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  December 25, 2008 Issue                                       

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©2007 The Chestnut Hill Local

CHCA board cuts pay for Local’s display ad team
by JOEL HOFFMANN

The Chestnut Hill Community Association Board of Directors voted Dec. 18 to cut compensation for the Chestnut Hill Local’s two-person display advertising department by at least $36,000.

The vote ended a nearly two-hour discussion about the Local’s financial health, spurred by CHCA treasurer Mark Keintz’s assessment that the paper had “serious” budgetary problems that needed to be fixed.

Citing an audited draft copy of a joint financial statement for the Local and the CHCA, Keintz said the Local needed to take immediate action to address nearly $90,000 in debt, owed to National Penn Bank and the Chestnut Hill Community Fund. Only then, he said, could the board justify hiring a publisher to manage the paper’s financial affairs, as Local staffers have requested.

Keintz noted that the Local’s cash income was $25,000 higher in 2008 than 2007, but he said that revenue figures were misleading because of an error in the Local’s accounting software. He said that there was a difference of almost $50,000 between the Local’s software and secondary software used by the CHCA, and that difference would reduce the Local’s income substantially when taken into account.

The Local’s ad revenues were down $53,000 from last year, Keintz said, adding that the paper’s financial position would be much worse if the CHCA hadn’t stopped paying into the Local’s retirement fund.

“We’re above budget,” Keintz said, “but our budget is a low hurdle.”

Keintz said he was in a bind because the Local would be unable to borrow money if a cash flow crisis were to arise. Furthermore, Keintz said the auditors needed him to prove that the CHCA and the Local, a joint legal entity, were a “going concern for the foreseeable future.”

Local Editor Pete Mazzaccaro said the Local’s subsidies to the CHCA should be factored in — $15,000 in free advertising and $15,000 in salary contributions to CHCA employees — but Keintz denied the significance of the subsidies. He said that the Local was the problem, not the CHCA.

Joe LaPera, an auditor with St. Clair CPA Solutions in Conshohocken, confirmed that the CHCA’s revenues were misleading, though. A $40,000 gift to the Chestnut Hill Community Fund has been earmarked for CHCA employee pay for the past three years.

In the audited statement, $75,333 in CHCA revenues is listed as “management fee and shared expense.” That line, consisting of subsidies from the Local and the anonymous gift giver, accounts for almost one-third of the CHCA’s total yearly revenues. By comparison, the CHCA made only $47,130 in yearly dues.

Even so, Keintz said that the CHCA must take action at the Local.  Keintz and Rob Remus, both members of a CHCA ad hoc committee established to recommend solutions to the Local’s cash flow issues, presented a plan that they said would put the Local in a better financial position.

The most significant proposal in their plan dealt with display advertising commissions. Both Remus and Keintz have said that there is a “perverse” compensation plan in place at the Local, where display-advertising representatives earn 17.5 percent commission. Of the 20 newspapers included in their study, none offered more than 12 percent commission.

Remus, the ad hoc committee chair, did not name the newspapers the committee studied. The committee’s report consisted of a PowerPoint presentation with limited source citation.

The Local had distributed an exhaustively documented study of its own to the board before the meeting, showing that independent newspapers—weeklies especially—are more likely to survive an economic downturn than their corporate-owned peers. That study called for a 15 percent commission rate, which would have reduced the sales staff’s pay by 15 percent.

The report also suggested that the Local could earn $80,000 in new revenues from online display advertising if the paper had a dedicated Web editor to constantly update content on the Local’s Web site.

Remus and Keintz have both acknowledged the high quality of the Local’s research, but they still said it was necessary to reduce the display advertising department’s compensation to bring it “in line with the industry” and to shore up the Local’s financials.

Under the new compensation structure, proposed by the committee and approved by the board, the Local’s display-advertising sellers will receive a base salary and earn a commission based on a three-tiered rate (6.5 percent for hitting a sales goal, 8 percent for exceeding the goal by 110 percent and 5 percent when a sales goal is not met).

In related news, a new ad hoc committee was established to oversee the proposal’s implementation, including the search for a publisher. Pat Moran will chair the committee, whose members will include Dina Hitchcock, Jane Piotrowski, Mike Hickey, Keintz and Mazzaccaro.