If you try to research companies that successfully turned around after a Chapter 11, you will be hard pressed to find major success stories, and I tend to think the world would be better off with more creative destruction. Even the ones listed here [0] did not have a pure Chapter 11 process -- some were bailed out by the government, Apple got private investment, and in the case of Marvel, the end result might have been the same if their assets were liquidated in Chapter 7 and Disney ended up picking them up.

[0] https://www.investopedia.com/articles/personal-finance/05111...

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.

- 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.

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.

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 her head". We could have never rebooted the business without her.

- The last manufacturing engineer standing, who we needed in the event we could secure a new facility for operations.

- My boss, the master deal maker who knew every major retail chain on our side of the country. Our secret to rebuilding the critical mass required for survival.

- One commercial manager (there were two of us), who was tasked with re-balancing the entire business on the fly to deal with massive swings in costs and competitor activity. Our pre-fire business model was completely shot and the banks cut us off, so we needed to reorganize around the new reality and find a way to generate positive cash flow to survive.

Without those five people / groups, the game was over - there would be no recovery plan, no road back to sustainable operations. Everyone else is irrelevant, potential cost savings when we needed them. You are playing a very high stakes short term game for the humble prize of survival...

Finance's job was basically to keep the tie fighters off our back, keep the lawyers, bankers, and insurance people away from folks doing the actual work. Customer Service was there to gently wind down relationships with non-critical accounts, in the vague hopes we could come back someday. We were able to give a few people some runway on those teams, moving anyone who wasn't able to hit the street immediately onto those lists to give them a little more time.

And your key people are irreplaceable in that world. There's no way someone of equivalent expertise is walking into that mess for what you're able to pay them.

At an individual level? We had to invoke our worst endgame due to other issues (deal fell apart); four of the critical five are no longer with the company. Each of them landed with a promotion and a fairly substantial raise elsewhere, often with instructions to "go take their business back". (at that point, it was open season for those accounts; our prior employer was unable to service them) The typical job search for that level of talent is hours / days rather than weeks or months (there is a very specific set of people who will hire them immediately if given the chance) .

Any visions of nobility needs to balanced against your obligations to support your spouse and children. You're going to sacrifice your kids future for some random people they never met? Your spouse is cool with that? Get real. (Mine knew what was going to happen; I had "the talk" with her beforehand. We knew my job was going to be eliminated and I couldn't break ranks without screwing my people. But we've both done turnaround work before, so we had a plan to handle it. She's one in a million.)

So that's the shit-show you're trying to hold together.

Heck, I had a financial model sitting on my laptop to go buy one of my dying brands from the company, once it was very apparent that they weren't able to protect it. At that point, it was basically sitting by the side of the road waiting for someone to claim it...

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 productivity group and nothing happens.

Yes I agree it’s galling to see a few people compensated so highly in these situations, but as has been pointed out a) they individually most likely had little or nothing to do with bringing the problems about. b) What else are you going to do? The alternative is let the most critically essential personnel go and watch the whole organisation seize up for good.

Accepting 51.2% as an approximation to half, the problem becomes 0.008 x = sqrt(x) which gives x = 125^2 = 15,625

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 week later, when this brutal end game went into full effect.

The cost of failure for this nasty little endgame for the 50 survivors, the quest for a sustainable business? We were an older union workforce, operating in an area with young non-union shops with sketchy labor policies. Our local employees were getting offers for $12 / hour with no benefits. Or a 40%+ drop in compensation for office staff due to age discrimination.

That's the difference between retiring for a nice middle class lifestyle and eating cat food for your golden years. Fifty lives fucked up, for loyal company soldiers.

So yeah, I wanted to keep the company alive to save jobs.

I'm a high end mercenary; I had an offer within a week of formally rolling off the program and plenty of consulting work to tide me over. My only prize here was moral satisfaction.

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.

- You're trying to retain 5, not the 50.. the other 45 are objectively not-critical to the enterprise (in the sense we could eliminate or replace those roles).

