Less is More -- Tribune "Management" Given Stock Bonus

From your Chicago Tribune:

At a regular board meeting Tuesday, [Tribune Co.] directors awarded 10 top executives restricted stock worth $12.4 million, according to government filings.

The biggest grant went to Chairman and Chief Executive Dennis FitzSimons, who received 135,000 restricted shares worth $4.1 million at Tuesday's close of $30.40 apiece. ***

FitzSimons' grant of 135,000 shares, for instance, was more than twice the 60,000 shares he received last year, despite a 4 percent drop in the company's operating cash flow and flat stock performance during 2006.

Wow. Low performance merits extra stock at Trib Inc.? Maybe an executive compensation expert could explain that logic. The Tribune newspaper asked Richard Harris, a principal at Hewitt Associates in Lincolnshire for an explanation:

Options are worthless if the stock price stays below the strike price. Restricted stock has value whether the stock is rising or falling and consequently dilutes the other shareholders to some degree no matter what.

In 2005, for instance, FitzSimons received 200,000 options with a strike price of $40.59 a share. But the stock has fallen since then, meaning those options haven't been worth exercising.

Meanwhile, FitzSimons received 60,000 restricted stock units last year. This week, he became vested in 20,000 of them, with a value of $608,000.

For this reason, Harris said, options encourage performance, while restricted stock makes a better retention tool. For a company in flux like Tribune, he added, that can be worth a lot if the board is intent on keeping management.

"They're not doing it to reward performance," he said. "They're doing it to retain executives."

And Trib Inc. certainly can't afford to lose the management genius who lead the company to flat stock value and a 4 percent drop operating cash flow.