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> 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 pa

by II2II 6y ago

> 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 the traditional reasons given for the high pay of executives: this has nothing to do with how much value any given person contributes, since everyone is expected to contribute more while a certain population is expected to receive a smaller share; this has nothing to do with the burden of risk, since the people taking the greater risk are the ones who are paid least (in terms of employees) or are taking the brunt of the losses (in terms of investors). So yes, it is immoral.

lend000 6y ago
> 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.
- User23 6y ago
  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.
  - mirimir 6y ago
    Exactly. In other contexts, however, we'd call that a conspiracy. So why don't we here?
- gethoht 6y ago
  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.
  - deleted 6y ago
    [deleted]
- drewrv 6y ago
  It's possible to have an immoral result without any individual doing an egregiously immoral thing. In fact it seems like a lot of law and corporate structure encourages these situations. Some examples that come to mind are paying low level employees such that they need government assistance, or situations where a corporation can break a law and profit more than whatever fine they might receive. Corporations are legal and social entities. It's reasonable to consider what our laws and customs allow or encourage in an effort to nudge society towards a more just future.
  - lend000 6y ago
    > It's possible to have an immoral result without any individual doing an egregiously immoral thing. I disagree. Better terms might be structural failure or misallocation of resources. Is death by aging immoral? No, it's just the consequences of many moving parts. We should still improve the system where possible, but calling something like this immoral implies that a witch-hunt is in order.
  - AnthonyMouse 6y ago
    > Some examples that come to mind are paying low level employees such that they need government assistance In many cases the alternative to paying that amount is outsourcing or automating the job. If the job can be automated for $8/hour then you can't pay $10, or your competitors will automate for $8 and put you out of business. But you can pay $7.25. And where does this leave the employee? If they were willing to take a $7.25/hour job then presumably a higher paying job isn't available or they'd have taken it to begin with, so their alternative is unemployment, which is even more of a drain on public resources. (Recall that minimum wage was originally instituted as a racist policy to keep minorities unemployed.) Meanwhile even for the subset of employers who can just pay more without reducing their domestic labor force, wage controls are still being paid for by other citizens in one way or another, e.g. through higher prices. So then the question is not whether other citizens are to subsidize the wages of workers who can't command a living wage in the market on their own, but rather which citizens pay for it. Do you want to put the cost on low income retail customers who then have to pay more for necessities through a minimum wage, or on wealthy taxpayers through a UBI or raising the EITC? > or situations where a corporation can break a law and profit more than whatever fine they might receive. This too is sometimes a reasonable outcome. Sometimes a fine exists because it costs society some amount if you do something. Suppose there is a noise ordinance which imposes a $500 fine if you make too much noise and disturb your neighbors. A company has some equipment which doesn't make that much noise when it's operating but makes a loud racket which violates the ordinance if you hit the emergency stop. Then some idiot drops a bag of screws into the machine and the only way to stop it from destroying a million dollars in equipment is to hit the emergency stop and suffer the fine. Then they should do it and pay the fine. The neighbors might be annoyed for a minute, but not so annoyed that it isn't overcome by them having to pay $500 less in taxes on net, which is the whole idea. On the other hand, if the fine was only $5/day and as a result the company was operating a machine that continuously violated the noise ordinance 24/7, that would be a problem -- but the real problem then is that the fine is smaller than the harm, which is a failing of the government rather than the business.
mostlyghostly 6y ago
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.
- II2II 6y ago
  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 their children to college. They already knew the answer to that question: they cannot. Instead, it is a question of whether they provide their family with the bare essentials. I am not suggesting that executives should sacrifice themselves for the benefit of the company or other employees. What I am suggesting is that it is immoral to take more when others are given less. If you disagree with that, that's fine. Consider it an ideological difference. Yet it is also important to realize that there are people who would disagree with both of us, that those who have more also have an obligation to sacrifice more in a time of crisis.
AmericanChopper 6y ago
> It flies in the face of the traditional reasons given for the high pay of executives Without intervening regulations, there’s only ever two reasons any persons remuneration is whatever it happens to be. 1) The employer was willing to pay that amount for whatever value it is they see in that employee 2) The employee was willing to accept that amount for the job the employer offered them All employees try to get paid as much as possible, and all employees try to pay as little as possible. A persons pay is just the equilibrium price for their labor, and determined exclusively by supply and demand.
- brnt 6y ago
  Unless I missed your sarcasm, this post is an excellent example of how economists and pooiticians can set the rules for how many people think in decades to come. They'll really start to behave in the ways prescribed by theories of toy models if you don't tell them anything else!
  - AmericanChopper 6y ago
    Ah of course. Supply and demand must just be some tyrannical social construct, imposed upon us by an invisible oppressor. All it is is the price agreed upon by a party who wants to sell something, and another party who wants to buy it. The incentive of each party in the transaction is very obvious, and supply and demand is simply what occurs when people are allowed to choose how much they want to sell something for, and other people are allowed to choose how much they want to pay for it. Because there is no such thing as an objective measure of value, the only way you can ever measure it is via the value agreed upon by a buyer and a seller. Supply and demand are the most fundamental forces at play in any economy (even centrally planned ones). Trying to get rid of it is as feasible as it would be to try and get rid of gravity.
    - brnt 6y ago
      Ah, either perfect capitalsim, or centally planned economies, nothing in between and no shades of grey, exactly as promised in econ 101. Oh boy... Well, at least you know how to attack straw men as well!
texasbigdata 6y ago
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%) as its MUCH harder to recruit in BK. 2)- do nothing. Exec leaves. No new CMO. Company dies. 3)- pay incumbent exec something. So nominally it optically looks terrible. The executive above looks like he/she is double dipping PLUS they seem to be getting a wage increase when there’s a down turn, etc. But all-in.... it’s not that sweet of a deal.
- rm445 6y ago
  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.
koheripbal 6y ago
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.
- ric2b 6y ago
  > 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.
  - koheripbal 6y ago
    You think they give each other millions of their own dollars, out of friendship??? Does that really make sense to you? This is business. No one is gifting people their own money because of friendship.
- jzb 6y ago
  "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." Only because we have a system where every company - you know, controlled by execs, and a board made up of execs or former execs from other companies - tell this tale. We have to stop pretending C-level and VP-level people are special rare unicorns that are the only people who could possibly do this very difficult work. That's bullshit. It's a self-perpetuating club that keeps voting itself the majority of the pie and keeps telling the myth that, by golly, that's the way it has to be or they just can't keep good talent. If the majority of companies stop showering these assholes with bonuses they'll fucking stay put and be happy to have a job like the rest of us when times are hard.