- A large fraction of the 45 are basically screwed in the job market; most of them were older, had decades of very specific experience, or had worked their way up in an organization that valued effort/loyalty over credentials. Milking another decade of work in their current role has life changing consequences for these workers and their families. Many of them were primary breadwinners in a bad area, so their job was the last line of defense between a respectable lower-middle class existence and the trailer park for them and their kids.

- Current reality was not reflective of long run potential. If we could stabilize the business, not only would the 50 jobs in question be preserved but there was an opportunity to rebuild and hire back. (feel good moment: this actually occurred. The team was able to restart key areas of the facility and we rehired some manufacturing people)

Young, highly educated people have no concept of the degree of privilege they enjoy in the labor markets. That degree opens doors and you don't get tossed out the instant some hiring manager sees a little grey hair. You don't have 30 years of experience which immediately becomes the leading reason NOT to hire you for a job because someone thinks you're incapable of learning anything new.

Life basically sucks past 50...

I'm not suggesting you can, I'm suggesting it's bad to give some people the boot and others a pony in the hope of saving an abstraction. The company doesn't exist outside of the people whose livelihoods it sustains.

And in a financially constrained endgame, you have to make choices about who to keep and cut.

Cutting that senior sales executive will cost 20 other jobs due to lost business and downstream implications.

Cutting the factory worker costs zero other jobs.

The harsh reality is not everyone matters equally.

[and to be clear, I'm not talking about bullshit deals just because someone was "loyal" to the CEO. This is real talk, people who actually can deliver a path to group survival]

If you're lucky, they merely poach the stuff you cannot defend anymore. In most situations, they come after the crown jewels of the business, accounts which create the lions share of the revenue and profits which funds the business.

And then you're screwed. Shut it down, pink slips for everyone...

So when it was "your turn", you're going to get tossed in the street with NOTHING to tide you over to your next gig.

Still feel like letting your family starve for the sake of "loyalty"?

I don’t have or want a family. And it’s not about loyalty to the company it’s about the other people working under me.

I have savings so I can afford to be unemployed, but still don’t understand your hypothetical.

- If we do not keep the highly paid senior sales rep, we're going to have no customers and thus... everyone gets canned. - They are objectively better off leaving for another firm, where they don't need to worry about impending doom. So we need to provide an appropriate incentive to prevent them from breaking ranks and screwing everyone else left behind. - The humble factory worker or customer service person doesn't have that same kind of impact on the whole....

Any moral conversation ultimately becomes a discussion about why someone with objectively better and safer options should continue to work for a company that is paying them less than market. Unless everyone else is willing to work for reduced salary / benefits and promise not to quit, that's not a morally tenable position....

Personally, I'd love it if people acted for the greater good. That's not going to happen here, unless you want to restrict people from changing employers and force them to show up to work...

How about this instead? Your company is overstaffed due to a massive drop in sales. You will run out of money and will have to fire everyone including yourself in one month. Your other choice is to cut 80% of the staff immediately and your business will make enough to pay everyone’s salary who remains.

The better choice for everyone is the surviving business, and that’s the one that puts more money in your pocket. Letting people go is a business decision and it’s very often the correct one. Good business decisions lead to making more money.

But that doesn't mean it's ethical to then throw money at your executives just to keep them around. If the business is viable with the smaller market and smaller workforce, then the executives should either stick around based on the company's future prospects, or leave. If they want to leave, then perhaps executives of their caliber aren't required to run the company given its new reality. Getting them to stick around by showering them with more money just increases wage inequality.

In an environment where businesses have been operating on massive leverage for years, there's a fight brewing over who is going to get cash-flows and who will not, this obviously extends to workers who have outsized impact on whether any given business will stay open or file chapter 7/11.

If people insist on making choices that will continue to sink the ship, I don't have to go down with it.

Go ask the career restaurant workers how the year is going. Go ask the tourism guides and travel agents. Go ask their bosses how they intend to keep the doors open with an 80% decline in revenue.

Short answer: you can't.

