Last Friday a judge approved a request from bankrupt Hostess to spend $6.2 million on employee bonuses to motivate its remaining workers to wrap things up as well as possible. $4.36 million goes to the remaining 3,200 non-executive employees. That's $1360 per worker.
Another $1.8 million goes to the 19 executives who drove the Twinkie maker into the ground. That's $94,700 per exec.
I invite my economist friends to comment on the ability of corporations to direct money toward those who add the most value to the company.
Tavis Smiley interviewed a professor/author who believes bonuses for incompetence cause all kinds of problems. Giving the impression of strength, but really indicating the actual fragility of the system. He uses too many analogies, but suggests that an economy and government system that protects the influential failures and the too-big to fails is actually the opposite of Anti-Fragile. Anti-Fragile is the book title, but is his concept of systems where failure is possible and which then generates improvement. The appearance of strength and stability may be the opposite of anti-fragile.
His analogy of a man who spends 10 years in bed in apparent stability and a similar man who works everyday and is tested everyday is one of his ways to explain the difference between anti-fragility and stability.
I am not all convinced that all the prof's ideas are wonderful, but they do cause one to test some assumptions. A link below may provide a bit more information at some point. I could not find a transcript.
http://www.pbs.org/wnet/tavissmiley/interviews/nassim-nicolas-taleb/
"I invite my economist friends to comment on the ability of corporations to direct money toward those who add the most value to the company."
The only value left in that company is the execs and the assets/recipes they have. I wouldn't have given any of the employees bonuses until the pensions were fulfilled. If I knew 1.4 million would help fulfill those pensions even more, I'd pay it in a heartbeat.
I'm not an economist, but many of us have had first hand experience with the kind of people who turn into vulture executives like the Hostess executives. These executives see nothing wrong with their behavior because they've been rewarded going up the hierarchy for similar pathologic behavior.
Proto-vultures inhabit most corporate hierarchies at levels far below the executive level. These are people who take pleasure in carrying out the stupid directives that come down from on high. These creeps get rewarded with promotions.
Most corporate executives and the lower down flunkies could be murdered at their desks and left to rot there for years, and the productive work of the business would get done just fine. Essentially these corporate executives and flunkies are excess baggage, and ought to be the first ones thrown out the window. Instead they inflict their pathology on the workers, and suck the "life" out of the business.
There is something about the hierarchic business model that encourages pathologic behavior at every level. The executives have just risen to a higher level of corporate pathology.
Donald, I tend to agree with you. But how can we solve this problem? How can we change the business model into something that would discourage pathologic behavior at every level?
Maybe all of us on this blog can combine our intellectual powers and figure it out, or at least come up with a theory.
It's not only corporations, is it? Aren't most, if not all, hierarchies like that?
DB, please explain how the executives of this failed venture have value. It seems that they were the ones that took on unmanageable debt, deferred equipment maintenance, bad acquisitions etc.
You bring up the pensions, but those were also contracts that they signed in full faith and agreement for lowering wages and benefits.
Am I misinterpreting you on this one?
Jana's on the right track there. The employees contributed enormous value. They accepted wage cuts and agreed to keep contributing value in return for the prospect of returning the company to success and receiving a decent pension. The employees already added value but haven't been fully compensated for it. Shouldn't such uncompensated value also figure in the equation?
Unfortunately, the equity is in the brand. Much as I am loathe to admit it, DB is probably right. It's one of the marketing things that doesn't make sense but is what it is. And yeah it works in politics too.
Bill is right that the brand has value, the question in my mind is does it have more value now or when it was a solvent company.
Papa John's brand value has plummeted after the owner decided to play politics at the expense of his employees that do his heavy lifting...now if a new owner/CEO were to takeover that did the right thing...I believe the brand would go up.
The Hostess company's current executives, by their mismanagement and current greed, are a liability to the brand.
What's sad is that paying a living wage and benefits to workers is seen as a liability to a brand...at least in the eyes of the vulture capitalists. Sadder yet is that the vulture capitalist operate so deep in the bowels of greed that no one even knows what their brand is.
As far as politics goes, Sarah Palin made a lot of money after the 2008 election...but I see her brand tanking. I'll let the Republicans out there tell us where they think Mitt Romney's brand stands right now.
Of course, Jimmy Carter and Bill Clinton's brands have gone up. Not sure if GW Bush has a brand anymore thanks to his mismanagement.
On the other hand the guy that ran the Republican Senate Committee, who snatched a near certain Senate majority from the jaws of victory to a bitter defeat, was just promoted. Go figure.
Heck, look at South Dakota politics. I believe the Tea Party brand was probably pretty strong in 2010 until it's current executives (Gordie, Ed, Lora et. al.) mismanaged that brand to the point of almost having a negative value. While Stace Nelson has probably added to his value by doing the right thing with his fight against the large milk producer.
