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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, m

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 shareholders are doing Chapter 11 and trying to turn the company around, there is nothing wrong with them voting for retention bonuses to try to keep the company rolling. The problem is that the system enables shareholders to do Chapter 11 without the debtors having a say in it, when the problem is typically debt.

thaumaturgy 6y ago
> Are you going to stick around and try to dig out the company without a retention bonus? No. You have a couple of times framed opposition to executive bonuses in these situations as "simple" and "emotional", while expressing an appreciation for "creative destruction". So, if an executive would rather leave than turn a company around while tightening their own belt -- especially given that some of these executives can be assumed to be at least partly responsible for the company's plight anyway -- then why not encourage them to leave, and open the door for a more creative, new executive? Imagine if, instead of paying extortionate sums of cash to retain the architects of their destruction, large companies created an entirely new market for c-levels that wanted to specialize in turnarounds.
- lend000 6y ago
  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 executives (who mostly aren't even responsible for their pay) are evil, without understanding how everyone acted rationally and morally under the incentives of the broken system. The fact that it's happening on such a broad scale should be a clue that the system is broken, rather than a statistically significant collection of individuals. Just to spell it out for everyone, there are a few actions happening here, highly incentivized by the system. I doubt many of the self righteous commenters here would do anything differently put in a position to make any of these decisions. 1. You are a major shareholder of a company. The company cannot pay its debts. The debts are greater than the company's assets. You have two options. Vote to file chapter 7 (liquidate to the debtors and get nothing) or file chapter 11 (get the court to forgive as much debt as possible and maybe you will get something back if the company turns itself around). Many of the major shareholders hold significant portions of their net worth in one company, or are institutions (e.g. Vanguard) which have a responsibility to do the financially prudent thing for mom and pop investors like you and me. 2. Predictably, the shareholders voted to file chapter 11. This has already happened. Given that it has happened, you want to give the company the best chance of making a recovery and returning value to shareholders. It makes sense to partially restore executive salaries with retention bonuses, so that you have leadership to keep the company afloat while restructuring. Note that most of these salaries would have been heavily impacted by the bankruptcy filing, in which options and RSU's (the majority of most exec salaries) are now nearly worthless. So you sign a retention bonus as soon as you know bankruptcy is inevitable. Don't hate the players, hate the game. As I tried to elucidate in this thread, the problem is not any immoral actors, but the power of corporate chapter 11 bankruptcy and the fact that creditors' do not get to vote on the likelihood of it being a better ROI for them. It's simpler to blame it on the evil greedy executives (which makes no sense in this case) or try to make all sorts of band-aid amendments to how you can give bonuses to executives during a bankruptcy, but that misses the core problem.
  - rectang 6y ago
    > 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.
    - lend000 6y ago
      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 you think you might get some pushback.
      - rectang 6y ago
        > 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.
        lend000 6y ago
        I think you overestimate how many executives think bankruptcy "could happen to them." It's almost as if you are mythologizing them as some omniscient, conniving villains. In any case, this is a very strange justification for doing nothing (instead of advocating to fix chapter 11).
- mcrae 6y ago
  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 may be in the shareholders’ interest.
  - daniel-cussen 6y ago
    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.
    - mcrae 6y ago
      Yes but... and I'm sorry to point out the obvious, but these executives haven't been murdered by Persians. They've just been paid a relatively trivial amount to do their jobs for a few months. And who's to stay the internally-promoted folks will demand any less payment? Anyways, sounds like you're just opposed to these payments fundamentally despite all of the rational arguments that have been elucidated in this thread in support of them.
      - R0b0t1 6y ago
        He's arguing the support is nonsensical considering the facts. That you disagree is your opinion.
    - sokoloff 6y ago
      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.
Retric 6y ago
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.
- texasbigdata 6y ago
  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 that are willing to take market comp for way above market risk for their career? Where are these self sacrificing martyrs? Would you have joined RIMM versus Apple in 2013 at the same (or likely lower) level of compensation? If no, then why would someone want to be part of a BK turnaround.
  - AdrianB1 6y ago
    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.
    - sokoloff 6y ago
      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?
      - AdrianB1 6y ago
        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.
harry8 6y ago
Remember the whole rationale for the options in the first place was so management had something at risk. So they failed, abysmally, and the company is now in chapter 11. And what they had at risk was nothing. The company probably would have had superior managment if it had /no/ bonus scheme. The incentives between owners and managers are not aligned. More to the point the owners are represented by agents (fund managers who vote etc) who deal with other agents of the owners (company managers) and the whole incentive alignment thing breaks down pretty badly. How to do it better? It's a difficult and complex problem that probably doesn't have an easy 3 sentence internet forum answer. But here's a very partial observational one: It's harder to do it worse than paying bonuses for destroying the wealth of the owners.
AngryData 6y ago
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.
AdrianB1 6y ago
> Let's say you are the COO of Hertz, making 300K salary and 1M in options I worked directly with one of these C people at Hertz in a previous job; even 300k is grossly overpaying. Good luck finding another castle of cards arrangement to get a C position anywhere.