For you, not for others.

> Get out before it springs a leak in an org like that, is my advice.

I'll be fine for a long time even if the company goes under, others may not though, I've seen it happen way too many times to not be prepared for stuff like this. And I can just accept an offer from another place rather than outright reject them.

So I see.

>I'll be fine for a long time even if the company goes under, others may not though, I've seen it happen way too many times to not be prepared for stuff like this.

Yeah, and it's their problem up until the point at which the situation is unrecoverable without you, and even then it's still mostly theirs, but I would have a lot of hangups about acting in a situation like that.

It's business, things fail. The problem is that people have come to accept that things shouldn't fail has made it so that it has built up to the point where it is today. Id call this environment Dirac-delta solvency.

This is just asking for rude awakenings. History is full of these kinds of events of where people thought things shouldn't fail, never prepared for them, and they did.

> I would have less qualms about all of this stuff with a strong social safety net, but we don't have that in the US.

No one lives in an environment where one can miss-allocate resources indefinitely or under assumptions that somethings can never change.

When I say some things shouldn’t fail, I mean our collective ability to keep each other alive and well. Whatever business of the day can go fuck itself, I don’t care.

> No one lives in an environment where one can miss-allocate resources indefinitely or under assumptions that somethings can never change.

What assumptions are you talking about? I’m talking about welfare.

Welfare takes resources, takes people agreeing on what resources are acceptable for welfare and what is not, resources people have to produce and distrubute at some cost, takes people who may be better at managing such costs or inflating them to outsized proportions… any country that has deficits growing larger and larger every year can not continue to provide welfare indefinitely without making hard decisions that not all people will be ok with.

Some people may decide to leave for countries that are willing to make those hard decisions, rather than stay in those that want to punt on it until they face an analogous dynamic that Chinua Achebe has described pretty well.

I actually liked the company I just left. I liked the people and thought that the people in management up to and including management were all good people. I am usually far more cynical.

Post Covid, they decided to give everyone a pay cut instead of laying off people. This was morally the right thing to do in my opinion. It is a small company and I didn’t feel we had any dead weight.

I knew that in my position, the company would struggle a little bit. But what was I suppose to do? Stay out of loyalty or accept an offer that was a 60% increase in total comp at a more stable company?

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.

This is true in every organization.

The canonical example is Steve Jobs.

To benefit from luck, you have to put yourself in position to get lucky, which does not happen by accident. There is all the difference in the world between good timing and dumb luck. Yes, we can all think of anecdotes where someone did buffoonishly stumble into good fortune, but insisting that this is a fair representative of all cases is the fallacy of composition.

On the other hand, half the issue with being a contractor is that we as a country decided to tie health insurance, workers comp, and unemployment insurance to the company instead of making them universal and state run like every other industrialized country on earth.

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.

This right here. If the CEO made, let's say, five times what I do - or some reasonable multiple during normal times, I wouldn't object to some retention bonus to maintain as much stability at the top as possible.

I acknowledge that 1) C-level and VP-level gigs come with responsibilities I would not want and 2) a good exec is hard to find. So I don't mind if company execs make much more than I do.

I do mind bullshit like this where they make in a year or two what I can expect to make over more than a decade, maybe even a lifetime, and then when times are hard get showered with more money while we get laid off or end up doing twice as much to cover for people laid off or hiring freezes.

Yep, being an exec of a company that's bankrupt probably sucks. Guess what? Being a average employee sucks then too. Everybody should have to suck it up, not just the run of the mill people.

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 expect sacrifce.

It is these small-scale familial impulses that ideologues often rationalise (on both left and right).

What economics as a (rough) science is meant to provide us with is a way of transcending these impulses. These microeconomic explanations should persuade us that they are being misapplied in this case, and "familial-crisis" thinking cannot plausibly apply to a buisness.

However most people cannot really critically relate to their own emotional instincts, and so often explaining the microeconomics is shouting into the wind.

for counterbalance, women burn less energy per mass on average and are less massive on average, which means they'd last longer in the search, raising the likelihood of finding food.

