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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

#91

Post by mostlyghostly »

xkcd-sucks wrote: post #64
lend000 wrote: post #27

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…

So they quit, and someone hungrier + lower on the ladder gets a chance to prove themselves by turning the company around, rewarded by staying in the position when it's cushy again.

That doesn't work in small organizations with no bench strength. The next person is line usually isn't qualified.

It rarely works in large ones. Especially for an abrupt transition. An effective executive, particularly on the commercial side, is a living walking Rolodex of internal and external relationships which are immediately no longer working on behalf of the company.

Worse, they may work against you. I've seen competitors come swoop up top sellers or sales leaders and have them strip mine the good accounts from the remaining customer base.

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

#92

Post by fredophile »

lend000 wrote: post #76
rectang wrote: post #73

Earlier quoted context omitted.

> Don't hate the players, hate the game. Who's going to get in the way if we try to change the rules of the game? The players, naturally. The system produces an immoral result because it is in the interest of immoral actors to keep it that way. I have no confidence whatsoever that any reforms will make it past them.

Which players are going to aggressively lobby for this? Only ones who are in the early stages of declaring bankruptcy (not the deepest pockets). Whereas creditors (big banks) probably have more sway, and would benefit from chapter 11 to be weaker. What you're saying is intellectually lazy and bordering on /r/conspiracy. You shouldn't stop identifying, understanding, and petitioning to fix the problem simply because y…

There is a very high correlation between board membership and CEO experience. Who decides CEO compensation? The board. The players are making the rules and they're choosing rules that favour themselves.

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

#93

Post by lend000 »

fredophile wrote: post #92
lend000 wrote: post #76

Earlier quoted context omitted.

Which players are going to aggressively lobby for this? Only ones who are in the early stages of declaring bankruptcy (not the deepest pockets). Whereas creditors (big banks) probably have more sway, and would benefit from chapter 11 to be weaker. What you're saying is intellectually lazy and bordering on /r/conspiracy. You shouldn't stop identifying, understanding, and petitioning to fix the problem simply because y…

There is a very high correlation between board membership and CEO experience. Who decides CEO compensation? The board. The players are making the rules and they're choosing rules that favour themselves.

[0] https://finance.yahoo.com/quote/HTZ/holders?p=HTZ

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

#94

Post by AmericanChopper »

II2II wrote: post #80
lend000 wrote: post #27

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…

> Nobody wants to try to turn around a bankrupt company at their old salary (with their old RSU's and options now worthless). Why not? These executives are paid considerably more than rank-and-file employees under normal circumstances, yet still manage to get bonuses when things turn sour. In contrast, that rank-and-file will be expected to take a pay cut, work more, or lose their livelihood. It flies in the face of…

> It flies in the face of the traditional reasons given for the high pay of executives

Without intervening regulations, there’s only ever two reasons any persons remuneration is whatever it happens to be.

1) The employer was willing to pay that amount for whatever value it is they see in that employee

2) The employee was willing to accept that amount for the job the employer offered them

All employees try to get paid as much as possible, and all employees try to pay as little as possible. A persons pay is just the equilibrium price for their labor, and determined exclusively by supply and demand.

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

#95

Post by II2II »

mostlyghostly wrote: post #89
II2II wrote: post #80

Earlier quoted context omitted.

> Nobody wants to try to turn around a bankrupt company at their old salary (with their old RSU's and options now worthless). Why not? These executives are paid considerably more than rank-and-file employees under normal circumstances, yet still manage to get bonuses when things turn sour. In contrast, that rank-and-file will be expected to take a pay cut, work more, or lose their livelihood. It flies in the face of…

I've actually helped manage a company in financial distress. Here's reality: - First, most executives have little impact on the specific event that put the firm under. (I was a senior marketing person; the building burned down. Fire safety was most assuredly NOT within my purview or even something I could ask about) - Running a business in financial distress basically sucks. Take your job and make it 10 X harder. You…

There is no denying that it takes skill and hard work to keep a business afloat in these times, or that it is stressful, or that it is easier to walk away than deal with the situation.

On the other hand, very few businesses are the product of a small subset of its people. In many businesses, such as some of the businesses mentioned in this article, it isn't a question of whether those other people can afford to send their children to college. They already knew the answer to that question: they cannot. Instead, it is a question of whether they provide their family with the bare essentials.

