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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)." So they quit, and the company goe
by RockIslandLine 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)."
So they quit, and the company goes bankrupt on a different timeline. Why should either society or shareholders accept new bonus declarations?
- lend000 6y agoIf you read the whole comment, you will see we are probably in agreement. Corporate chapter 11 bankruptcy laws are too powerful, and shift too much power from creditors to shareholders, imo.
- Apocryphon 6y agoIt still sounds immoral even if you read the rest of the comment.
- lend000 6y agoPerhaps it would make more sense to you if the headline were phrased: "On eve of bankruptcy, US firms restore a fraction of executives' previous salaries with retention bonuses, now that their options and RSU's are worthless, which of course made up most of their salaries." But that doesn't sell clicks as well to people who already have their minds made up.
- idolaspecus 6y agoI don't know about selling clicks in general but, for me, that headline is even more compelling. Corporate executives' salaries are canonically justified by the fact that they're tied to the success of the corporation. If executives get their millions even when their corporations tank, I see a serious problem.
- invalidOrTaken 6y agoIt's an interesting failure mode I've only recently started to see clearly---before bankruptcy, shareholders are comfortable, thinking, "w/e, if the company goes bankrupt, our management gets nothing." But they fail to realize that if the company does go bankrupt, or close to it, it will be hard to find a replacement for someone with that level of knowledge of the firm. So the initial implied threat is now toothless.
- xkcd-sucks 6y agoThe "knowledge of the firm" would make sense if execs were promoted internally, but most are external hires who may not even have experience in the industry
- lolc 6y agoI don't see why people who speculated on options should be be compensated for their loss. That whole argument doesn't make sense to me at all. They could have negotiated less options and more salary, if they were the risk-averse type, could they not? Or worked a job with less risk. 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.
- sokoloff 6y agoThey’re not being compensated for their loss. They’re being compensated to stay and try to fix the company going forward.
- kelnos 6y agoBut it's done in a completely different way. In good times, the execs are paid with equity, often with triggers based on performance milestones. 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?
- sokoloff 6y agoIt’s a negotiation; each side can propose the terms and however they mutually agree is how business gets done. 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.
- lolc 6y agoSure that's what they would say. They may even believe it themselves. So in a way it can be said to be true! 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."
- klyrs 6y ago> ... now that their options and RSU's are worthless That's the ball they dropped. Yes, handing them a shiny new one out of a foundering company's budget is rather infuriating.
- deleted 6y ago[deleted]
- fredophile 6y agoWhenever I see people complain about C level exec's salaries I see one of two arguments used in favour of it. First, people will say that their compensation is tied to performance either through bonuses for milestones or stocks. Second, people will say it's compensation for risk. If you still get most of the money after running the company into bankruptcy then neither of the two applies. The only reason I can see paying out in this case is if the exec was brought on to turn the company around and this was always a known, likely outcome despite anyone's best efforts. I'd also argue that in that scenario they should have negotiated more salary instead of stocks and bonuses.
- sokoloff 6y agoIf you are a shareholder in a failing company and looking to hire a turnaround CEO, do you want them to be bleeding the company dry in high salary every month or do you want them taking a modest cash salary each month and have their economic incentive be to drive the turnaround of the equity in the company, so they get paid for saving your investment not for putting in the months?
- fredophile 6y agoI'd prefer to pay the higher salary instead of a low one followed by paying out a big bonus if they fail.
- Apocryphon 6y agoYou're still not making sense. Why would these firms want to retain executives who drove them into bankruptcy in the first place?
- lend000 6y agoThere is a long thread here now that addresses all your questions, rebuttals, and subsequent rebuttals. 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.
- Apocryphon 6y agoStructural incentives can be immoral. Remember subprime MBSes?
- lend000 6y agoThis exact point is addressed: see thread.
- Apocryphon 6y agoCan you please link it?
- kelnos 6y agoThat's by design, though. If you make company performance (equity) a big part of someone's compensation, and the company isn't performing (regardless of whose "fault" it is), then that person's compensation dropping is the correct outcome. Otherwise you're telling someone that their compensation depends on performance, while also telling them that your words don't matter and you're going to pay them a lot even if the company does badly. 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.
- koheripbal 6y agoShareholders usually get nothing in both chapter 7 or 11. The slim recovery usually goes to bond holders.
- sokoloff 6y agoShareholders should (and do) accept it because it’s what’s best for those shareholders at that moment in time.