My assumption is men did more hunting and women gathering, and that in a starvation scenario, known gathering food sources would have been exhausted.

Sorry for any Paleolithic women I may have offended with my post!

no need to worry about paleolithic women, they were probably less fragile and better survivalists in comparison.

It is interesting how these discussions about "inequality" play out within America. I've traveled a small amount outside of the US/EU and have many close friends from poor countries and it strikes me that a real move towards equality would likely result in a step downward for nearly all Americans, even those who consider themselves poor and disadvantaged by American standards.

I'm not saying this isn't something to pursue within a country on its own merit, but some of the absolutist moralistic rhetoric used in these discussions definitely betrays living in a bubble.

"Like" in the most obtuse aspect. What about how little I pay my kids or dog? Thats not in context.

The issue is the morality within the system in place in the US (US firms, per the article title).

At the end of the day, everyone is looking out for themselves and their immediate tribes first, and everyone takes what they can get. However, society is more harmonious when the delta is not too great. The US simply also had the luxury of having a delta of two oceans and huge amounts of space.

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 the possibility of a building fire taking out the business, and that's a failure they should be accountable for. Or, worse, they didn't make a choice, and didn't even think of that risk. And yet now they're being "rewarded" with a bonus so they'll stick around to fix their mistake after it's too late?

At the end of the day you have a company full of people, and you're going to lay most of them off. Given the financial distress the company is in, they're not going to get much of a severance package, especially since you "need" to throw much of the remaining money at the executive team to keep them around. And for what, really? So a bunch of high-paid executives can pat themselves on the back that they "heroically" brought a company back from the brink? That's little comfort to the people who got laid off and struggled to find a new job before their severance ran out.

a) the risk can be neatly packaged and mitigated b) the cost of appropriately mitigating that risk wouldn't preclude running the business.

Long tail risks exist in every business, that rare event that takes the whole thing down. There are tons of them.

Each of which has a .00001% chance of happening.

The consumer brand version of this having one of your employees say some stupid shit in at bar (on video) or the summer intern like the wrong tweet, at which point a woke mob descends upon your brand with pitchforks at the ready....

There is no practical way to mitigate this. You can do the basics (don't hire assholes) but it's open season from there.

I've always thought the most thankless job in the world is running HR or PR at a massive retail company like Wal-mart or Macdonalds. You're one redneck idiot away from being on the national news (for doing or saying something most reasonable humans would never dream of) and you have literally hundreds of thousands of these people showing up for work each day.

At which point, you get the soul crushing task of getting on national television to explain the conduct of the moron in question and explain how it doesn't represent some embedded policy of the company to encourage <bad thing>. Better yet - you get do this every couple of months, since you have hundreds of thousands of these morons. Statistically, it becomes a predictable process.

More to the point, you're in a dog eat dog world, and for most of those dogs this 0.00001% chance won't happen in the lifetime of the firm. So they don't spend money on mitigating it, which gives them a competitive advantage over every dog that does spend the money.

Spend money on enough 0.00001% things, and they will grind you into the dust. Locally the way out is legislation that evens that playing field by forcing everybody to spend that money. But you can't control low cost overseas producers in that way.

Nothing is as easy as it appears.

Note-to-self: Stay away from vulture-minded execs.

Note-to-investors: Keep an eye on and go the extra mile in rooting out the vulture-minded execs in your companies, before shit hits the fan.

If their market value elsewhere and their replacement’s demand here is $X and the company’s current projected comp is $X/2, that’s only tenable for a very short time.

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.

- Working for a business in financial distress basically sucks.

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.

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.

They aren't idiots paying the CO's exorbitant amounts for fun. They do it because they have no other alternative.

The shareholders aren't the bosses, they're the audience.

Because more often than not they are friends with the board and the main shareholders.

This is business. No one is gifting people their own money because of friendship.

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.

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

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.

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.

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.

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.

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.

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.

