On eve of bankruptcy, US firms shower executives with bonuses • Hacker News Board

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

#101

Post by texasbigdata » Sat, Jul 18, 2020, 3:56 AM UTC

lend000 wrote: post #69

xkcd-sucks wrote: post #64

Earlier quoted context omitted.

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.

>So they quit I doubt most of the executives see themselves as personally responsible for the financial situations of their companies, especially during an unprecedented global economic shutdown. Not because they are any different from you or me or any of these other self righteous commenters, but because they are the same. If American culture were more like ancient samurai culture, perhaps they could commit seppuku…

Look at the Bain 2020 annual “private equity” report. Back of the envelope math, at 10x purchase price and 7x leverage, 10 to 15% of revenue goes to debt coverage costs and a 5% revenue decline triggers the bank covenants and causes a technical default. It’s the executives fault that happened?

Maybe it is, but the capital structure and the operating team are separate and distinct things.

It’s also important to consider, if the bank debt can’t convert to equity via a ch11, then overall availability of capital will sharply decrease. Which in turn hurts every business around.

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

#102

Post by texasbigdata » Sat, Jul 18, 2020, 4:00 AM UTC

Retric wrote: post #49

lend000 wrote: post #35

Earlier quoted context omitted.

Not in this case. That is the oversimplified emotional response you see in the comments, but it doesn't jive with reality. Let's say you are the COO of Hertz, making 300K salary and 1M in options. The shareholders vote for Chapter 11 and those options are now effectively worthless, so your income decreased by ~70%. Are you going to stick around and try to dig out the company without a retention bonus? Given that the…

When executive leadership has utterly failed, it’s probably better to replace them. The fact that their “1M” in options is worthless is a net positive as it lets the company drop dead weight and save money. Handing out bonuses for retention is simply looting the company rather than being part of any efficient long term strategy.

So hertz, which was leveraged with a decision maybe (maybe!)outside and preceding the CEOs tenure, in a low margin industry, should shoot the (maybe good, maybe bad) CEO just because?

Would you join a company in a 363 process without even knowing who the new owner would be, or if you could compete on emergence, or if you could emerge in a commercially viable way? Where are these amazing industry turning executives that are willing to take market comp for way above market risk for their career? Where are these self sacrificing martyrs?

Would you have joined RIMM versus Apple in 2013 at the same (or likely lower) level of compensation? If no, then why would someone want to be part of a BK turnaround.

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

#103

Post by texasbigdata » Sat, Jul 18, 2020, 4:02 AM UTC

dboreham wrote: post #52

Hmm. Under US bankruptcy code any payment made in the 90 days prior to filing is subject to being undone by the court (you have to pay the money back). Perhaps this rule doesn't apply to employee bonuses??

There is a look back cause for executive compensation. And it claws back. To make it worse, it’s also very reputationally damaging to have your name dragged through the mud for a payment like that. So not best practices to do something like that by experienced management.

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

#104

Post by lend000 » Sat, Jul 18, 2020, 4:08 AM UTC

texasbigdata wrote: post #96

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 t…

You'll need a source for your aggressive claims -- these suggest that chapter 11 recidivism isn't that rare ("less than a handful" is patently false) [0][1]. And I wouldn't go so far as to abolish it, but to give debtors a stronger vote in the proceedings. Right now, the balance of power strongly favors shareholders, socializing the losses amongst creditors and prolonging the demise of companies that have no future (e.g. JC Penney).

[0] https://blogs.harvard.edu/bankruptcyroundtable/tag/chapter-2... [1] https://www.reuters.com/article/us-bankruptcy-repeats/compan...

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

#105

Post by waheoo » Sat, Jul 18, 2020, 4:14 AM UTC

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…

> What I am suggesting is that it is immoral to take more when others are given less.

You mean like how America takes more than the rest of the world?

I think the underlying problem here is that executive salaries and bonuses are at too higher multiples. Much higher than historical norms.

Not many would complain about an exec getting a bonus during this time if it was actually reasonable in the first place.

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

#106

Post by mostlyghostly » Sat, Jul 18, 2020, 4:19 AM UTC

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…

"very few businesses are the product of a small subset of its people"

Hate to break it to you but that is EXACTLY what is going on here. Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building. Real world examples:

- Two sales people who knew every high profit customer in our local market, which was the core of our turnaround plan

- My product engineer, with "the specs in her head". We could have never rebooted the business without her.

- The last manufacturing engineer standing, who we needed in the event we could secure a new facility for operations.

- My boss, the master deal maker who knew every major retail chain on our side of the country. Our secret to rebuilding the critical mass required for survival.

- One commercial manager (there were two of us), who was tasked with re-balancing the entire business on the fly to deal with massive swings in costs and competitor activity. Our pre-fire business model was completely shot and the banks cut us off, so we needed to reorganize around the new reality and find a way to generate positive cash flow to survive.