by II2II 6y ago

lend000 6y ago

> 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.

User23 6y ago
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.
- mirimir 6y ago
  Exactly. In other contexts, however, we'd call that a conspiracy. So why don't we here?
gethoht 6y ago
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.
- deleted 6y ago
  [deleted]
drewrv 6y ago
It's possible to have an immoral result without any individual doing an egregiously immoral thing. In fact it seems like a lot of law and corporate structure encourages these situations. Some examples that come to mind are paying low level employees such that they need government assistance, or situations where a corporation can break a law and profit more than whatever fine they might receive. Corporations are legal and social entities. It's reasonable to consider what our laws and customs allow or encourage in an effort to nudge society towards a more just future.
- lend000 6y ago
  > It's possible to have an immoral result without any individual doing an egregiously immoral thing. I disagree. Better terms might be structural failure or misallocation of resources. Is death by aging immoral? No, it's just the consequences of many moving parts. We should still improve the system where possible, but calling something like this immoral implies that a witch-hunt is in order.
- AnthonyMouse 6y ago
  > Some examples that come to mind are paying low level employees such that they need government assistance In many cases the alternative to paying that amount is outsourcing or automating the job. If the job can be automated for $8/hour then you can't pay $10, or your competitors will automate for $8 and put you out of business. But you can pay $7.25. And where does this leave the employee? If they were willing to take a $7.25/hour job then presumably a higher paying job isn't available or they'd have taken it to begin with, so their alternative is unemployment, which is even more of a drain on public resources. (Recall that minimum wage was originally instituted as a racist policy to keep minorities unemployed.) Meanwhile even for the subset of employers who can just pay more without reducing their domestic labor force, wage controls are still being paid for by other citizens in one way or another, e.g. through higher prices. So then the question is not whether other citizens are to subsidize the wages of workers who can't command a living wage in the market on their own, but rather which citizens pay for it. Do you want to put the cost on low income retail customers who then have to pay more for necessities through a minimum wage, or on wealthy taxpayers through a UBI or raising the EITC? > or situations where a corporation can break a law and profit more than whatever fine they might receive. This too is sometimes a reasonable outcome. Sometimes a fine exists because it costs society some amount if you do something. Suppose there is a noise ordinance which imposes a $500 fine if you make too much noise and disturb your neighbors. A company has some equipment which doesn't make that much noise when it's operating but makes a loud racket which violates the ordinance if you hit the emergency stop. Then some idiot drops a bag of screws into the machine and the only way to stop it from destroying a million dollars in equipment is to hit the emergency stop and suffer the fine. Then they should do it and pay the fine. The neighbors might be annoyed for a minute, but not so annoyed that it isn't overcome by them having to pay $500 less in taxes on net, which is the whole idea. On the other hand, if the fine was only $5/day and as a result the company was operating a machine that continuously violated the noise ordinance 24/7, that would be a problem -- but the real problem then is that the fine is smaller than the harm, which is a failing of the government rather than the business.

