A Payout That's Off the Dial

By Steven Pearlstein
Friday, May 9, 2008

It was less than two years ago that the good and great -- media moguls, politicians, African American leaders and a star-studded list of entertainers including Aretha Franklin and Beyonce -- gathered at the J.W. Marriott for a black-tie gala to celebrate the 25th anniversary of Radio One, the black broadcasting empire that Cathy Hughes and her son had built from a single radio station in Washington.

Even then, however, Radio One's fortunes were in decline. Advertising sales slumped as bigger competitors had moved aggressively into Radio One's hip-hop and rhythm-and-blues formats, and listeners had begun to migrate from traditional radio. The company was struggling under the weight of a heavy debt load taken on to buy up stations, many at the height of the telecom bubble, and later to finance its initial forays into television and the Internet. Its stock price, which had peaked at $20 a share in spring 2004, was down around $7.

It's only been downhill from there. Last year, Radio One posted a net loss of $387 million after its sales fell even faster than those of the industry generally and it was forced to write down more than $400 million in the value of its radio licenses. Several of its top executives quit or were forced out, its credit rating was cut, and it was forced to sell off several stations to raise cash. Because of accounting errors, the company restated several years of earnings and has been caught up in the Securities and Exchange Commission inquiry into backdating of stock options. Yesterday, after announcing another quarterly loss of $18.3 million, Radio One's stock price closed at 86 cents.

There is no pleasure in chronicling the decline of any local company, let alone one that had come to symbolize the entrepreneurial aspirations of Washington's African American community. And surely a big part of the story has been the dramatic changes in technology that have hit hard at all media companies, including my own.

But this is also the story of a management team and a tightknit board of directors who have overreached in their strategy, underperformed in executing it and sometimes put their own interests ahead of those of their public shareholders.

The most egregious example is the new compensation packages recently awarded by the board to Hughes and her son, Alfred C. Liggins III, the chief executive. Under the agreements, Hughes, as chairman of the board with no clearly defined executive responsibilities, will receive an annual base salary of $750,000, along with a potential bonus of $250,000. That compares with a 2007 salary and bonus of $560,000.

Liggins, who in addition to his base salary of $575,370, last year earned a bonus of $468,720 for turning in the worst financial performance in company history. Going forward, the board has determined that Liggins is apparently so valuable and essential that his base salary has to be increased to $980,000, with a potential bonus of another $980,000.

There's more. To compensate Liggins for working for the past three years at a salary the board now thinks was inadequate, directors awarded Liggins $1 million for signing the new contract. To compensate him for the decline in the value of Radio One stock that he purchased under his old contract, the board awarded him a one-time, makeup payment of $4.8 million.

Liggins will also receive 8 percent of any Radio One profit from its investment in TV One, a new cable station launched with Comcast and other investors that is the one area showing any promise.

Should Radio One be sold and the services of Hughes and Liggins no longer required, the agreements call for each to receive a cash payment equal to three times annual salary and three times the average bonus from the previous three years.

Yesterday, in a conference call with analysts, it was comical listening to the company's new chief financial officer, Peter Thompson, as he struggled to rationalize the pay packages, resorting to every piece of jargon and twisted logic in the executive compensation consultant's handbook. He even went so far as to describe Liggins a "visionary" and his previous pay level as downright "punitive."

In truth, it is highly unusual for a nonexecutive chairman like Hughes to receive any salary and bonus, let alone a company founder and one of the company's largest individual shareholders.

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