In a memo announcing benefit cuts for non-union Star Tribune employees, publisher Chris Harte says the bankrupt paper's financial woes are accelerating.

"January's ad revenue drop was larger than any month last year," he writes. "In fact, the largest anyone can remember and probably the largest in decades. February is starting out with similar declines."

The lengthy memo announces several not-unexpected cuts and freezes. The company's 401(k) match is being suspended, and the company's money-losing pension plan frozen. A pay freeze will extend through 2009, vacation pay is being altered, and manager incentives are eliminated, except for the ad department.

Harte is seeking many of the same changes from his union workers, but those must be negotiated under the bankruptcy court's auspices. However, instead of a pay freeze, he has proposed double-digit compensation cuts for the paper's newsroom, pressmen, drivers and other blue-collar workers.

Here's the memo:

Wage and Benefit Changes for Independent Employees

By Chris Harte, Publisher

All our choices are hard ones now.

While our bankruptcy proceedings are progressing as planned, and we expect to emerge as a stronger and financially stable company, the daunting challenges to our business remain. Most troubling right now is that our revenue continues to deteriorate, as does the overall economy. January's ad revenue drop was larger than any month last year - in fact, the largest anyone can remember and probably the largest in decades. February is starting out with similar declines. The economy continues to weaken and no one knows when it will start to recover. We absolutely must keep bringing our expenses down until they are in line with our revenues.

We continue to have talks with our unions to achieve savings essential to keeping the Star Tribune viable, and we continue to look for savings not subject to union bargaining.

As you know firsthand, we have already cut deep. And, until our revenue situation starts to improve, we have no other choice. This will be a year of continuing sacrifice. I know you are working harder than ever and dealing with much uncertainty, which makes the sacrifice even more difficult.

But our situation, and what we are doing about it, is not unique to the Star Tribune. All major newspaper companies, and most other media companies, too, are having the same revenue problems we are and are taking aggressive steps to rapidly reduce expenses. We know with certainty this is not just a temporary situation. Our basic ways of doing business will have to change.

There is a widening gap between where we are and where we need to be to survive and succeed in the long run. With this in mind, we are taking the following steps, which are painful but necessary to preserve our future:

­♦ Continuing the wage freeze through 2009 for all independent employees. And we will continue to bargain with our unions to adjust wages to market levels. Payroll is far and away the largest single category of expense in our budget — well over half our costs — so we must continue finding ways to reduce payroll and benefit expense. Obviously we do not want to freeze wages any longer than we have to, but it seems clear now that all of 2009 will be very difficult.

­♦ Eliminating all incentive compensation for managers for 2009, except advertising sales managers. This means that those who participate in the Management Incentive Program (MIP) will not receive incentive payments this month (for 2008 achievements) nor will they receive incentive payments next February (for 2009 achievements). This too is a hard decision, but we are in a situation where we absolutely must save money even though this runs counter to the pay philosophy we believe in.

­♦ Temporarily suspending the company's 401(k) contributions (both match and automatic company contribution), effective March 31, 2009, with the intention of reinstating a company match as soon as the economy and our financial performance improve. As a management team, we strongly believe a 401(k) match is an important benefit that we want to preserve. We are regarding this suspension as a temporary means to conserve our cash in this difficult time and have every intention of reinstating a company match as soon as possible.

­♦ Freezing our pension plan for independents (Pension Plan O). We have not yet determined an effective date for freezing Plan O. We have made formal proposals to our unions to freeze the union plans (Plans A and G) as well and will continue to bargain with them on this issue.

"Freezing" means two basic things. One, no new entrants will be allowed into the pension plans. Two, those employees with benefits already vested and accrued will keep all the benefits they have earned up to the time the plan is frozen but would earn no additional benefits.

It is important to understand that pension plan assets are held in a separate trust fund for the exclusive benefit of plan participants, and pension plan funding is highly regulated by the government. Pension plan money cannot be used for other business purposes — only to pay pensions and plan expenses.

Our decision to implement a pension freeze stems in part from the recent decline in the stock market. Money in our pension fund is invested — some of it in stocks — and the market decline means the amount of money in the fund has declined. While our money is conservatively invested, we have nevertheless seen a significant drop in the fund. Freezing the plans limits the future growth of our pension costs.

Freezing pension plans, and placing greater emphasis on 401(k) plans as the primary retirement benefit, has been increasingly common in most industries over the last decade or two and is happening with increasing frequency now. As I said above, we strongly believe in the importance of a company 401(k) match and as soon as we are back on sound financial ground we will plan to reinstate a match.

­♦ Implementing a Paid Time Off (PTO) plan in place of the current vacation, sick and holiday time off plans. (We have not yet determined a date to implement a PTO plan and will negotiate with our unions to make this program company-wide.)

Details will be coming later, but in general under the PTO plan employees will have a pool of paid days off to be used at the employee's discretion (with appropriate management approval) to cover vacations, sick leave, holidays, funeral days and most other paid time off occasions.

Each January 1, eligible employees will be allotted an amount of paid time off, based on length of service and standard weekly hours, to be used during the upcoming calendar year. Full-time independent employees would receive an annual allotment that equals the number of vacation weeks they currently accrue per year (up to a maximum of 4 weeks), plus one week (in lieu of sick time), plus eight days (the current number of paid holidays). Part-time employees' allotment will be pro-rated, based on their standard weekly hours.

Unused PTO, unlike unused vacation under the current plan, would not carry over to the following year, except for a few days that may be carried over through the first quarter.

The company will continue to provide a short-term disability plan, but would provide no other paid time off (i.e. paid holidays, sick leave, vacation, funeral leave), except for government mandated paid time off (e.g. voting time) and jury duty supplemental pay. No additional hours will be accumulated in employees' income protection (sick) banks, but the existing sick bank hours can continue to be used to supplement short-term disability pay. Our long term disability plan (LTD) is not affected by this change.

More details will be coming as the plan is further developed.

All of these changes come after careful review and analysis of the immense challenges our company faces. I know that the news I am delivering affects you and your family personally, and I hope you realize that our choices now are highly limited. Our approach is to be totally realistic about how much we will have to cut to make up for our revenue decline plus have enough cash flow to keep our business going. Our primary problem is that the current revenue level simply will not support the current expense level, including many of the benefits that were implemented in much more prosperous times.

Our goal is to get the business healthy and growing again, and these painful steps are being taken now with that much higher goal for the future in mind. I know your dedication to the Star Tribune and all it stands for has made this company what it is. Thank you for your commitment and all you are doing in these extraordinarily difficult times. We will emerge from bankruptcy a stronger company better able to serve our readers, viewers, and advertisers.