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On eve of bankruptcy, US firms shower executives with bonuses

reuters.com

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Re: On eve of bankruptcy, US firms shower executives with bonuses

#21

Post by hangonhn »

adrr wrote: post #10
moltar wrote: post #3

I’m not pro this or trying to justify it. But I just had a thought. Maybe they want to retain the execs to fix the mess? I think most people would start looking for a new job as soon as they heard that the company they work for is filing for bankruptcy. What would happen to a company if all good people left?

You could argue the people responsible for the decisions that resulted in the company going bankrupt aren’t the good people.

“It is possible to commit no mistakes and still lose. That is not a weakness; that is life.” - Jean Luc Picard

I'm not saying everyone of those people in charge are in the same boat but maybe we shouldn't be too hasty in judging them without knowing the specifics.

Re: On eve of bankruptcy, US firms shower executives with bonuses

#22

Post by amiga_500 »

kaiju0 wrote: post #6
amiga_500 wrote: post #2

The execs getting the bonus know that other USA execs won't frown on this. The execs getting the bonus know regulators won't come after them. The execs getting the bonus know the media won't name and shame them. The execs getting the bonus know that nobody in their social circle will shun them. The execs getting the bonus don't even think this is wrong, as the main aim is to grab what you can when you can, and if it'…

It's completely rational. The company is going into bankruptcy. The money can be mine or someone else's. If you had a chance to get $1,000,000 or the bank takes it with no consequences what do you do?

And that is exhibit A. Ingrained into the culture.

Rational, even, when considered within an utterly flawed framework.

That's the scale of the challenge to dig yourselves out of.

Re: On eve of bankruptcy, US firms shower executives with bonuses

#23

Post by nickff »

adrr wrote: post #10
moltar wrote: post #3

I’m not pro this or trying to justify it. But I just had a thought. Maybe they want to retain the execs to fix the mess? I think most people would start looking for a new job as soon as they heard that the company they work for is filing for bankruptcy. What would happen to a company if all good people left?

You could argue the people responsible for the decisions that resulted in the company going bankrupt aren’t the good people.

Are you arguing that? If not, why are you posting that specific hypothetical argument?

I ask because I find "[y]ou could argue" to be a form of 'weasel-wording'.

Re: On eve of bankruptcy, US firms shower executives with bonuses

#24

Post by manicdee »

moltar wrote: post #3

I’m not pro this or trying to justify it. But I just had a thought. Maybe they want to retain the execs to fix the mess? I think most people would start looking for a new job as soon as they heard that the company they work for is filing for bankruptcy. What would happen to a company if all good people left?

The people you need to retain are the good ones who left because working conditions, pay, or management style were not worth it. The good people will be leaving when things start going bad, the people you are left with at the end are the ones who couldn’t find work elsewhere in the meantime.

Paying executives large bonuses is the last ditch effort of stripping value out of the company before the administrators roll in and start by clamping spending.

Re: On eve of bankruptcy, US firms shower executives with bonuses

#25

Post by amiga_500 »

moltar wrote: post #3

I’m not pro this or trying to justify it. But I just had a thought. Maybe they want to retain the execs to fix the mess? I think most people would start looking for a new job as soon as they heard that the company they work for is filing for bankruptcy. What would happen to a company if all good people left?

> Eight companies, including J.C. Penney Co Inc and Hertz Global Holdings Inc, approved bonuses as few as five days before seeking bankruptcy protection

Re: On eve of bankruptcy, US firms shower executives with bonuses

#26

Post by jmalicki »

ipnon wrote: post #11
Wowfunhappy wrote: post #5

This sort of thing ought to be grounds for a lawsuit from shareholders, or other creditors.

It's certainly unsavory. What would the legal basis for that suit be? Would it be simpler to have Congress stake a claim than to have the judiciary make a decision with a legal code that remains muted on the issue?

Bankruptcy fraud?

https://money.howstuffworks.com/personal-finance/debt-manage...

Edit: specifically fraudulent conveyance, such as discussed here: https://www.americanbar.org/groups/business_law/publications...

Re: On eve of bankruptcy, US firms shower executives with bonuses

#27

Post by lend000 »

While it looks immoral if you don't understand the mechanics, people are simply responding to incentives around bankruptcy laws. Nobody wants to try to turn around a bankrupt company at their old salary (with their old RSU's and options now worthless). The real question is, should Chapter 11's even be allowed for corporations (as opposed to Chapter 7)? Shareholders vote for these because they know that in a Chapter 7 bankruptcy, their shares will likely be worthless because the creditors are owed more than the company's assets. So it's the creditors who are getting screwed.

If you try to research companies that successfully turned around after a Chapter 11, you will be hard pressed to find major success stories, and I tend to think the world would be better off with more creative destruction. Even the ones listed here [0] did not have a pure Chapter 11 process -- some were bailed out by the government, Apple got private investment, and in the case of Marvel, the end result might have been the same if their assets were liquidated in Chapter 7 and Disney ended up picking them up.

[0] https://www.investopedia.com/articles/personal-finance/05111...

Re: On eve of bankruptcy, US firms shower executives with bonuses

#28

Post by amiga_500 »

nickff wrote: post #19
ipnon wrote: post #7

Is there any research claiming that giant executive bonuses, in this case seemingly at the expense of the company they govern, is optimal for some macroeconomic quality that benefits the society at large? Or do we allow this behavior because we believe it is immoral to prevent giant executive bonuses as a matter of principle?

There is evidence in both directions, but the data isn't great, because one of the reasons that boards offer large bonuses is to attract 'talent' to troubled or stagnant companies (which don't look great on the resume). Jim Collins (author of "Good to Great") has made the case that other factors are much more important. The other thing to keep in mind is that the 'huge' bonuses usually aren't very large from an incom…

Pay is not set by value created, it's set to outbid other companies to retain, and at a time when many executive jobs are about to go, I'd suggest the bidding is far from fierce.

This is the board voting the board gets a pay rise.

Re: On eve of bankruptcy, US firms shower executives with bonuses

#29

Post by adrr »

hangonhn wrote: post #21
adrr wrote: post #10

Earlier quoted context omitted.

You could argue the people responsible for the decisions that resulted in the company going bankrupt aren’t the good people.

“It is possible to commit no mistakes and still lose. That is not a weakness; that is life.” - Jean Luc Picard I'm not saying everyone of those people in charge are in the same boat but maybe we shouldn't be too hasty in judging them without knowing the specifics.

Most of these companies made fatal mistakes. Hertz bought compact cars as the market shifted towards SUVs. Neiman Marcus failed to build a robust e-commerce offering unlike their competitor Nordstroms. Jc penny probably wasn’t the fault of exec team as the market shifted away from malls.
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