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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

#181

Post by HPsquared »

simonh wrote: post #173
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…

This is the Pareto Principle at work. 20% of the people involved in an enterprise produce 80% of the value. It’s not that you don’t need the other 80% of the people, it’s that it doesn’t matter who they are. If you remove the people in the high productivity group and replace them with people from the low productivity type then the organisation loses (roughly) 80% of its productivity. Replace people in the low product…

There's also Price's Law: half the value is produced by the square root of the number of people.

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

#182

Post by HPsquared »

AsyncAwait wrote: post #164
WalterBright wrote: post #135

Earlier quoted context omitted.

> Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building. This is true in every organization. The canonical example is Steve Jobs.

So it's not NeXT engineers is it?

Price's Law applies all the way down. It's a small portion of the engineers.

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

#183

Post by monadic2 »

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…

Lots of immorality is individually incentivized and legal. This doesn’t make it moral. I’m just confused why you bring it up when you’re clearly making a material argument for political change—of course this is immoral! That should be the impetus for the change.

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

#184

Post by stunt »

I think many executives simply have good and secure contracts in first place. I'm not surprised if they have clauses to cover bankruptcy scenarios.

In some cases it's also wilt of a few executives, who try to onboard other executives so they don't stand out as the greedy guy.

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

#185

Post by rm445 »

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…

Complete tangent to your interesting post, but in companies that build a good safety culture, fire safety is within everyone's purview and something anyone can ask about. In the organisation I work at, the marketing manager could totally raise safety issues.

It's surprising until you start to think about it, at a certain size, many companies are very much at existential risk from a building fire.

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

#186

Post by _v7gu »

HPsquared wrote: post #181
simonh wrote: post #173

Earlier quoted context omitted.

This is the Pareto Principle at work. 20% of the people involved in an enterprise produce 80% of the value. It’s not that you don’t need the other 80% of the people, it’s that it doesn’t matter who they are. If you remove the people in the high productivity group and replace them with people from the low productivity type then the organisation loses (roughly) 80% of its productivity. Replace people in the low product…

There's also Price's Law: half the value is produced by the square root of the number of people.

If you have a calculator on hand, could you post the n such that these two rules are equivalent? It’s wrinkling my brain.

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

#187

Post by Retric »

texasbigdata wrote: post #102
Retric wrote: post #49

Earlier quoted context omitted.

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 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.

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

#188

Post by rm445 »

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%)…

I'd like to describe, without advocating, an alternative model, not claiming it's better than the 'exec pay is at the market value' model but maybe worth thinking about. Even though it's clearly wrong in lots of ways, I think under the surface it drives a lot of people's thinking.

You might call-it a lottery-winner model. If you took the view that company executives are jumped-up middle managers who find themselves in a position to screw the shareholders and other employees and drive their compensation into the stratosphere, then a given exec is like a lottery-winner, and not necessarily possessing employable skills that translate on the open market. Their pay would be structured something like {10% more than the layer below them, for the added senior responsibility} + {enormous multiples more, because they're in a position to take it}.

Of course, skilled executives can and do find other similarly-well-paid positions. But this model works on the thinking of observers, and other people in the distressed organisation, in two ways. (1) Thinking of a company in distress as no longer being able to fund lottery-winners. (2) Thinking that such jobs could be filled on promoted-middle-manager sort of pay. As in, why wouldn't the financial controller take on the CFO role for a 10% or 20% (or 100%) pay rise? Why wouldn't an operations manager become CEO for 10% or 20% or 100% more?

My take on this is that (1) is false, executive compensation is a small part of company finances and would particularly be small beans compared to the impact of turning a distressed company around. And (2) is... somewhat based in truth? I do think that growth in executive pay is in some sense wrestling value away that belongs to the owners of the capital. But shareholders and boards of companies in distress will always be looking for a miracle, it's a lousy time to be seen as settling for second-best or dealing with people at the top jumping ship.

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

#189

Post by kelnos »

mostlyghostly wrote: post #116
jolux wrote: post #108

Earlier quoted context omitted.

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.

Eh, you're not getting just how deep in the shit we were. Sometimes you can't give everyone a pony. There simply wasn't any money. That's the essence of running in financial distress. No banks, no loans, insurance support payments got swiped by other people we owed money to... You're running on the cash in the till. We started with 500 jobs, most of which were union gigs with benefits. About 50 were still with us a w…

I think part of the question is: why try so hard to save the company at all? If 90% of the people working there ends up out on the street anyway, what's so special about the company itself that warrants showering money on the remaining 10% to try to keep it afloat? Why not let it fail, and those 50 people -- if they really are so high-performing -- will quickly find jobs with other firms. Some of them might even opt to start a new business instead of finding a new gig, taking with them knowledge and potential customers.

Instead of using the last of the money to keep the 10% around on a hail-mary, spread that money around to 100% of the company so their crash landing is a little softer.

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

#190

Post by kelnos »

ajzinsbwbs wrote: post #110
jolux wrote: post #108

Earlier quoted context omitted.

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.

Take care of who? From the parent's tale, it sounds like 90% of the company got laid off anyway. They didn't get taken care of. Even if they did get some kind of severance package, they could have gotten more if the executives weren't paid retention bonuses and the company was just allowed to fail.

The bottom line is that most of the people who got hurt by a company's decline get zero say in how things go during that period, and obviously the people with the power are going to try to save the thing that signs their paychecks, even at the expense of the replaceable workers.

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