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

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

#241

Post by koheripbal » Sat, Jul 18, 2020, 1:46 PM UTC

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…

No, you don't understand how bankruptcy works.

ALL key employees needed to keep things going through the bankruptcy process are paid more.

You are under the impression that companies love throwing money at executives, but just like regular employees, companies only pay the minimum they NEED to pay them to keep them around. Why on earth would shareholders accept throwing money away to executives???? you position isn't logical.

If they were paid less to do more, they'd just quit, and operations would grind to a halt - destroying any prospect of restructuring.

The article focuses on executives, but these pay bonuses are not limited to executives.

Also remember that Stock options given to employees vest over 4 years, which means that all non-junior employees have just lost multiple years of income (this actually hits executives the hardest who's income is mostly in the form of stock options). ... so the only way to stop people from going elsewhere is to give them proportional bonuses.

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

#242

Post by ric2b » Sat, Jul 18, 2020, 2:00 PM UTC

koheripbal wrote: post #241

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…

No, you don't understand how bankruptcy works. ALL key employees needed to keep things going through the bankruptcy process are paid more. You are under the impression that companies love throwing money at executives, but just like regular employees, companies only pay the minimum they NEED to pay them to keep them around. Why on earth would shareholders accept throwing money away to executives???? you position isn't…

> Why on earth would shareholders accept throwing money away to executives???? you position isn't logical.

Because more often than not they are friends with the board and the main shareholders.

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

#243

Post by koheripbal » Sat, Jul 18, 2020, 2:03 PM UTC

kelnos wrote: post #202

texasbigdata wrote: post #98

Earlier quoted context omitted.

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 de…

You misunderstand.

By the time the company goes bankrupt, the exec has already lost 75% of their comp for several years, since vesting schedules are four years long.

The bonuses they get at bankruptcy do not amount to that lost comp. They are only meant to convert what their expected normal comp was - ie replacing stock options with salary.

So they have still lost money - lots of it.

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

#244

Post by eat_veggies » Sat, Jul 18, 2020, 2:05 PM UTC

There are so many comments in this thread justifying this behavior.

> The last thing you want is key employees jumping ship

> Of course they do. How else do you get people to stick around on a sinking ship?

> While it looks immoral if you don't understand the mechanics, people are simply responding to incentives around bankruptcy laws

Do people really believe that the mechanics of bankruptcy laws, and the incentives to retain executives instead of workers, are just part of the natural order of the universe? That they appeared out of nowhere, align perfectly with morality, and haven't been deliberately structured this way to protect the ruling class?

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

#245

Post by koheripbal » Sat, Jul 18, 2020, 2:06 PM UTC

kelnos wrote: post #205

dehrmann wrote: post #143

Earlier quoted context omitted.

> 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.

Any worker that had stock options comp and is needed for the bankruptcy process will get similar good deals.

Who told you companies weren't about making money? That's literally the point of them.

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

#246

Post by koheripbal » Sat, Jul 18, 2020, 2:07 PM UTC

kelnos wrote: post #204

texasbigdata wrote: post #100

Earlier quoted context omitted.

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.

The fact that we have both forms of bankruptcy, and that both are used, means that some companies survive and hence jobs survive as a result.

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

#247

Post by koheripbal » Sat, Jul 18, 2020, 2:08 PM UTC

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.

So they quit and no one else wants the job, nor has the key knowledge of how those internal systems works. ....so the company needlessly dies.

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

#248

Post by koheripbal » Sat, Jul 18, 2020, 2:09 PM UTC

lend000 wrote: post #38

RockIslandLine wrote: post #36

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)." So they quit, and the company goes bankrupt on a different timeline. Why should either society or shareholders accept new bonus declarations?

If you read the whole comment, you will see we are probably in agreement. Corporate chapter 11 bankruptcy laws are too powerful, and shift too much power from creditors to shareholders, imo.

Shareholders usually get nothing in both chapter 7 or 11. The slim recovery usually goes to bond holders.

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

#249

Post by williesleg » Sat, Jul 18, 2020, 2:10 PM UTC

It's the Great China Virus Lie of 2020. Chinese bots will defend to their death.

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

#250

Post by ric2b » Sat, Jul 18, 2020, 2:12 PM UTC

JoeCortopassi wrote: post #44

Of course they do. How else do you get people to stick around on a sinking ship? You and I wouldn't stay out of some sense of altruism, why would they? Heck, tech companies have to vest stock options over 4 years because most people would take the money and run. What does everyone think happens when everybody quits because there's no reason to work there? The money is just returned to investors? Even if that's all yo…

> How else do you get people to stick around on a sinking ship?

You could get a lot of people signing up to do those jobs at the exec's old salaries, even people from inside the company that already know the business well.