But then when the company fails to perform and the equity is wiped out, we've decided that the exec should get a bunch of money to compensate for the equity loss, even when that equity loss happens completely as a part of the design of the compensation structure in the first place!

By the time the company goes bankrupt, the exec has already lost 75% of their comp for several years, since vesting schedules are four years long.

The bonuses they get at bankruptcy do not amount to that lost comp. They are only meant to convert what their expected normal comp was - ie replacing stock options with salary.

So they have still lost money - lots of it.

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.

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.

Oh boy... Well, at least you know how to attack straw men as well!

> It flies in the face of the traditional reasons given for the high pay of executives

The factors that influence pay include, on one side, every single characteristic an employer could potentially be looking for in an employee, how many people there are in the labor market who have those characteristics, and how much they’re willing to pay. On the other side it’s every single characteristic an employee could potentially be looking for in an employer, how many jobs are available in the market, and how much pay they’re willing to accept.

If a job pays highly, it’s not because of one single characteristic attributed to an employee, or that the characteristics of that employee have more intrinsic value, or that there’s something about that employee that just makes them more deserving of money than the janitor is. It’s simply because the demand for whatever labour it is that that employee is providing, exceeds the supply available in the market.

Talking about pay in this manner is only talking about averages in any case. Unless they work in a union shop, an employee has the ability the negotiate pay based on they value they personally provide to the organisation. There’s plenty of reasons why one person in particular may be more valuable to an organisation than any other person with equivalent skills would be.

And it's not like the house would burn down. The assets wouldn't go poof, they'd be auctioned off. The employees will lose their jobs, but then again, a competitor will be hiring because they will have more business, unless there is no market for the offered product at all. And if there's no market at all, then why would we want to spend resources to run a company serving it? An expensive real-life Company Simulator 2000?

The people who are remaining at the company after the layoffs are -- if the layoffs are done right -- the most valuable people, who would have the least trouble finding a new job if the restructuring fails.

I'll take it a step further. Even in Chapter 7, you want to retain certain key people so debt holders can get the best return. Sale of assets and negotiating debt won't go as smoothly without those people, and the process could be tied up in bankruptcy court for years.

It's a job only specific people would do well it, and it's a job no one wants, hence the high pay.

There job should be to focus on profits and pay taxes to support social programs.

It's also the only reason workers show up.

Who told you companies weren't about making money? That's literally the point of them.

So they quit, and the company goes bankrupt on a different timeline. Why should either society or shareholders accept new bonus declarations?

It's just buddies taking as much as possible before they lose control. And everybody knows this. It's weird to read these invented reasons of why they need extra compensation at this point.

But you know, we don't need to base our perception on their perception. We can look at the pattern and say: "they sure like to reward their buddies regardless of company performance."

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?

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.

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.

A global pandemic is fairly unique situation to be the cause, but that's life. Why should executives get their compensation propped up when the line employees are getting laid off? It might make sense from a finance perspective, but it's complete garbage from a social equity perspective.

That's the ball they dropped. Yes, handing them a shiny new one out of a foundering company's budget is rather infuriating.

But fundamentally, you need to realize that if something is happening in a statistically significant way (like it is here with dozens of companies doing the same thing at the same time), there is likely an explanation in structural incentives.

I doubt most of the executives see themselves as personally responsible for the financial situations of their companies, especially during an unprecedented global economic shutdown. Not because they are any different from you or me or any of these other self righteous commenters, but because they are the same.

If American culture were more like ancient samurai culture, perhaps they could commit seppuku to restore their honor. But I would prefer to restore proper incentives instead, and weaken the power of chapter 11 so this isn't a problem in the first place.

Maybe it is, but the capital structure and the operating team are separate and distinct things.

It’s also important to consider, if the bank debt can’t convert to equity via a ch11, then overall availability of capital will sharply decrease. Which in turn hurts every business around.

It rarely works in large ones. Especially for an abrupt transition. An effective executive, particularly on the commercial side, is a living walking Rolodex of internal and external relationships which are immediately no longer working on behalf of the company.