Without those five people / groups, the game was over - there would be no recovery plan, no road back to sustainable operations. Everyone else is irrelevant, potential cost savings when we needed them. You are playing a very high stakes short term game for the humble prize of survival...

Finance's job was basically to keep the tie fighters off our back, keep the lawyers, bankers, and insurance people away from folks doing the actual work. Customer Service was there to gently wind down relationships with non-critical accounts, in the vague hopes we could come back someday. We were able to give a few people some runway on those teams, moving anyone who wasn't able to hit the street immediately onto those lists to give them a little more time.

And your key people are irreplaceable in that world. There's no way someone of equivalent expertise is walking into that mess for what you're able to pay them.

At an individual level? We had to invoke our worst endgame due to other issues (deal fell apart); four of the critical five are no longer with the company. Each of them landed with a promotion and a fairly substantial raise elsewhere, often with instructions to "go take their business back". (at that point, it was open season for those accounts; our prior employer was unable to service them) The typical job search for that level of talent is hours / days rather than weeks or months (there is a very specific set of people who will hire them immediately if given the chance) .

Any visions of nobility needs to balanced against your obligations to support your spouse and children. You're going to sacrifice your kids future for some random people they never met? Your spouse is cool with that? Get real. (Mine knew what was going to happen; I had "the talk" with her beforehand. We knew my job was going to be eliminated and I couldn't break ranks without screwing my people. But we've both done turnaround work before, so we had a plan to handle it. She's one in a million.)

So that's the shit-show you're trying to hold together.

Heck, I had a financial model sitting on my laptop to go buy one of my dying brands from the company, once it was very apparent that they weren't able to protect it. At that point, it was basically sitting by the side of the road waiting for someone to claim it...

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

#107

Post by Apocryphon » Sat, Jul 18, 2020, 4:28 AM UTC

lend000 wrote: post #47

Apocryphon wrote: post #42

Earlier quoted context omitted.

It still sounds immoral even if you read the rest of the comment.

Perhaps it would make more sense to you if the headline were phrased: "On eve of bankruptcy, US firms restore a fraction of executives' previous salaries with retention bonuses, now that their options and RSU's are worthless, which of course made up most of their salaries." But that doesn't sell clicks as well to people who already have their minds made up.

You're still not making sense. Why would these firms want to retain executives who drove them into bankruptcy in the first place?

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

#108

Post by jolux » Sat, Jul 18, 2020, 4:29 AM UTC

mostlyghostly wrote: post #106

II2II wrote: post #95

Earlier quoted context omitted.

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…

"very few businesses are the product of a small subset of its people" Hate to break it to you but that is EXACTLY what is going on here. Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building. Real world examples: - Two sales people who knew every high profit customer in our local market, which was the core of our turnaround plan - My product engineer, with "the specs in he…

I mean yeah but at this point you are basically admitting that keeping the company alive is more important to you than treating your employees equitably. Entirely possible for others to disagree with that stance, though your position does make sense if you take it.

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

#109

Post by drewrv » Sat, Jul 18, 2020, 4:31 AM UTC

lend000 wrote: post #83

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…

> So yes, it is immoral. Who did the immoral thing here? The executives don't set their own pay, and didn't necessarily ask for a bonus. What, you would decline the bonus and step down to restore your honor in their position? Doubtful. Meanwhile, the shareholders are giving bonuses which likely result in lower overall comps for these executives, after taking into account that the RSU's and options in their comp packa…

It's possible to have an immoral result without any individual doing an egregiously immoral thing. In fact it seems like a lot of law and corporate structure encourages these situations. Some examples that come to mind are paying low level employees such that they need government assistance, or situations where a corporation can break a law and profit more than whatever fine they might receive.

Corporations are legal and social entities. It's reasonable to consider what our laws and customs allow or encourage in an effort to nudge society towards a more just future.

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

#110

Post by ajzinsbwbs » Sat, Jul 18, 2020, 4:36 AM UTC

jolux wrote: post #108

mostlyghostly wrote: post #106

Earlier quoted context omitted.

"very few businesses are the product of a small subset of its people" Hate to break it to you but that is EXACTLY what is going on here. Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building. Real world examples: - Two sales people who knew every high profit customer in our local market, which was the core of our turnaround plan - My product engineer, with "the specs in he…

I mean yeah but at this point you are basically admitting that keeping the company alive is more important to you than treating your employees equitably. Entirely possible for others to disagree with that stance, though your position does make sense if you take it.

I don’t understand what you are proposing as an alternative. If the company dies who is going to take care of the employees? Lay off everyone because it would be wrong to only save some? If everyone makes that noble choice all we get to show for it is a depression.