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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

#211

Post by kelnos »

sokoloff wrote: post #197
lolc wrote: post #56

Earlier quoted context omitted.

I don't see why people who speculated on options should be be compensated for their loss. That whole argument doesn't make sense to me at all. They could have negotiated less options and more salary, if they were the risk-averse type, could they not? Or worked a job with less risk. It's just buddies taking as much as possible before they lose control. And everybody knows this. It's weird to read these invented reason…

They’re not being compensated for their loss. They’re being compensated to stay and try to fix the company going forward.

But it's done in a completely different way. In good times, the execs are paid with equity, often with triggers based on performance milestones.

But in bad times it seems to be fine to just forklift some cash into the execs' hands. Why not set targets for the company restructure and only pay the exec when those targets are met?

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

#212

Post by darkerside »

kelnos wrote: post #200
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…

> 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) That's perhaps reasonable for you, but business succession planning and disaster contingency planning is the job of the board and executive team. They made a choice to discount th…

Do you have an alternative proposal?

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

#213

Post by darkerside »

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…

Would you agree that those who do more should also get more? You are ignoring production in your ideological framing.

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

#214

Post by giarc »

hedora wrote: post #58
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…

I’ll do it for their old comp. It’s not like I’ll do any worse than they did.

Exactly. It's a really optimistic (and in my opinion terrible) view to think that the people that ran the company into bankruptcy can steer it out if only they got paid a bit more money.

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

#215

Post by sokoloff »

kelnos wrote: post #211
sokoloff wrote: post #197

Earlier quoted context omitted.

They’re not being compensated for their loss. They’re being compensated to stay and try to fix the company going forward.

But it's done in a completely different way. In good times, the execs are paid with equity, often with triggers based on performance milestones. But in bad times it seems to be fine to just forklift some cash into the execs' hands. Why not set targets for the company restructure and only pay the exec when those targets are met?

It’s a negotiation; each side can propose the terms and however they mutually agree is how business gets done.

A rational exec (or employee) will look at the offered terms and compare them against their next best option (their “best alternative to a negotiated agreement”)

A rational shareholder/board will do the same. In many cases, if the board believes the shares are dramatically undervalued because of the current pandemic, they might prefer to rent executives for cash rather than renting them for shares which are in their mind undervalued at the moment.

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

#216

Post by kelnos »

sokoloff wrote: post #203
kirsebaer wrote: post #158

Earlier quoted context omitted.

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 o…

> You’re not entitled to be “paid back” for the fact that those options became worthless

I absolutely agree with this, and this is why I think the retention bonuses paid out to executives are unethical. If you can tell your employees that they aren't entitled to a compensation fix because their options/stock are now worthless, it's a bit hypocritical to turn around and tell your board/shareholders "hey, my options and stock are now worthless, give me lots of cash or I'll leave".

Just because you may have the leverage to do something, it doesn't mean it's ethical to do so.

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

#217

Post by AdrianB1 »

sokoloff wrote: post #209
AdrianB1 wrote: post #169

Earlier quoted context omitted.

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?

Filling the top spots in most listed companies is a matter of politics and relationships, not competence. There are many companies known in the market for hiring and promoting based on criteria other than competence, for example political influence, diversity or political stance. Not everybody is FAANG hiring experts, these are exceptions in a big world.

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

#218

Post by darkerside »

mjburgess wrote: post #178
waheoo wrote: post #105

Earlier quoted context omitted.

> 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.

Sure they would. These "time of crisis" instincts are very primitive, as are most emotional reactions of this kind. To makes sense of them just imagine an extended family operating, c. 100k years ago. The idea is this: in a time of crisis (say, very low food) how immoral it would be for the father (, etc.) to take much more than the mother (etc.). And these feels very plausible. It is in the nature of a family to exp…

I think this is your point but helping spell it out. The father in this case is probably the best shot at obtaining more food for the starving family and needs energy to do so.

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

#219

Post by kelnos »

sokoloff wrote: post #206
daniel-cussen wrote: post #65

Earlier quoted context omitted.

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.

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

Bad judgment. I've seen plenty of capable people in management positions who get supplanted by outside hires installed above them. Sure, sometimes it does work out, but many many times it does not. The outside hire ends up pissing people off to the point where most of the high-performing talent (including the people who were passed over for promotion) leave, and the department goes down in flames. I've seen this happen firsthand quite a few times, and hear about it happening all the time.

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

#220

Post by darkerside »

TheOtherHobbes wrote: post #210
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…

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. Pleas…

Luck plays into business so much now than people assume. Incomplete information and unpredictable black swan events mean you're not making decisions with certainty. You make the best decision with the information you have, try not to spend more time once you get to diminishing returns, and you hope things work out. Executive talent will not ensure success, but it can raise the odds. But on the other side, a dearth of executive talent can still ensure defeat.
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