Worse, they may work against you. I've seen competitors come swoop up top sellers or sales leaders and have them strip mine the good accounts from the remaining customer base.

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.

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.

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.

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.

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.

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.

They did not have any power to grant themselves the bonuses. Keep in mind their overall compensation with the retention bonuses might still be significantly lower than their expected compensation pre-bankruptcy, due to the stock portion of their comp being near worthless now.

[0] http://ir.hertz.com/board-of-directors

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 game.

Seems like Chapter 11 is a good time for employees to join together and collectively demand increased salary (and say in executive decisions).

“Look, I’m trying to understand our outlook and my financial prospects, given that Google is actively recruiting people like me and it looks like all of our stock options are now worthless.”

You’re not entitled to be “paid back” for the fact that those options became worthless, but neither are you obligated to stay going forward for just the cash portion of your comp if you have clearly better [job] options elsewhere.

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.

If you are in the tech field, you have the “leverage” to make anywhere from twice to five or six times the average salary. Do you take advantage of it?

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.

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.

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.

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.

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.

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.

Handing out bonuses for retention is simply looting the company rather than being part of any efficient long term strategy.

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.

If you interview with us for 4 hours and get a job offer with a $12K signing bonus and a requirement that it's paid back pro-rated if you leave within 12 months, are you being paid that $12K for the 4 hours of interviewing, out of the goodness of our heart, or $1K/month for each of the next 12 months of work?

At best executives get leverage in their job search and a fallback option should their job search fail to find better options. So, it’s not even an effective means to maintain someone actually talented.

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 to sell themselves off piece by piece, and sending every employee onto the street. Let the shareholders get wiped out. But don't force the company to fold and collapse unless it's unavoidable!

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.

It’s not like I’ll do any worse than they did.

Nothing before.

Capitalism in its current form has no morals at all.

Fundamentally it’s better for society for capital structure participants to get wiped out, including most non-wage perpetuation liabilities than for the company to just die.

Greenspan wrote a sweeping history of American capitalism over 3 centuries (great book) and his belief was that American bankruptcy was one of the greatest contributors to long term economics growth. which is what roughly drives American average wellbeing (give or take).

Sorry but just not true.

[0] https://blogs.harvard.edu/bankruptcyroundtable/tag/chapter-2... [1] https://www.reuters.com/article/us-bankruptcy-repeats/compan...

To your following point, that’s not how bankruptcy works. Creditors can credit bid, creditors can hand together and push a company into involuntary bankruptcy (not common), creditors have a tremendous amount of remedies whereas shareholders do not. It would be a super long discussion really chopping this up, as to why, however look up recovery rates for different assets and/or market prices for various liquid (aka tradeable) assets after a company files for bankruptcy. You will find the higher up the capital structure the security (aka secured debt, followed by unsecured debt, followed by equity) the higher the price/recovery/expected value.

The link you sent was interesting though. Thanks for sharing.

1. https://www.uscourts.gov/statistics-reports/us-bankruptcy-co... 2. https://www.google.com/amp/s/www.sissonlawoffice.com/blog/fi...

Quote: “ Radio Shack made the news in 2017 when it filed for Chapter 22. That second Chapter 11 came only two years after it underwent a restructuring in 2015. Instead of opting to continue the business, its owner, General Wireless Operations, chose to liquidate all the remaining retail outlets.” ....seems pretty rare to me.

Does that mean if Americans are, on average, deeply unhappy and far less well off than the median, it's evidence that the capitalist system is failing? Because I have some news for you...

> The last thing you want is key employees jumping ship

> Of course they do. How else do you get people to stick around on a sinking ship?

> While it looks immoral if you don't understand the mechanics, people are simply responding to incentives around bankruptcy laws

Do people really believe that the mechanics of bankruptcy laws, and the incentives to retain executives instead of workers, are just part of the natural order of the universe? That they appeared out of nowhere, align perfectly with morality, and haven't been deliberately structured this way to protect the ruling class?

