Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

On eve of bankruptcy, US firms shower executives with bonuses

reuters.com

Post reply on HN
Print view View original

201–210 of 306 posts

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

#201

Post by sokoloff »

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…

Shareholders don’t pay these packages out of a sense of justice. They do it because it’s the best business option they see as available.

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

#202

Post by kelnos »

texasbigdata wrote: post #98
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…

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%)…

If's funny. Exec compensation is often equity-heavy under the belief that, since their comp is tied to company performance, they'll be incentivized to do things that make the company perform.

But then when the company fails to perform and the equity is wiped out, we've decided that the exec should get a bunch of money to compensate for the equity loss, even when that equity loss happens completely as a part of the design of the compensation structure in the first place!

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

#203

Post by sokoloff »

kirsebaer wrote: post #158
lend000 wrote: post #55

Earlier quoted context omitted.

What you're describing sounds nice but apparently the incentives don't support it (perhaps because it's better to keep the people who know all about their company than contract execs who know nothing about the company or perhaps even the industry). I agree with part of what you are saying, hence my tirade about how Chapter 11 bankruptcy laws need reform. But what bothers me is that most people just assume the executi…

So if I am a key employee in a company that is going bankrupt, I should threaten to leave and then negotiate a large retention bonus based on how much it would hurt the company to lose me during the crisis. Many people who are not part of the executive-clique would feel uncomfortable being so manipulative, especially while their colleagues are being laid off or taking pay cuts, but seems like that is just playing the…

If you’re an employee (key or not) in a company that’s encountering financial trouble (and you aren’t as financially set for life as you desire), you should absolutely understand what options you realistically have and determine if a conversation about your comp is indicated to ensure that your current company keeps your services. It doesn’t have to be a threatening conversation.

“Look, I’m trying to understand our outlook and my financial prospects, given that Google is actively recruiting people like me and it looks like all of our stock options are now worthless.”

You’re not entitled to be “paid back” for the fact that those options became worthless, but neither are you obligated to stay going forward for just the cash portion of your comp if you have clearly better [job] options elsewhere.

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

#204

Post by kelnos »

texasbigdata wrote: post #100
Spartan-S63 wrote: post #82

Earlier quoted context omitted.

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?

And how does the current system not cause huge job losses? The people who stand the most to lose when they lose their jobs still end up losing their jobs, either way.

The people who are remaining at the company after the layoffs are -- if the layoffs are done right -- the most valuable people, who would have the least trouble finding a new job if the restructuring fails.

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

#205

Post by kelnos »

dehrmann wrote: post #143
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 I'll take it a step further. Even in Chapter 7, you want to retain certain key people so debt holders can get the best return. Sale of assets and negotiating debt won't go as smoothly without those people, and the process could be tied up in bankruptcy court for years. It's a job only specific people would do well it, and it's a job no one wa…

This really just perpetuates the attitude that the only thing that matters is finance, and all the workers can just go pound sand.

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

#206

Post by sokoloff »

daniel-cussen wrote: post #65
mcrae wrote: post #59

Earlier quoted context omitted.

You’re assuming that there is a pool of hypothetical executives who are a) familiar with the industry, b) familiar with the company, c) available, and d) willing to earn an amount less than what the existing executives are offered here, and e) willing to take a very risky job that will likely end fairly shortly. I’m not an expert but it seems like these people may not exist and that keeping the existing management on…

Promote internally. That's what generally happens in the military under similar conditions. Xenophon wrote about the march of the 10,000 Greek mercenaries whose officers were murdered by the Persians, inside Persia. They elected new officers, swearing to obey their orders, and fought their way out of Persia, returning the survivors to Greece.

If you thought those internal candidates were better, why didn’t you promote them before?

Either you think they’re not, or you think that now you have evidence they are based on the fact that the current execs drove the thing to the brink. That’s a fair piece of data for a lot of cases, but I don’t think that’s the case for a lot of pandemic-shutdown-induced cases that we’re seeing now.

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

#207

Post by kelnos »

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.

That's by design, though. If you make company performance (equity) a big part of someone's compensation, and the company isn't performing (regardless of whose "fault" it is), then that person's compensation dropping is the correct outcome. Otherwise you're telling someone that their compensation depends on performance, while also telling them that your words don't matter and you're going to pay them a lot even if the company does badly.

A global pandemic is fairly unique situation to be the cause, but that's life. Why should executives get their compensation propped up when the line employees are getting laid off? It might make sense from a finance perspective, but it's complete garbage from a social equity perspective.

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

#208

Post by sokoloff »

Retric wrote: post #187
texasbigdata wrote: post #102

Earlier quoted context omitted.

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 th…

If a C level exec joins a failing company accepting stock compensation presumably they understood the risks. Having lost a bet, they could renegotiate a higher salary for future work but hardly need to be compensated for a lost bet on past work.

Exactly! They’re not being paid-back for their past losses. They’re being paid to stay on and do future work to try to salvage things.

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

#209

Post by sokoloff »

AdrianB1 wrote: post #169
texasbigdata wrote: post #102

Earlier quoted context omitted.

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 th…

As multiple people wrote: you don't need new execs to join the company, you can promote from withing directors or VPs that already know the business and have all the knowledge on how to run it. If you don't have such people in the company then it's a C level error and the company is doomed anyways.

Five months ago, those people were judged less competent to hold the top spots than the incumbents, as evidenced by the org chart at the time. What’s changed?

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

#210

Post by TheOtherHobbes »

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…

And yet 1 - those people were also there when the disaster happened.

And yet 2 - good luck getting the business back up to a reasonable operating volume with just those people.

And yet 3 - in many failures the people at that level are directly responsible for the failure.

Force majeure lightning-strike failures are very much a minority. Many businesses fail because of avoidable mistakes made by poor management. Please explain why management should be rewarded for that.

Post reply on HN