This has been a decades long process of taking value out of the company, failing to innovate, losing market share, and blaming and taking away from the workers while rewarding the vulture capitalists at the top for their failure to respond to markets. The recipes were hardly an asset. They were actually a liability because the market changed to healthier snack products and Hostess kept pumping out their standard recipe crap with long shelf lives. Other companies started eating Hostess alive with innovative, "healthier" products. Decades of lost market share, and the a long line of well-compensated execs still got bonuses, not for putting out products that anyone would eat, but for screwing the workers. Moms had stopped feeding this crap to their kids, so the only people buying this stuff were fat ass truckers. Not enough of them to matter. Now, of course, people want to buy Twinkies, etc., but that will last to the next bowel movement. If the company could have been sold to the workers, they would have saved it by innovating.
Bill's statement does remind me of what Hunter S. Thompson said about the TV business. Maybe we can apply it to the current day vulture capitalists...and politics...except for the 'huge brains' part.
"The business is uglier than most things. It is normally perceived as some kind of cruel and shallow money trench through the heart of the industry, a long plastic hallway where thieves and pimps run free and good men die like dogs, for no good reason. Which is more or less true. For the most part, they are dirty little animals with huge brains and no pulse."
A couple points:
They get nothing if they don't meet the benchmarks set out by the judge that maximizes the value of the liquidation. This is a key point because done the right way can add tremendous value.
Hostess went bankrupt in 2009 and many execs bailed including the CEO (new one came on in march) and cut the top salaries to $1 can hardly be blamed for plundering the company
The company has to satisfy nearly $1 billion in debt before pensions can be talked about which helps laid off workers.
If the current execs bailed do you think people are going to waltz in and take a company through a successful bankruptcy and liquidation out of charity?
Interesting Ryan. Everybody's paycheck is riding on whether or not someone will gamble that there are a few more billion bucks to be squeezed out of Twinkies. Gonna take some good pitchmen, no doubt.
It is a relief that the bonuses are contingent on producing results. Hostess should have adopted that strategy with its executives before it got into bankruptcy.
Better yet, maybe the judge should order the execs to do their work from a room in a shuttered factory, surrounded by union workers who will feed them nothing but bologna sandwiches and Twinkies until they've successfully finished their work. The bonus will be getting to leave and eat decent food.
As Bill says, there's not much value left in the company. But Donald gets me thinking that this situation seems the logical conclusion of the current short-term corporate mindset. When they talk about adding value, they talk about increasing profits for shareholders. The corporate concept of value gets divorced from the idea of producing a product of value. I guess the market corrects itself: produce crap, and eventually, you lose profits. These execs should have been focusing on producing real, tangible, edible value in the first place. Then we wouldn't be in the somewhat absurd position of rewarding execs for dismantling the company the wrecked.
Oh, how I wish you were right guys, but you're not. Look at McDonalds and Coca Cola. Feeding poor quality, non-nutritious food to the masses is the rule, not the exception. And both of those brands are worth far more than the sum total of every tangible asset they have. He who controls the golden arches controls the world crummy hamburger market. He who may write the word "coke" on carbonated sugar water shall have wealth in abundance.
Think of it.
Ridiculous.
If you wrote a sci-fi novel about it, and changed the brand names, no one would believe you.
So what did Hostess lack that McDonald's and Coca-Cola do not? In-store playgrounds? Happy Meals? Better ads impressing the iconography deeper into our sense of universal American identity?
"DB, please explain how the executives of this failed venture have value."
Unfortunately, they are the only employees left with a job to do. If they have to incentivize them to do their best knowing that they won't have a job when they are done, than it is a necessary evil. Never said I agree with it, but I'm sure those with pensions don't want to see it sold pennies on the dollar to the first offer because the execs want to move on to jobs that have a future. That's just human nature and it's not isolated to corp execs.
"In the biz" Cory, brand managers sometimes call MBAs "Murderers of Brand Assets."
The Twinkie brand will endure in spite of what its supposed guardians did to run it into the ground because its been hijacked by the consumer. It's not unlike what happened to Coke when they tried to change their recipe. Coke lovers wouldn't stand for it.
Think Michael Jackson owning all the Beatles music.
Hostess's loss will be Little Debbie's (or whoever buys the Twinkie) gain. That's brand marketing and stuardship in a nutshell (or perhaps a cellophane wrapper?)
Closer to home, there are similar stories (and corresponding opportunities) ripe for exploitation. Two that come immediately to mind are in the Black Hills Gold and the News broadcasting and catagories. I won't mention any brand names, but there is no doubt a fortune to be made for some astute brand manager/investor.