mostlyghostly 6y ago

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.

II2II 6y ago
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 their children to college. They already knew the answer to that question: they cannot. Instead, it is a question of whether they provide their family with the bare essentials. I am not suggesting that executives should sacrifice themselves for the benefit of the company or other employees. What I am suggesting is that it is immoral to take more when others are given less. If you disagree with that, that's fine. Consider it an ideological difference. Yet it is also important to realize that there are people who would disagree with both of us, that those who have more also have an obligation to sacrifice more in a time of crisis.

AmericanChopper 6y ago

> It flies in the face of the traditional reasons given for the high pay of executives Without intervening regulations, there’s only ever two reasons any persons remuneration is whatever it happens to be. 1) The employer was willing to pay that amount for whatever value it is they see in that employee 2) The employee was willing to accept that amount for the job the employer offered them All employees try to get paid as much as possible, and all employees try to pay as little as possible. A persons pay is just the equilibrium price for their labor, and determined exclusively by supply and demand.

brnt 6y ago
Unless I missed your sarcasm, this post is an excellent example of how economists and pooiticians can set the rules for how many people think in decades to come. They'll really start to behave in the ways prescribed by theories of toy models if you don't tell them anything else!
- AmericanChopper 6y ago
  Ah of course. Supply and demand must just be some tyrannical social construct, imposed upon us by an invisible oppressor. All it is is the price agreed upon by a party who wants to sell something, and another party who wants to buy it. The incentive of each party in the transaction is very obvious, and supply and demand is simply what occurs when people are allowed to choose how much they want to sell something for, and other people are allowed to choose how much they want to pay for it. Because there is no such thing as an objective measure of value, the only way you can ever measure it is via the value agreed upon by a buyer and a seller. Supply and demand are the most fundamental forces at play in any economy (even centrally planned ones). Trying to get rid of it is as feasible as it would be to try and get rid of gravity.
  - brnt 6y ago
    Ah, either perfect capitalsim, or centally planned economies, nothing in between and no shades of grey, exactly as promised in econ 101. Oh boy... Well, at least you know how to attack straw men as well!

texasbigdata 6y ago

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%) as its MUCH harder to recruit in BK. 2)- do nothing. Exec leaves. No new CMO. Company dies. 3)- pay incumbent exec something. So nominally it optically looks terrible. The executive above looks like he/she is double dipping PLUS they seem to be getting a wage increase when there’s a down turn, etc. But all-in.... it’s not that sweet of a deal.

rm445 6y ago
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.

koheripbal 6y ago

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.

ric2b 6y ago
> 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.
- koheripbal 6y ago
  You think they give each other millions of their own dollars, out of friendship??? Does that really make sense to you? This is business. No one is gifting people their own money because of friendship.
jzb 6y ago
"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." Only because we have a system where every company - you know, controlled by execs, and a board made up of execs or former execs from other companies - tell this tale. We have to stop pretending C-level and VP-level people are special rare unicorns that are the only people who could possibly do this very difficult work. That's bullshit. It's a self-perpetuating club that keeps voting itself the majority of the pie and keeps telling the myth that, by golly, that's the way it has to be or they just can't keep good talent. If the majority of companies stop showering these assholes with bonuses they'll fucking stay put and be happy to have a job like the rest of us when times are hard.