These people don't think about such things as "moral" or "common good". It doesn't matter if many other countries successfully banned these practices because in their mind it's the only way.

Neither word "ruling" nor "class" means anything in modern Western society, and neither do the two of them together. Using inaccurate and imprecise language commits two sins- fails to communicate why things are and fails to elucidate how they might be changed.

The word owner has precise meaning, as does the word creditor. This behavior is entirely about protecting the interests of owners and creditors. Sometimes people/orgs playing these roles are large and powerful but often they are not.

There is a huge literature here. The most recent best book I've read on these issues is Katarina Pistor "The Code of Capital."

Highly recommend pursuing a path to adopt more precise language on these matters. Cheers.

This same pool of money used for gratuitous bonuses could also be paying worker severance, so you justifying it as otherwise moral is exactly the GP's point.

But to explain-

In fantasy world the money going to bonuses could go to severance, but in reality that is a misuse of cash, in some cases illegal.

The owners are the only ones entitled to the cash in the business, well, after creditors are repaid. Reducing the debt owed to creditors is the function of bankruptcy.

Workers are not owners and they definitely are not creditors. Giving them severance could in fact be considered stealing.

Putting cash into keeping operations going to service debt- THAT is how the owner/creditor dynamic plays out.

And key employees- managers- without whom the business crank does not turn- they become MORE valuable. Hence, bonuses.

Is this moral? No. It isn't. I never said it was.

But the way to make it moral isn't to rant- which I didn't do- and make use of undefinable and wrong/inapplicable terms like "ruling class".

Neither "ruling" nor "class" has anything to do with these dynamics.

There are a very precisely defined set of roles and relationships here, enshrined in law, going back to tradition, for thousands of years.

The way to make it moral is to understand what an owner is, what a creditor is, how the law works, and then to define what morality means.

Does it mean that workers become creditors, that labor creates a debt? That might be one avenue to explore, from a moral universe perspective. But changes to one role will change the other roles, and what one person considers moral, others may not.

My experience is that most people who make claims of immorality do not understand ownership, a foundation principle upon which nearly all societies that have practiced philosophy and have attempted to define morality have been based on.

Forgive me but you cannot talk intelligently about morality if you do not understand ownership.

That's my point.

Cheers, best wishes.

Do you think morality is part of the natural order of the universe? It’s definitely not.

What is economically viable does depend a bit on physical law, but it also depends a great deal by the legal ecology we humans decide upon collectively.

Wikipedia would be a good starting point - https://en.wikipedia.org/wiki/Natural_law

How else do you get people to stick around on a sinking ship? You and I wouldn't stay out of some sense of altruism, why would they? Heck, tech companies have to vest stock options over 4 years because most people would take the money and run.

What does everyone think happens when everybody quits because there's no reason to work there? The money is just returned to investors? Even if that's all you did, you still need people who...

    - know where the money is
    - how to distribute it
    - how to stay compliant with the law
    - how to make sure oversight is in place so that people don't straight up embezzle
    - keep outside players away that would try and take equity

The executives set broader directions and hire people to keep the lights on.

Use the money that would have been executive bonuses for retention packages that make sure the lights stay on.

Honestly, even a juicy bonus isn’t going to keep many executives at a sinking ship unless they’re not able to find another job.

even you admit that people doing any work in a bankrupting company needs a retention package to continue working - why should the CEO (just another worker in a company) be any different? Why is their retention package somehow less important than the retention package that you proposed for the "keep the lights on" workers?

Companies going bankrupt in extraordinary market circumstances doesn't mean they were mismanaged. Only that their 6 has come up.

I agree that "well, you drew the short straw in getting a pandemic" is a fair reason to explain an executive's failure socially, but I've never known investors to be this kind and charitable. In my experience investors want to extract value right now, and they're more than happy to chuck executives away if they think someone else could do better no matter what the underlying cause was.

