of glitz-mongering and Washington-to-Wall Street transcription posing as journalism: It is the health of labor markets.
If there are no other reporting, editing, graphic and photography jobs to be had, then PiPress management can eliminate merit pay without regard to the competitive labor market. Competitive markets matter only if they exist. If they are rigged (as with executive pay) or sick (as with journalism, auto making, steel and aluminum, widget making, college teaching, etc.) then the virtuous self-reinforcing benefit of competitive markets is replaced by the viciousness of raw economic power. This picture is not pure black and white, but it is surely a darkening shade of gray.
In journalism right now the labor market is so enfeebled as to barely exist. At least 15,500 journalism jobs were lost last year alone, according to Erica Smith of the St. Louis Post-Dispatch. And the pace of job losses is quickening, with nearly 10,000 lost in the first four and a half months of 2009.
Fellow journalists, welcome to the take-it-or-leave job market, the result of decades of economic policies reported on with little-to-no skepticism and mostly timid questioning, and one heretofore populated mostly by workers outside reporters’ social circles and class. Television news, especially cable television, has a major blame here for relying heavily on a narrow range of mostly white, male, affluent sources with economic ties to those who benefited from these economic policies, especially the talking heads supplied by the Big 12 ideological marketing organizations of the business-right, including the Heritage Foundation, the Competitive Enterprise Institute and their like.
Welcome to globalization rules written not by all of the competing economic forces, but primarily by the financier class those donations are vital to both parties on Capitol Hill and whoever is in the White House. Welcome to a world that would have Adam Smith tearing his hair out. Welcome to a world where classic competitive market theory is described as a liberal idea, making it therefore suspect to many.
Assuming the accuracy of Browning’s article, a major publisher has decided that it can ignore market economics without being punished by the market. Dean Singleton has proven to be a formidable businessman. He may well be right here as a matter of his investment interests, that pay-for-performance is no longer necessary due to market failure, and so giving only average pay will enhance his wealth instead of ravage it.
Instead of looking for hopeful signs in each day’s stock market results, a modern version of reading tea leaves and animal entrails, perhaps some journalists will join Uchitelle in asking the fundamental questions about the labor market, not just for journalists but for all workers outside the executive suite. Who infected it? What has been the course of the disease? What remedies exist? What are the relative costs and benefits of applying different treatments?
And along with that it would be good to see a great deal of hard reporting on the consequences of letting an economic cancer metastasize.
An interesting column. But some context might sprinkle some grains of salt. I got word of this story about 20 minutes to deadline. While I believe it's accurate, I know it's also incomplete. Management did not comment, noting that discussions (they're not yet in negotiating mode) are at their earliest stage. When Dave Orrick, the union spokesman, said eliminating merit pay was on the table, I asked him to repeat it to be sure I got that right. He did. That said, I believe management and the Newspaper Guild both look at this as an opening salvo rather than a formal proposal.
More likely, Dean Singleton saw what happened in the Star Tribune contract revisions and wants something comparable. In our case, management won the right to shave all "over-scale wages" (a term we prefer to merit pay) by 30 percent. So while we're all worth less, we're not worthless. Management also reserved the right to redistribute a chunk of money at its discretion. So it's trying to preserve the carrots that keep some of us running harder. Though no one at Media News has said this, it seems likely that they'll pursue something similar if the Guild agrees to reopen its contract before it expires in 2011.
#1 Posted by Dan Browning, CJR on Fri 22 May 2009 at 12:52 PM
Dan Browning, thank you for your additions, which is the way I think we ought to handle things as news is, and will always be, a first rough draft of history.
That Singleton has raised the issue of eliminating merit pay -- otherwise known in newsrooms as overscale -- is enough to make a discussion of the health of the labor market worthwhile.
#2 Posted by David Cay Johnston, CJR on Fri 22 May 2009 at 01:51 PM
I've been in the technology industry since '85 and I've seen a lot of offshoring, oursourcing, increasing job insecurity, and the like. And it's just been incredible to me how the mainstream media has looked at the job market - as if they've been smoking free market crack. I'm sorry, journos, that you need to learn the hard way. But in a way, you are getting what you deserve, because this is the long term effect of the corporatist pablum you swallowed. The bigger disservice is to the American workforce, which has been abandoned by media, by jobs, by policy, by political parties, by corporations, by Congress, you name it.
No healthy family eats its children. Even Mafia families don't do that. But that, in effect, is the American way of capitialism.
#3 Posted by lark, CJR on Sat 23 May 2009 at 06:28 PM
David, your economic analysis is correct, but you're ignoring Singleton's (and other publishers') motivation for instituting merit pay in the first place. It was to make the Guild-negotiated wage scales irrelevant, and peel away some support (read that, power) from the union to negotiate higher wages overall (the "lifting all boats" approach). The Guild at the PiPress used to be a formidible backstop against substandard wage rates. With the Guild's power waning and virtually no negotiating strength to push for higher wages, there is no need to peel off support from the "top tier" of the newsroom workforce.
#4 Posted by Linda Foley, CJR on Wed 27 May 2009 at 12:31 PM
Good point, Linda.
The frequency and intensity of overscale is an indicator of weaker joint bargaining power and can be a wedge by publishers to weaken unions, which helps drive down labor costs overall.
Again, my broader and deeper point is that I hope this and other developments in newsrooms prompt rigorous reporting on the overall labor market, on how government has intervened in that market on the side of employers (driving down wages across the country for the vast majority of workers) and how the rules of globalization favor some at the expense of others, all issues that have received far too little attention and too much gullible coverage.
#5 Posted by David Cay Johnston, CJR on Wed 27 May 2009 at 02:55 PM
A big Amen(!) to that.
#6 Posted by Linda Foley, CJR on Thu 28 May 2009 at 12:14 PM