A Word about those Bonuses….

Recently, in a brilliant bit of detective work, fellow blogger Emily Hogstad discovered some fascinating information about Michael Henson, President and CEO of the Minnesota Orchestra (read it here).  It appears that in terms of executive compensation he had a very good year.  Over the course of 2011 President Henson received two bonuses of $100,000 each—these on top of his regular salary of slightly under $400,000.

Many people were appalled by this news.  The reason?  During this same year, Henson was publicly stating that the Orchestra was tottering on the brink of financial ruin, and drastic steps needed to be made immediately to stave off complete collapse.  He laid off staff and froze salaries for those who remained.  He demanded sacrificial pay cuts from the musicians, equaling 40% of their pay.  He attempted to eliminate seniority pay,  and proposed significant pay cuts for substitute players.  When the musicians balked at these demands, he locked them out and cancelled the 2012-2013 season.  The musicians remain locked out to this day.

It is important to remember that throughout this ugly labor dispute, the musicians have demanded that the Orchestra submit to a independent financial analysis to show if, indeed, the financial situation was as dire as Henson stated.  They pointed out that only a short time before he issued his ultimatum, he had actually bragged to the media and to the state legislature that the Orchestra’s finances were sound.

The Orchestra never agreed to a true independent analysis, but instead commissioned one of its own that was restricted to examining topics the Orchestra asked it to examine, using data the Orchestra provided.  This “independent” analysis was widely mocked.

Emily’s post gives some indication why the Orchestra had no interest in outsiders looking through its ledger books.

As infuriating as it was to read that huge bonuses had been paid out to a man who had simultaneously claimed the Orchestra’s finances were “unsustainable,” it has been even more infuriating to read the Orchestra’s response.

In an article appearing in the Star Tribune today, Jon Campbell, the Orchestra’s Chairman of the Board, gave a full-throated defense of the $200,000 in bonuses (appearing here).

After a week to prepare a statement, I’m astonished that this is all the Orchestra could come up with.

Again, I’m somewhat embarrassed to have to point out… by all accounts, the Orchestra was in rough financial shape.  Bonuses?  Seriously?  If—if—an organization is giving out bonuses in such a situation, there needs to be clear, hard evidence for why they are warranted.  A rock solid case.

But Mr. Campbell gives nothing of the kind.

First, Mr. Campbell attempts one of the weakest justifications possible:  that President Henson earned this due to his “exceptional” work at fundraising, and that he presided over a successful tour to Carnegie Hall and the planned renovation of Orchestra Hall.

Where to begin?

Well, staring with the last point—I’m sorry, but he got $200,000 in part due because he planned a renovation of Orchestra Hall?  One wonders what his bonus is this year for actually completing the renovation of Orchestra Hall.

That said, it’s likely that any bonus this year might be offset due to the fact that he cancelled this year’s Carnegie Hall performance.

But I’m stunned that he was rewarded for his skills as a fundraiser.  The Orchestra’s own documents show a steep decline in fundraising over the last few years.  In fact, President Henson justified the massive pay cuts to everyone else because, in his own words, it was impossible for the Orchestra to fundraise its way out its financial hole and lift itself into to balanced budgets.  Again and again he told us with seriousness and sadness that the community is tapped out.

So which is it—has fundraising reached new heights under his administration?  Or is it in steep decline?

Then there is the jaw-dropping statement that “President Henson agreed to accept the same pay cut as the musicians.”

Gentlemen, this statement so profoundly distorts the truth that I can’t imagine you’re being serious.

Yes, the board ultimately floated an idea that Henson would take a similar pay cut to that demanded of the musicians, but this offer was never fully fleshed out and had only been made after the lockout had dragged on for 11 months.  Moreover, this “concession” on the part of the administration was part of patently absurd proposal that was not made through the normal negotiating process… or even through the Orchestra’s own chosen mediator. Instead, it was made in a news story that appeared in the local press.  Therefore, it was never part of any official offer.  (My analysis of that “offer” can be found here.)  I’m sorry, but bringing up this last minute, sketchy, and ultimately unimplemented deal is an act of deflection, nothing more.

And besides, this mutual pay cut deal is nothing but hypothetical now; it surely played no part in the calculations of Henson’s bonuses over a year ago.