I am not suggesting that executives should sacrifice themselves for the benefit of the company or other employees. What I am suggesting is that it is immoral to take more when others are given less. If you disagree with that, that's fine. Consider it an ideological difference. Yet it is also important to realize that there are people who would disagree with both of us, that those who have more also have an obligation to sacrifice more in a time of crisis.

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

#96

Post by texasbigdata »

lend000 wrote: post #27

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…

This is patently false. 11s work. You know know how you can prove it? There’s less than a handful of chapter 22s (11, followed by an 11).

Fundamentally it’s better for society for capital structure participants to get wiped out, including most non-wage perpetuation liabilities than for the company to just die.

Greenspan wrote a sweeping history of American capitalism over 3 centuries (great book) and his belief was that American bankruptcy was one of the greatest contributors to long term economics growth. which is what roughly drives American average wellbeing (give or take).

Sorry but just not true.

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

#97

Post by lend000 »

rectang wrote: post #84
lend000 wrote: post #76

Earlier quoted context omitted.

Which players are going to aggressively lobby for this? Only ones who are in the early stages of declaring bankruptcy (not the deepest pockets). Whereas creditors (big banks) probably have more sway, and would benefit from chapter 11 to be weaker. What you're saying is intellectually lazy and bordering on /r/conspiracy. You shouldn't stop identifying, understanding, and petitioning to fix the problem simply because y…

> Which players are going to aggressively lobby for this? Corporate executives, of course. It is in their interest to ensure they maximize their benefit at all stages of the business life cycle. Any attack that could negatively affect executive compensation at any time will be staunchly opposed, out of principle. Their arguments we can anticipate, we have seen already in this thread: the business needs their unique t…

I think you overestimate how many executives think bankruptcy "could happen to them." It's almost as if you are mythologizing them as some omniscient, conniving villains. In any case, this is a very strange justification for doing nothing (instead of advocating to fix chapter 11).

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

#98

Post by texasbigdata »

II2II wrote: post #80
lend000 wrote: post #27

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…

> Nobody wants to try to turn around a bankrupt company at their old salary (with their old RSU's and options now worthless). Why not? These executives are paid considerably more than rank-and-file employees under normal circumstances, yet still manage to get bonuses when things turn sour. In contrast, that rank-and-file will be expected to take a pay cut, work more, or lose their livelihood. It flies in the face of…

This isn’t the right math.

Executive XYZ (say a CMO) commands $X00k in the open market. His/her comp is 25% cash / 75% equity. At bk, the existing equity holders get wiped out given the fulcrum security is lower in the capital structure.

The options the company (the debtor, in this case) to emerge (aka retain jobs via an 11 vs wind down via a 7) are: 1) - do nothing. Exec leaves. Hiring new exec costs $X00k x (1+Y%) as its MUCH harder to recruit in BK. 2)- do nothing. Exec leaves. No new CMO. Company dies. 3)- pay incumbent exec something.

So nominally it optically looks terrible. The executive above looks like he/she is double dipping PLUS they seem to be getting a wage increase when there’s a down turn, etc.

But all-in.... it’s not that sweet of a deal.

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

#99

Post by texasbigdata »

II2II wrote: post #95
mostlyghostly wrote: post #89

Earlier quoted context omitted.

I've actually helped manage a company in financial distress. Here's reality: - First, most executives have little impact on the specific event that put the firm under. (I was a senior marketing person; the building burned down. Fire safety was most assuredly NOT within my purview or even something I could ask about) - Running a business in financial distress basically sucks. Take your job and make it 10 X harder. You…

There is no denying that it takes skill and hard work to keep a business afloat in these times, or that it is stressful, or that it is easier to walk away than deal with the situation. On the other hand, very few businesses are the product of a small subset of its people. In many businesses, such as some of the businesses mentioned in this article, it isn't a question of whether those other people can afford to send…

Look at American business composition statistics. Most businesses are small. A few people totally matter.

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

#100

Post by texasbigdata »

Spartan-S63 wrote: post #82
lend000 wrote: post #27

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…

That's a good point. It would be interesting to get rid of Chapter 11 bankruptcy laws and force Chapter 7 instead. After all, it's shareholders that push companies to seek short term gains rather than long term trends, so when the company goes belly up, shareholders should be left holding that bag.

This would cause unreal job losses. Why in the world would you burn down a house just because someone bought it at too high of a price and now can’t afford the mortgage? How is that societally beneficial?
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