thaumaturgy 6y ago

> Are you going to stick around and try to dig out the company without a retention bonus? No. You have a couple of times framed opposition to executive bonuses in these situations as "simple" and "emotional", while expressing an appreciation for "creative destruction". So, if an executive would rather leave than turn a company around while tightening their own belt -- especially given that some of these executives can be assumed to be at least partly responsible for the company's plight anyway -- then why not encourage them to leave, and open the door for a more creative, new executive? Imagine if, instead of paying extortionate sums of cash to retain the architects of their destruction, large companies created an entirely new market for c-levels that wanted to specialize in turnarounds.

lend000 6y ago
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 executives (who mostly aren't even responsible for their pay) are evil, without understanding how everyone acted rationally and morally under the incentives of the broken system. The fact that it's happening on such a broad scale should be a clue that the system is broken, rather than a statistically significant collection of individuals. Just to spell it out for everyone, there are a few actions happening here, highly incentivized by the system. I doubt many of the self righteous commenters here would do anything differently put in a position to make any of these decisions. 1. You are a major shareholder of a company. The company cannot pay its debts. The debts are greater than the company's assets. You have two options. Vote to file chapter 7 (liquidate to the debtors and get nothing) or file chapter 11 (get the court to forgive as much debt as possible and maybe you will get something back if the company turns itself around). Many of the major shareholders hold significant portions of their net worth in one company, or are institutions (e.g. Vanguard) which have a responsibility to do the financially prudent thing for mom and pop investors like you and me. 2. Predictably, the shareholders voted to file chapter 11. This has already happened. Given that it has happened, you want to give the company the best chance of making a recovery and returning value to shareholders. It makes sense to partially restore executive salaries with retention bonuses, so that you have leadership to keep the company afloat while restructuring. Note that most of these salaries would have been heavily impacted by the bankruptcy filing, in which options and RSU's (the majority of most exec salaries) are now nearly worthless. So you sign a retention bonus as soon as you know bankruptcy is inevitable. Don't hate the players, hate the game. As I tried to elucidate in this thread, the problem is not any immoral actors, but the power of corporate chapter 11 bankruptcy and the fact that creditors' do not get to vote on the likelihood of it being a better ROI for them. It's simpler to blame it on the evil greedy executives (which makes no sense in this case) or try to make all sorts of band-aid amendments to how you can give bonuses to executives during a bankruptcy, but that misses the core problem.
- rectang 6y ago
  > 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.
  - lend000 6y ago
    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 you think you might get some pushback.
    - rectang 6y ago
      > 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.
      - lend000 6y ago
        I think you overestimate how many executives think bankruptcy "could happen to them." It's almost as if you are mythologizing them as some omniscient, conniving villains. In any case, this is a very strange justification for doing nothing (instead of advocating to fix chapter 11).
mcrae 6y ago
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 may be in the shareholders’ interest.
- daniel-cussen 6y ago
  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.
  - mcrae 6y ago
    Yes but... and I'm sorry to point out the obvious, but these executives haven't been murdered by Persians. They've just been paid a relatively trivial amount to do their jobs for a few months. And who's to stay the internally-promoted folks will demand any less payment? Anyways, sounds like you're just opposed to these payments fundamentally despite all of the rational arguments that have been elucidated in this thread in support of them.
    - R0b0t1 6y ago
      He's arguing the support is nonsensical considering the facts. That you disagree is your opinion.
  - sokoloff 6y ago
    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.

Retric 6y ago

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.

texasbigdata 6y ago
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 that are willing to take market comp for way above market risk for their career? Where are these self sacrificing martyrs? Would you have joined RIMM versus Apple in 2013 at the same (or likely lower) level of compensation? If no, then why would someone want to be part of a BK turnaround.
- AdrianB1 6y ago
  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.
  - sokoloff 6y ago
    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?
    - AdrianB1 6y ago
      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.

harry8 6y ago

Remember the whole rationale for the options in the first place was so management had something at risk. So they failed, abysmally, and the company is now in chapter 11. And what they had at risk was nothing. The company probably would have had superior managment if it had /no/ bonus scheme. The incentives between owners and managers are not aligned. More to the point the owners are represented by agents (fund managers who vote etc) who deal with other agents of the owners (company managers) and the whole incentive alignment thing breaks down pretty badly. How to do it better? It's a difficult and complex problem that probably doesn't have an easy 3 sentence internet forum answer. But here's a very partial observational one: It's harder to do it worse than paying bonuses for destroying the wealth of the owners.

AngryData 6y ago

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.

AdrianB1 6y ago

> Let's say you are the COO of Hertz, making 300K salary and 1M in options I worked directly with one of these C people at Hertz in a previous job; even 300k is grossly overpaying. Good luck finding another castle of cards arrangement to get a C position anywhere.