Evil Hostess Bonuses!

Or … not. Or … not necessarily.

Seen a lot of anger over this particular request (and, later, the judge approving it). It seems paradigmatic of the "rich get richer while the workers get unemployment checks" problems that are so prevalent.

Except — fundamentally — it's not.

Now, this doesn't have anything to do with whether the executives / senior managers in question are being overpaid in the first place (they probably are).  Nor does it have to do with the cause of Hostess' failure (a combo of venture capitalists saddling it with too much debt and company leaders who couldn't figure out how to get Americans to eat more spongy white bread and embalmed snack treats; union deals and pensions were a part, but a small part, of the financial picture).

But here's an important part of the story:

'The update on the sale of the company's brands comes as Hostess seeks approval in U.S. Bankruptcy Court in the Southern District of New York in White Plains, N.Y. to give its top executives bonuses totaling up to $1.8 million as part of its wind-down plans. The company says the incentive pay is needed to retain the 19 corporate officers and "high-level managers" during the liquidation process, which could take about a year.

Two of those executives would be eligible for additional rewards depending on how efficiently they carry out the liquidation. The bonuses would be in addition to their regular pay. A spokesman for Hostess noted executives will need to meet certain goals to get the bonuses.'

The criticisms I've heard:

1. "Executives getting millions of dollars."  In aggregate, yes. Individually — well, if the 19 officers and high-level managers split that $1.8MM evenly, that;s about $100K each.  Not chicken feed, but not quite as scandalous.  (Not that it will be split evenly, but …)

2. "The guys who drove this company into the ground are getting extra rewards and golden parachutes."  No, these are retention bonuses.  Payable at the end of the line, to retain needed talent for that time. It's a not-uncommon way to keep people around who you feel you need to stay on until work is completed, such that if those people leave before their work is done it will be a problem for the company.  

(We've done this in my company with some acquisitions where we need the acquired sysadmins to keep the acquiree's legacy accounting system going for X months until the planned cut-over to our existing accounting system.)

The fear is that these guys will, knowing the job will be up in X months, be searching for a new position. And, yeah, maybe they won't find something, but some of them probably will, and that's (the argument is) going to cost the shutdown more money and delay winding up the company's affairs.

3. "Why are these guys, who destroyed the company, handling the liquidation?"  I don't know whether it's (all) the same guys, and, honestly, it's not clear to me what, aside from the operational leadership and the product development and sales teams, how much all of them are actually responsible for Hostess' mismanagement. (E.g,, was the chief legal officer, who's probably getting a retention bonus, responsible for the company's failure? And as long as there's some sort of company, presumably we want to keep the senior HR person(s) on, and they probably weren't the ones who ran the company into the ground.)

But what you do want, with as huge a corporation as Hostess was, is a team of folks who actually know about the business and what assets it does have, and can negotiate and sell them off. And, presumably, the senior management being kept on either can do that or will be performing some other necessary role.

And, of course, there's a big difference between wrapping up a company's business and liquidating its real estate and intellectual property assets, and developing new product lines or sales strategies to make people want to buy your stuff more. Really. 

So while it's possible that there are some funny shenanigans going on here, the nature of the wind-up process and the basic tools being used aren't unusual or sinister.  Even if it's tragic that there are a lot of workers out of work (and suppliers left hanging, too), and maddening that some of the folks who might have played some role in the failure may be gainfully employed (and rewarded for sticking around) — it's not necessarily a plot, but part of what's necessary to close down the company and maximize the value that …

… will go first to the investors who saddled Hostess with such a huge debt during the first bankruptcy.  Which does, in fact, suck, but is a different matter.

What's interesting, though, in looking at the reactions to this, is the "torches and pitchforks" mentality I see from a lot of people.  There continues to be a lot of anger out in the general populace about the rich-getting-richer and screwing-the-little-guy, and whether or not this is factually a case of that, the simple view makes it out to be – and leads to some pretty ugly attitudes.

Which those rich (getting richer) had best be very careful about further inflaming. Really, truly.

Embedded Link

Hostess To Ask For Executive Bonuses As Workers Lose Their Jobs
NEW YORK — The future of Twinkies is virtually assured. Hostess Brands Inc. said Thursday that it’s in talks with 110 potential buyers for its iconic brands, which also include CupCakes, Ding Dongs a…

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