Judge OKs $13 mil in Tribune employee bonuses

WILMINGTON, Del. -- The Tribune Co. can pay more than $13 million in bonuses to almost 700 employees for their work last year, a federal bankruptcy judge ruled Tuesday.

But the judge denied authorization for the Tribune to make more than $2 million in severance payments to more than 60 employees laid off shortly before the Chicago-based company filed for bankruptcy protection.

Judge Kevin Carey authorized the bonus payments after Tribune chief financial officer Chandler Bigelow III testified that the bonuses are critical to keeping key managers motivated as Tribune tries to adjust to a tough economic climate for media companies.

"We need to motivate and incentivize the key people who will implement change," Bigelow said. "These are really good people we're talking about. They're the best and the brightest of the company."

In the separate severance pay ruling, Carey said that while he sympathized with the laid-off employees, he was constrained by the law from approving the payments. The judge did grant approval for severance payments to two employees laid off after the bankruptcy filing but before implementation of a post-petition severance policy.

Tribune, which owns the Los Angeles Times, Chicago Tribune, The Baltimore Sun, The Hartford Courant and other dailies, as well as 23 TV stations, sought bankruptcy protection in December because of dwindling advertising revenues and a $13 billion debt. Much of that debt was amassed when real estate mogul Sam Zell took the Tribune Co. private in late 2007.

Bigelow noted that proposed bonus payments of $12.2 million to about 670 employees under the company's management incentive program, or MIP, do not include the top 10 executives and represent an average payment of only 38 percent of the target for 2008. He also said total proposed payments for last year are significantly lower than those in the two preceding years.

Tribune also received authorization to pay an additional $1.1 million in incentives to 23 individuals who do not participate in the MIP.

Bigelow noted that none of the company's newspapers lost money last year, and that 21 of its broadcasting stations gained advertising market share. He also said managers implemented strategic initiatives expected to generate $425 million in annualized cash flow and completed deals generating more than $1 billion in proceeds.

"The company is looking to reward some extraordinary efforts from the key managers," he explained.

"We are fighting for survival," Bigelow added. "On a relative basis, I think we're doing better than others."

Tribune's request to make the bonus payments was supported both by its creditors committee and a steering committee of senior lenders owed more than $8.5 billion.

"It isn't every morning that I get up to try to persuade a judge to let money go out ahead of my clients," said David LeMay, an attorney for the creditors committee. He nevertheless agreed that the bonuses are critical in keeping employees motivated.

"The people who are still there are being asked to do more. They're being asked to work harder," he said.

The only objection to the payments came from the U.S. trustee.

Joseph McMahon Jr., an attorney with the trustee's office, noted that the MIP was not enough to keep almost 100 people from leaving the company over the past year. He also argued that the proposed bonuses did not meet the "necessity of payment" doctrine and were not critical in keeping the Tribune Co. operating as it works through bankruptcy.

"From our perspective, it really is a 'lights on, lights out' issue," McMahon argued.

The judge disagreed, going so far as to chastise the trustee's office for its "poor choice" in objecting to the motion.

"The fact that the only objecting party has no economic skin in the game is not relevant to me," Carey said, nevertheless suggesting that the trustee had failed to appreciate the supporting evidence or the context in which it was presented.

"You have to recognize the circumstances in which we find ourselves in the world today," said the judge, noting that Tribune was trying to transform itself "in what are truly extraordinary times."

On the severance pay motion, however, Carey sided with the trustee, concluding that Tribune had not demonstrated that the payments were essential to the operation of the company.

Assertions by the company and its creditors that the outstanding payments were a "distraction" and that failure to make good on them could lead to "bad press" were not sufficient justification, the judge said.

While denying the motion, Carey said that, if asked, he would order that the funds in question be held in escrow pending confirmation of a reorganization plan.

Bigelow testified that the average length of service for the former employees owed severance pay was more than 20 years.

"We know there's some financial hardships amongst the group ... In certain cases, some of these people need the money now," he said.