But more disturbing, one immediately suspects that Henson was given such substantial sums so that if and when he had to take a pay cut to show solidarity with the musicians or as part of a negotiated end to the lockout, he would start at a much higher base level.  A 40% cut is much more palatable if you first give yourself a 60% raise.  Or if you have the ability to give yourself any bonus possible, completely divorced from your base rate of pay, that would make up any “pay cut” you were forced to absorb.

At this point, Campbell tosses out what presumably is his major point—that other people in the organization make big money, too.  Therefore, criticism of President Henson is unfair and unwarranted.

This is not only an outrageous statement, it is deeply problematic.

For one, he causally tosses off Music Director Osmo Vänskä’s salary, implying it is even more unreasonable than Mr. Henson’s.  Really?  Is the administration really going to go there?  Over the past few months many members of the Orchestra’s leadership belittled the man, publicly threatened legal action for him making innocuous statements about the labor dispute, publicly treated him with contempt, casually remarked that he was expendable, and ultimately forced him to resign.

Are the Orchestra’s leaders really going to casually throw out his salary simply as a diversionary tactic and to make him look bad?

But this speaks to a larger point. Osmo actually performed the Carnegie Hall concerts that factored into Henson’s bonus, and it was his leadership that secured the invitation in the first place.  He also was critical to securing slots in other European tours, and lead the Orchestra to Grammy nominations.  These were concrete, measurable achievements.

Did he get a bonus?  Why not?

Expanding on this a bit, did President Henson personally lead any of the items for which he is now getting a huge bonus?  Did he do the fundraising by himself, or did he take credit for activities already in progress that were being conducted by a larger team of people?  Is he taking credit for Common Chords, which is essentially a re-branding of activities the Orchestra was already doing?

Another point.  I’m sorry, but it appears the administration is throwing out the salary of Doug Wright—one of the negotiators for the musicians—as a diversionary tactic to show how richly compensated the musicians are.  If this is the case, there is a serious problem at hand.  Doug’s “hugely overcompensated” salary is nearly the same amount of President Henson’s bonus.  And it doesn’t even take into account Henson’s base salary of $400,000.

Greedy musicians, indeed.

This statement brings up another potential problem.  In Jon Campbell’s quote, he makes reference to six musicians who are among the highest paid members of the organization.  But looking at the original tax documents that provided information about President Henson’s bonus, we see that many of those top musicians have since left the Orchestra, and done so (at least in part) because of the labor dispute.  Musicians like Burt Hara and Sarah Kwak, for example.  Is it possible that some of the extreme demands the Orchestra leadership made were done specifically to drive away highly-paid veteran players?

As an aside, management has repeatedly used “average musician salary” again and again during this labor dispute.  Specifically they’ve used as a key metric in determining pay and potential pay cuts.  This is bizarre.  The true measure of musicians’ salaries should be base pay—an absolute, contractually specified number that all others are based on—rather than a changing number that is not tied to anything specific.  I’m curious… with the removal of the most highly-paid musicians, what does “average musician salary” look like now?

But at the end of the day, Jon Campbell’s statements don’t answer a basic question:  if the Orchestra’s finances were in such terrible shape, why did President Henson get such substantial bonuses?  Couldn’t this sum—which, as you point out, is equal to the entire salary of one of the most highly-paid musicians in the Orchestra—be used for more productive purposes?  How many laid off staff members could have kept their jobs if the money had been used for salaries instead of one man’s extraordinary bonuses?

Conversely, if bonuses were indeed warranted, why did only the president receive them?

This “explanation” doesn’t explain anything.  There is no other way to say it—the actions of the board in this matter come off as reckless and irresponsible.

 

Xochipilli

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13 thoughts on “A Word about those Bonuses….

  1. Thank you Scott, and thank you Emily also, for bringing this travesty to light and asking the right questions. Not holding my breath for honest, self reflective answers from Henson et al.

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  2. Scott, once again, you and Emily ask cogent questions and provide much more information than we can ever get from the Star Tribune. I think that we all know why we cannot expect to get any in-depth information from the Star Tribune about the MN Orchestra. With the CEO of the Strib on the orchestra board, we will never get any real dialogue in the paper.