Ah, if only I were born a ruthless capitalist vulture instead of a progressive liberal.
I could be rich, I tell ya, rich by god. LOL
Cory,
I don't think a diet Twinkie would sell much better. They had to go the way of the carriage. At some point long ago Hostess should have added products that consumers want a long time ago. The people getting bonuses for the most part didn't have enough time since they have been there 3 years or less. They should have liquidated back when they went bankrupt in 2009 since as far as I can tell, the problems were already baked in the Twinkie.
Nearly flat federal income taxes are part of the problem that leads to the huge gaps been pay of useful workers and thinkers and the useless butt-kissing flunkies.
There needs to be a federal windfall salaries tax on both the individual and the corporations or organizations paying huge wages to executives producing nothing useful or organizing outright fraud against innocent customers...as was the case with the mixing of banks and brokerage, insurance business.
Start with the salaries of US Senators and judges or the US Presidents. Regular income and employement taxes up to that level. Above that level, every dollar paid to an executive taxes at 40% or so, but also the corporation paying such absurd salaries must pay the same amount into the US treasury. Once the President's pay level is doubled, the windfall executive salaries direct payment to US Treasury becomes double every dollar paid to the executive over the President's or Senators pay levels. etc. as the pay triples, quadruples, etc.
Every mass market product we buy has a significant part of it that we pay which goes just to pay over-paid executives. This amounts to tens or hundreds of dollars for every US citizen just to pay a few hundred executives..
DB, here's a radical suggestion: how about instead of giving in to that necessary evil, we can those execs, bring up a committee of smart line workers who have the real skin in the game of saving their pensions, and let them take charge of selling off the assets for the benefit of themselves and their fellow workers? I bet they'd do the job for a fraction of the bonus (leaving more money available for pensions right there). Given their sense of responsibility to themselves and their union colleagues, might they do the job just as well as the MBAs?
"Given their sense of responsibility to themselves and their union colleagues, might they do the job just as well as the MBAs?"
I don't think the average line worker could be involved. Mid to upper level employees would be your best hope. Anyone who knows accounting, finance, taxes, and law. The actual operation of the business itself will play little role at all. Someone is going to look at getting the name and recipes for a steal and I'd hate to see someone lose out because of a minor detail. It will be a strictly a numbers game. IMO, business acquisitions are not for the faint of heart, especially when you just went bankrupt. Your hand is shown.
I know, it's a longshot to think the rank-and-file could play ball with the corporate lawyers who'll be coming for the fire sale. But with so little left to lose, and with the negotiating position so clear, is there much to lose by putting the final steps in the hands of reasonably intelligent employees (we have a couple thousand to choose from) who give more of a dang than the execs?
So DB is saying that only the smart people with paper on the wall should be in charge of complicated financial transactions. Hmmmm...seems to me the suits with the framed MBAs hanging on the wall were the ones that got the company in trouble by not reacting to a changing market, questionable acquisitions using their finely tuned Gordon Gekko ethics as moral compass.
But let's go with DB's thinking and ask the question why in the heck we would send a high school graduate to represent us in running the largest and most complicated economy on the planet?
I really like the idea of employee owned companies.
Jana, so she can finish college in Congress? Kind of an extended ag subsidy dealio?
That's an answer I would accept Bill.
I was looking more at the incredible hypocrisy of the authoritarians like DB. Varilek...too smart and too familiar with global issues to represent our good-old-boy-higher-education-is-for-snobs, state. Much better to send an undereducated person who's intellectual prowess is managing to memorize the party platitudes and smile at the same time.
Good thing we got good old independent study intern Kristi working on the simplistic challenges of our economy.
Kristi's degree seems to be a little more like the degree the Tin Man got from the Wizard of Oz.
Just out of curiosity, how many member of our state legislature have advanced degrees from accredited colleges or universities?
Jana, didn't someone run numbers like that on the current legislature?
I looked again and this is all I could find...
http://chronicle.com/article/Degrees-of-Leadership-/127797/
Hey, that's the research you used last year! That's why I remembered seeing it.
Wonder what the current make up of our legislature is? Any MBA's out there? Just guessing that the graduate degrees are JD's earned by lawyers.
I'm with Bill on employee owned companies.
From US News and World Report
"Why We Need More Employee-Owned Businesses"
"...For example, let's stop rewarding companies for moving offshore. Instead, let's reward companies for adopting innovative ownership and pay structures. When companies get into trouble so deep that they need a bailout, let's seize the opportunity for change. Eliminate the bad incentives that led the business astray. If a bailout is needed, it should come with a new governance and compensation structure that motivates both workers and management toward long-term success. One company at a time, we can create a better, more sustainable economy."
http://www.usnews.com/opinion/blogs/economic-intelligence/2012/05/31/why-we-need-more-employee-owned-businesses
Corey, I say go for it the employees want to take a risk. It could pay off. I'm just saying the odds are against them. Ultimately, it probably would be up to the judge to allow it if they could somehow petition or appeal the ruling.
