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

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

#81

Post by lend000 » Sat, Jul 18, 2020, 2:36 AM UTC

bpodgursky wrote: post #77

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…

That's... insane. The point of chapter 11 is that the company does NOT liquidate. Most employees DO NOT LOSE THEIR JOBS. Liquidating a functioning but indebted company destroys any remaining value (there is huge value in the structure of a business -- it's not the sum of inventory and real estate). And most importantly... EVERY SINGLE EMPLOYEE LOSES THEIR JOB There is absolutely no societal value in forcing companies…

Companies generally don't file bankruptcy when they are "functioning but indebted." They file when they can't even afford to make their next (or past-due) debt payment, and no creditors will dare to lend any more to them.

Don't you think creditors should have a say in whether a company should be allowed to delete some debt and try to become profitable again? If the company is deep in debt beyond its assets, but the creditor thinks the company is a truly valuable business, then it might vote for chapter 11 under certain terms. Otherwise, you are just enabling the bad incentives described in this thread, including rewarding the failed execs with retention bonuses.

But as I mentioned in the parent, these bankruptcies do not have a high percentage of success stories, and there are many repeat offenders who take advantage of the system. Yes, people at the failed company will have to find new jobs. That is called structural unemployment, and it is a normal part of progress.

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

#82

Post by Spartan-S63 » Sat, Jul 18, 2020, 2:39 AM UTC

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…

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.

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

#83

Post by lend000 » Sat, Jul 18, 2020, 2:45 AM 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…

> 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 packages become nearly worthless. This is done to keep the company operating smoothly during restructuring.

Also, read the rest of the thread to get a better understanding of the mechanics before casting judgment. At every step of this process, the relevant decision makers made the rational and moral choice to arrive at this situation, as dictated by the US corporate bankruptcy system.

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

#84

Post by rectang » Sat, Jul 18, 2020, 2:57 AM UTC

lend000 wrote: post #76

rectang wrote: post #73

Earlier quoted context omitted.

> Don't hate the players, hate the game. Who's going to get in the way if we try to change the rules of the game? The players, naturally. The system produces an immoral result because it is in the interest of immoral actors to keep it that way. I have no confidence whatsoever that any reforms will make it past them.

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 talent and deep knowledge, they are doing the business a favor by not jumping ship, it is only just that they be compensated...

> 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 you think you might get some pushback.

I believe the more fundamental problem is mythologizing of corporate executives, and I am not afraid of pushback, such as I am receiving in this very exchange.

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

#85

Post by AngryData » Sat, Jul 18, 2020, 3:00 AM UTC

lend000 wrote: post #35

Groxx wrote: post #33

Earlier quoted context omitted.

It can be both bad and encouraged by incentives. Doesn't make it not-bad though.

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…

Seems like the COO's fault for getting so much of their wages in stock. If you don't want to take risks, you shouldn't be holding onto stock.

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

#86

Post by gethoht » Sat, Jul 18, 2020, 3:01 AM UTC

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 executives reap massive gains during both profits and losses. They literally cannot lose. Yet somehow this is moral while millions get laid off and are tasked with "pulling themselves up by their bootstraps" because capitalism...

Capitalism in its current form has no morals at all.

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

#87

Post by User23 » Sat, Jul 18, 2020, 3:03 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…

While technically the board of directors sets executive compensation, one must remember that those board members are largely executives at other companies and the executives are often board members elsewhere. So in practice it’s a circlejerk and executives do set their own compensation via implicit quid pro quo.

Also, you appear to be confusing morality with legality. Screwing over line employees up to and including looting the pension funds to pay executive bonuses is legal (see Hostess bankruptcy for an example), but it’s also immoral.

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

#88

Post by gethoht » Sat, Jul 18, 2020, 3:03 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…

They don't set their own pay. It's set by board members that are probably executives in other companies.

The C level engineered an entire system where it's impossible for them to lose.

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

#89

Post by mostlyghostly » Sat, Jul 18, 2020, 3:05 AM 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…

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're basically running a startup, except your credit is officially shot, your employees know layoffs are coming, your competitors and customers know you're vulnerable, and key personnel with families are saying to hell with this, I want to be sure my kid is going to college (and bailing out).

- I'll go one better, speaking from experience. Most key executives can take part of the business with them. So when they leave, part of what little is left of the company leaves with them (customers, technology, capabilities). What are you going to do, sue? bwahahah. Good luck, your lawyers are already swamped...

- Most executives are actually reasonable talented people. They have value on the open market. Often significant and freed of any golden handcuffs they once wore.

- Oh yeah... there is a high probability of failure or other drastic changes. So promises are worthless. Our leadership structure changed three times in five months. You have no guarantees that the person who made a promise will be in a position to honor it (or even be around). Turnarounds are a cash-only game.

So unless you like working for free - in hell... the current system is the only way to get decent talent to stay.

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

#90

Post by fredophile » Sat, Jul 18, 2020, 3:09 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.

Whenever I see people complain about C level exec's salaries I see one of two arguments used in favour of it. First, people will say that their compensation is tied to performance either through bonuses for milestones or stocks. Second, people will say it's compensation for risk. If you still get most of the money after running the company into bankruptcy then neither of the two applies.

The only reason I can see paying out in this case is if the exec was brought on to turn the company around and this was always a known, likely outcome despite anyone's best efforts. I'd also argue that in that scenario they should have negotiated more salary instead of stocks and bonuses.