Secondly, while this behavior is galling in the current context, it's hardly new. The 2005 law banning executive bonuses during bankruptcy wouldn't be put in place if it wasn't already a problem. Under the general case you laid out above, investors appear happy to hand out bonuses for executives that crashed the company after rolling a 3.

Under chapter 11 though you need as few personnel changes a possible if you want to turn things around. Domain knowledge and understanding on internal company processes is key.

You could get a lot of people signing up to do those jobs at the exec's old salaries, even people from inside the company that already know the business well.

I worked for a small company that was on its last legs and had been through rounds of layoffs. Our investors wanted to keep the company afloat long enough to get someone to buy us out.

They made all of us one promise - for every hour we worked, we would get paid and on time.

They made some key employees an offer of a retention bonus to stick around for 6 months or until the company was sold. I happen to be one of those employees because I took over development of a key piece of software after the founder was kicked out. (It was an obscure proprietary system written in C++/MFC with a little bit of assembly and I was the only graybeard that knew enough to maintain it.)

The last thing you want is key employees jumping ship at the time you are trying to either save a sinking ship or at least get some type of salvage value from it.

No one wants to work at a bankrupt low-morale company, so the only way to keep key people was to offer special bonuses for retention to keep things together through the bankruptcy process

If you think about it, it's literally the only way to do it. These folks have usually lost a ton of money on their company stock options. The only way to keep them around is to pay them more in the short term.

I call BS. It's not as if there's a shortage of employees or execs to go around right now. When a company is taking its lumps, the execs should too. That should be part of the deal. If the people who actually do the work are getting laid off or asked to double their efforts to compensate for people laid off, then the execs ought to be content to ride out a period without bonuses and work to make those stocks rise in value again.

As usual, when things are good - execs see the profits, the vast majority of workers don't. When things are shit, the execs hand themselves bonuses while they cry crocodile tears about laying people off to please shareholders. Fuck them.

You expect an employee to stick around to "take the lumps" voluntarily, for LESS compensation than they would get elsewhere?

The reality is that you just don't give a shit what happens to the company or the employee, so you're happy to see the whole thing fail.

...and that's 100% your baggage - don't subject the rest of the world to your emotional problems.

> "It's not as if there's a shortage of employees or execs to go around right now" I don't think that there not being a shortage of execs would help the company significantly, since the company wouldn't have much to offer to attract experienced people, and in any case doesn't have the time to wait for the new people to ramp up.

If you’ve ever worked in management you know the ramp up period to being effective is months, not days. In bankruptcy every day matters.

Again in my case, how many “other employees” are they going to find from the outside who have built a relationship with their largest client [1], built internal relationships with other employees to get things done, know they business domain, and have two years of experience at the company to know how to maintain the codebase? If I were that valuable and hard to replace as an IC, can you imagine trying to replace the customer service managers, salespeople and CxO’s?

[1] I was valuable enough that our largest client made a deal with the company that finally did acquire us for scraps signed a special contract that allowed them to hire me as a contractor and get access to all of the source code of the company while I was contracting.

The other thing to keep in mind is that the 'huge' bonuses usually aren't very large from an income statement point of view; if you bought an extra 0.5% growth (or savings), it was easily worth it.

As to why this is allowed, I think it's seen as a private transaction between well-informed and consenting parties, so there needs to be a compelling reason for legislation and regulation.

Still a fuzzy measure, but it would at least give them better incentives.

I mean, it's not allowed. Part of what we're talking about here is that companies are getting around laws against retention bonuses during bankruptcy by granting those bonuses a week before filing the bankruptcy papers. Society has clearly decided that we don't think this behavior should be legal, but it's hard to close all the loopholes.

This is the board voting the board gets a pay rise.

In this specific case (zone of bankruptcy) there are externalities so it’s not a purely private transaction. For that matter limited liability always creates the possibility of an externality and so creates a hook for government regulation.

I think this would quickly get complicated and have many unanticipated results; you might have situations where key employees start leaving when they think the company is going down, thereby causing a complete failure.

It's hard to prove a counterfactual, but it's only worth it if said person is the only person who could achieve those results.