Jana, I never said only smart people, but I consider people who will be able to look at spreadsheets, numbers, and contracts and understand what they are doing to be fairly smart. That is what will be in the room. Being a little business savvy or having some negotiating skills would be a plus. Now, let's throw out the execs. How do you actually put an idea like that into reality and do it in a timely and efficient matter to make it worth it? The two unions couldn't agree already, plus, you have the retirees who probably don't care about the current workers as much. It seems like the varying opinions could pose a big problem. I think it would turn into a lawyers wet dream and everyone would get screwed by the time the appeals and court orders ended. Yes, I have that little faith in our judicial system.
I know Cory's good friend Russ Olson has an MBA
MBA? I thought it was a master's in public policy... which makes more sense, since he's never administered a business, coasting instead on a series of public policy patronage jobs. And MBA, MPA, or whatever, I'd still trust 99% of Lake County blue collar workers to manage Hostess or anything else better than Russ.
And I'll back Dan up here a bit: if we could implement an employee-ownership-wind-down plan, I'd advocate taking applications and picking the smartest applicants, just as Dan does above. We could put together worker's committee in a week. Let the judge pick from applicants, or let the judge pick three and each union pick three. Or we could let each local facility vote for a member (anyone care to apply democratic principles to the authoritarian workplace?). That elected board selects three leaders who conduct the direct negotiations and submit final decisions to full board votes.
Yes, it does sound crazy. But so does paying bonuses to the guys who wrecked the company. Take your pick. At least if a workers' committee screws things up, they can take comfort in having screwed themselves instead of getting screwed by the execs.
Seems reasonable. I think if a group of employees were to submit a plan like that during bankruptcy proceedings, they may find a judge who will jump at it.
and guys, it takes some intelligence to get a Master's degree or any degree for that matter. Let's not discredit education because of our disdain for certain leaders or the actions of a few failed executives. That just seems counterproductive.
Have the Hostess employees/unions expressed any interest in acquiring the operation, Cory? Do you know?
Good question, Bill! The union and a pension fund asked bankruptcy judge Robert Drain to appoint a Chapter 11 trustee to wind down the company. Hostess opposed that move. The U.S. trustee in the case called for the same thing, in part in opposition to Hostess's executive bonus plan. Judge Drain said nuts to that. Some perspective:
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Hostess filed for bankruptcy for the second time in eight years earlier this year, and forced a concessionary contract, featuring huge pay cuts, on its unions. The Teamsters voted 53 - 47 percent for the pact, but the BCTGM rejected it, 92 - 8 percent. Judge Drain then imposed the pact on BCTGM, which responded with a nationwide strike Nov. 9.
Hostess execs did not invest in upgrading its facilities, improve its distribution system and find new money-making lines of baked goods. They also loaded Hostess with $673 million in debt. They used BCTGM's strike as an excuse to declare bankruptcy and start the shutdown before Thanksgiving, and went to Drain to get paid. He agreed, doling out between $7,400 and $130,500 to 19 execs, but not the CEO.
The executives' shutdown work on Hostess is "significantly beyond the type of jobs" the execs "were doing at the start of this case," Drain said. He called the "incentives" for the shutdown work "an exercise of proper business judgment" ["Over Union Objection, Court Rewards Failed Hostess Execs," People's World, 2012.12.03].
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What the execs at Hostess are doing is apparently fairly common. Incredible.
No wonder there is so much smoke and bluster about unions being bad for business...it's the shiny object that distracts from where the fault really lies.
http://online.wsj.com/article/SB10001424127887323830404578145182000348430.html?mod=googlenews_wsj
Hostess stole workers' pensions to fund golden parachutes for execs:
http://finance.yahoo.com/news/hostess-maneuver-deprived-pension-051400720.html
There's more to the story of the execs at Hostess not being good for the company and especially the workers. Sheeesh...are these the ethics that drive big business and how the total lack of respect for the workforce?
"Hostess Brands acknowledged for the first time in a news report Monday that the company diverted workers' pension money for other company uses.
The bankrupt baker told The Wall Street Journal that money taken out of workers' paychecks, intended for their retirement funds, was used for company operations instead. Hostess, which was under different management at the time the diversions began in August 2011, said it does not know how much money it took."
http://www.huffingtonpost.com/2012/12/10/hostess-pensions-diverted_n_2271868.html
Hey Larry...I didn't see your post. Sorry for the repeat.