Rich Gardner | 11.29.2012
Corporate executives should "take a haircut" when the companies they supervise go into bankruptcy.
And on precisely the same note as in my previous post, Hostess is asking their bankruptcy judge to distribute bonuses to executives on the logic that giving out $1.8 million in bonuses to just 19 executives of a bankrupt company (While discharging 18,000 workers) means they'd be able to keep those executives on the job during the year or so that it would take to properly and effectively close the company down. The argument on behalf of the executives is that "In January, Hostess filed for its second Chapter 11 bankruptcy in less than a decade, citing steep costs associated with its unionized work force" while the counter-argument is that "The company's demise came after years of management turmoil, with workers saying the company failed to invest in updating its products."
Hostess is hardly the only company to reward executives of failed firms, but
"Even as it blamed unions for the bankruptcy and the 18,500 job losses that will ensue, Hostess already gave its executives pay raises earlier this year. The salary of the company’s chief executive tripled from $750,000 to roughly $2.5 million, and at least nine other executives received pay raises ranging from $90,000 to $400,000. Those raises came just months after Hostess originally filed for bankruptcy earlier this year."
"But the union and the 5,600 Hostess workers represented by the union did not create the crisis that led the company’s incompetent managers to announce plans to shutter it.
"The BCTGM workers did not ask for more pay.
"The BCTGM workers did not ask for more benefits.
"The BCTGM workers did not ask for better pensions.
"The union and its members had a long history of working with the company to try to keep it viable. They had made wage and benefit concessions to keep the company viable. They adjusted to new technologies, new demands."
My problem with rewarding what strongly appears to be a case of vulture capitalism is that it gives corporate executives every incentive to drive their companies into the ground and loot them dry. If we make it pay for executives in charge of companies go under, what's to prevent them from making decisions that they know will harm the company, its customers and their larger community?
My proposed solution is to remove the profit motivation for corporate executives to seek the destruction of the firms they supervise. When a company goes under, every executive should be placed on seven-eigths of their usual pay and no bonuses, ever! No stock sell-offs, no financial compensation of any sort. Any stock they own should be taken back and discontinued. I don't think the employees should be automatically rewarded either, just in case it really is union demands that make the company go under, but most certainly, the owners and executives should "take a haircut" on any company that goes bankrupt.
[References are available at http://ufpj-dvn-econ.blogspot.com/2012/11/rewards-and-punishments.html]