MADAWASKA, Maine — As Fraser Papers Inc. stock tumbled in 2008 and losses culminated with Fraser seeking bankruptcy protection in mid-2009, its six top-level executives received $50,000 to $162,500 in bonuses, the company’s spring 2009 report to stockholders revealed.
Fraser’s highest-paid executive was Chief Executive Officer Peter Gordon. He received a $162,500 cash bonus atop his $325,000 base salary, stock option awards of $637,500, another $15,750 in pension value and $3,126 in “other compensation.” His take in 2008: $1.14 million.
Senior Vice President and Chief Financial Officer Glen McMillan earned $594,979 — $225,000 in base salary, $67,500 in bonuses and another $285,000 in stock options. President and Chief Operating Officer Jeffrey Dutton earned $694,351 in 2008.
Three other corporate chiefs earned $117,500 in bonuses in 2008 atop base salaries of $197,000 to $270,000, states the report, available at fraserpapers.com.
The company also paid bonuses totaling nearly $500,000 to retain 34 management and salaried employees it deemed critical to Fraser’s survival and eventual success. Numbers for any bonuses paid in 2009 were not available Monday.
It’s a situation that dismays Duane Lugdon, Maine’s United Steelworkers union international representative, particularly in light of the one-year, 8.5 percent pay cut that 460 members of USW Locals 291, 365 and 1247 reluctantly took when they approved their new three-year contract last week.
“I think throughout 2008 and into 2009 it should have been very apparent to these executives that the company was on the precipice of bankruptcy,” Lugdon said Friday. “How you can in good conscience take bonuses when the company you manage is facing bankruptcy and while reaching into your workers’ pockets is impossible for me to understand.”
The USW workers in Madawaska will get a 1 percent wage increase after one year of the contract, in 2011, and a 2 percent increase in 2012, but that will still leave them earning 5.5 percent less in three years than they earned under the previous three-year deal, Lugdon said.
Fraser’s management called the union cuts critical to keeping the Madawaska paper mill going — a claim workers found galling in light of the bonuses. “I see this not one bit different than the bonuses paid out to Wall Street executives that we read about in the papers and see on television every day,” Lugdon said. “And then beyond that, to be taking these bonuses while you are trying to get into the pockets of your employees [with the 8.5 percent pay cut] is absolutely without conscience.”
Pay for performance
Bill Peterson, Fraser’s human resources director and negotiator of the USW deal, defended the bonuses. He said that executives at other paper companies typically get far larger bonuses.
“In comparison with many of our competitors, we are on the low side, and we know it,” Peterson said Monday. Brookfield Asset Management, Fraser’s Toronto-based parent company, paid the bonuses to retain key people who will be charged with extricating the company from its financial woes.
The bonuses, Peterson said, are “pay for performance” components to individual contracts, not flat salary increases, awarded because the employees met goals set by Brookfield or other supervisors.
“They said this is the team that we want,” Peterson said. “They said, ‘We don’t want you leaving and this is a demonstration of our faith in the team that we have put together, the people whom we believe can turn it around.’ “
It’s not the same as a pay cut, Peterson acknowledged, but salaried employees — many of them lured from other companies — have not received a pay raise in three years. He called the largest bonuses “anomalies.” “I didn’t come to work never to get a raise again,” said Peterson, who joined Fraser three years ago and was one of the 34 management and salaried employees to receive bonuses in 2008. “Part of my pay is also variable. They used that to attract me here. I am going to do what I can to make this company successful, because I believe in what it does.”
The competition for executive talent can be intense, Peterson said.
“We are all free agents,” he said to a reporter. “If The New York Times called you to offer you a job, would you listen?”
Gordon and the other top-level executives received deferred shares in the company instead of bonuses from 2004 to 2006, according to Fraser’s 2007 management proxy circular to stockholders. Peterson said he believes that “they were all required to hold a significant amount of company stock as a show of good faith in the company.”
Fraser executives and midlevel managers have made many sacrifices, Peterson said. The new union contract — and its $4 million in concessions — comes with a restructuring plan that cuts another $7.5 million in salaried positions in Toronto.
Management has also capped or cut back on its vacation time, from six weeks to four, a move that some managers opposed, Peterson said.
“We had people more accepting of a wage freeze than taking that,” he said.
Lugdon acknowledged that Fraser’s bonuses were less than those received by other paper company executives, but that, he said, is only a symptom of the illness. “I don’t pretend that they should be pointed out as gold diggers in the grand scheme of things,” Lugdon said. “The issue is really all about taking these huge bonuses [in comparison to their base earnings] at a time when the company was on the precipice of bankruptcy.
“And then the Christmas gift [2008 bonuses] they gave 34 executives that were given out while they were absolutely in the throes of a bankruptcy,” he added. “Both of these events were irresponsible and particularly disgusting when you understand that all the while they had their hands in the pockets of their employees.”
Gordon and McMillan could not be reached for comment on Monday.
Union cites sacrifices
In a letter Lugdon wrote to Fraser’s top four executives in May 2009, on the eve of contract talks that formally began in August, he said that Fraser’s stock performance had declined by 90 percent over the previous year and almost 100 percent over the previous five years.
“Now obviously I am aware that many things affect stock prices and your competition has seen dramatic changes in their stock position as well,” he wrote. He pointed out several conditions workers endured and sacrifices they made, including:
• Periodic shutdown of equipment and associated mass layoffs.
• Unilateral measures to reduce head count that have employees working harder and being responsible for more and more of the operation without commensurate moves in their compensation.
• Loss of the pension plan for hourly employees. • Inflation in health care premiums.
• Changes in health care plans that provide fewer benefits for services.
Lugdon warned the executives that they should return their bonuses if they wanted to retain credibility with their workers.
“Let me be extraordinarily bold here for a minute by saying that if you ever intend for Fraser Paper to have credibility again amongst its work force, then you owe it to them to do the right thing here and return these bonus payments,” he wrote.
The company never responded, Lugdon said.
More conditions to meet
With the three-year contract signed, Fraser’s next step is to meet the other two conditions that the re-formed, post-bankruptcy Fraser company, temporarily called Newco, must meet to prevent the closing and scrapping of the 680-worker mill and its sister pulp mill across the St. John River in Edmundston, New Brunswick.
Fraser must renegotiate letters of credit with its primary power supplier, NB Power, that encumber about half of the company’s available cash. It must also get the Communications, Energy and Paperworkers Union Local 29 in Edmundston to allow Fraser to eliminate its defined benefit pension from its contract, as it has done with the USW’s contract.
The Canadian union might question the bonuses, too, Lugdon said.
“If they had just forgone their bonuses and then put this thing profitable again, I don’t think they would be facing this kind of question,” he said.
Lugdon also looked forward to seeing whether the company would issue another management proxy circular — a report issued to stockholders — that would detail, among other things, management bonuses in 2009. The reports typically are issued in March.
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