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  3. Is there anyone else that is suspicious that there is something suspicious going on?
    What is being done with the money that they have now?
    How could $13 million be spent when there is no orchestra? Who got the money?
    The MOA had a $14 million loss of investments, if my memory is correct, several years ago. Who got the money?
    Who got the $50 million for the renovation of the hall?
    The Star Tribune was so late in reporting this story.
    There is no action from the MOA reported since Osmo resigned.
    If there are no concerts, no tickets sales, will the MOA go bankrupt eventually? Who’s looking after the money in the mean time?
    With the New York City Opera going bankrupt because of financial mismanagement, and that story in the news about some orchestra that is missing their endowment – is there anyone else thinks that the finances should be investigated now?

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    • I suspect there is something more sinister than just overpayment to management. Why would the MOA sell investments at a loss while the music is shut down? I’d like to know who the winners were in those transactions.

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    • I think giving Henson a $200,000 bonus while he was claiming, at the same time, that orchestra finances were suddenly terrible, qualifies as “raiding the endowment.” The $13 million spent this past non-season to produce ZERO concerts at Orchestra Hall also qualifies.

      The MN Attorney General should have started an investigation months ago (not to mention MPR and the StarTribune), but the governor and mayor (both Democrats) pledged to remain “neutral” in the orchestra labor dispute, I suppose because they depend on the same corporate pooh-bahs and clownigarghs for their campaign contributions (as do MPR and the StarTribune for their advertising revenues, by the way, so no investigative journalism from either of them, either).

      But after Mitch Daniels and the Center for the American Experiment, a right-wing think tank, were hosted by Orchestra Hall recently for a lecture on union-busting, maybe the DFL (that’s the Democratic-Farmer-LABOR Party in Minnesota, just to refresh everyone’s memory) will realize they’ve been had; that the union-busting orchestra board has been using the Dems’ neutrality as cover in their attempt to destroy a great orchestra (at which effort they will fail).

      Shame on the DFL, on MPR, and the StarTribune. Shame on the MN Attorney General for standing by, silently, while this travesty was allowed to continue for months and months, with no end in sight.

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  4. @ Terry. While the statements from Governor Dayton and Mayor Rybak about pledging to “remain neutral” is certainly a spineless position designed not to offend anyone, there are some interesting political developments starting. Rep. Phyllis Khan (DFL-Minneapolis) is exploring legislation that would replace the board and place the Orchestra under community ownership. Sen. Alice Hauser (DFL-St. Paul) is looking in to whether the board violated Legacy Fund laws by scheduling Mitch Daniels to give a lecture essentially on union busting at Orchestra Hall. Former Republican Governor Arne Carlson is also involved and I’ve heard (but not actually seen) of a formal petition to State Auditor Rebecca Otto for public audit of Orchestra finances. It seems as though the wheels are turning, albeit slower than we’d like,

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  5. Thanks for the great article, Scott. And thank you, too, Emily, for bringing this all to light in the first place.

    It really should be no surprise, however, that such a bonus was awarded at a time of fiscal crisis and layoffs. This is the way such people think (e.g., bankers like Davis and Campbell): fix the financial problem by cutting jobs and salaries, and then give huge bonuses to the execs for “fixing the problem”.

    I remember once in the mid-1990s that the CEO for USWest was given an enormous bonus after a year of falling stock value and hundreds of lay-offs. The justification for the bonus given by the board was that the situation at the end of the year was not quite as bad as they had feared it would be. (“Here’s a million extra dollars for not making a worse situation than you did make.”)

    Or all the bonuses that were handed out to already highly compensated traders and execs on Wall Street after the 2008 crash and federal government bailout. The justification from those companies was that the bonus-receivers were good employees, and the employers wanted to make sure they stayed–notwithstanding that those same employees could have left, gone elsewhere and received the same huge bonuses–hardly the definition of a loyalty incentive.

    One other note: Campbell’s explanation also does not address one simple question: why was Henson given *extra* money, in addition to his high salary, for merely doing his job? When I go above and beyond in my job, I am usually told that it was what was already expected of me as part of my job. Maybe, if there is any recognition, I might be eligible for a 1% or 1.5% merit raise next year. No bonus. Certainly not a bonus that is worth more than 50% of my base salary. But as mentioned above, such bonuses are typical of the way people like those represented on the MOA board think.

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