Workplace Issues

Here's some sane news for a change:

"A plan to pay millions of dollars to the top officials of the Dana Corporation, the auto parts company [now in bankruptcy], violates the new bankruptcy law and cannot go forward, a judge ruled yesterday...Judge Burton R. Lifland of the Federal Bankruptcy Court in Manhattan said that the proposal was an illegal plan to retain Dana’s chief executive and other top executives."

Now read this comment made by he chairman of Dana’s compensation committee:

“If you can’t pay an individual a fair wage, and they’re in the middle of a Chapter 11 under tremendous pressure, it seems only logical that they would begin looking around…”
He added that Dana's CEO 'had repeatedly expressed fears that some of his top executives would leave if their pay could not be raised to the levels previously expected.'

And that's a bad thing? Why are these executives still there after driving the company into bankruptcy? Why weren't they urged to start "looking around" when their performance was declining? When lower-level employees don't meet their objectives, they're put on development plans and their employment is eventually terminated if they don't start doing their part to do to help the company stay solvent. But executives get away with poor performance? It would make more sense if an executive staff that causes a bankruptcy got ousted.

Reorganizations under Chapter 11 might be handled better by a professor with a team of business graduate students.

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) prohibits retention bonuses intended to keep executives on the payroll throughout a bankruptcy procedure "unless the company can show that the executives in question have a bona fide job offer that would pay at least as much as they were already receiving."

Since it's unlikely that executives who run their companies into bankruptcy will have potential employers knocking on their door to compete for their services, they choose to find a loophole in the law. So, instead of calling it a "retention bonus" they call it an "incentive payment." Creditors, who will not be repaid, and unions, with members whose salaries and benefits will be cut, don't buy it. Fortunately, the government agrees with them. So, case closed? No.

Dana…argued "that creditors and unions who opposed the plan were trying 'to short circuit the business judgment of Dana' and 'replace that fully informed and careful judgment with their own parochial interests.'"

Yes, they actually called their judgment "fully informed and careful." Where was their fully informed and careful judgment when the company was falling into bankruptcy? Are we supposed to believe they have it now?

And accusing creditors and unions of having a "parochial interest" in opposing the pay plan is quite interesting. In psychology, it's called "projection" when you attribute your own motives to another person or group.

If you have a boss who knows your profession much better than you do, and that boss tells you how to do your job better so you can avoid problems in the future, what do you? Do you ignore your boss? That wouldn't be too smart, would it?

Yet when auditors, who know accounting much better than the clients who hire them, give advice about how to avoid the demise of their companies, the managers ignore them. Later they lament that the auditors' comments were only "suggestions for improvement."

Day after day we read about it in the news as one company after another falls into financial woes—and they all give the same lame excuse. You could say it's a trend.

So what's going on here? Could it be that the short-term rewards for seeing a company through bankruptcy (retention bonuses) are so much greater than the long-term rewards for effectively managing a company? Is this the new executive early retirement program?

At the request of attorneys representing Werner Company during its bankruptcy procedures, Judge Kevin J. Carey, of Delaware, "agreed to seal documents detailing bonuses that will be paid to nine Werner executives." He also "shut out the public from the Aug. 17 hearing on the pay."

Why? Attorneys for Werner argued that disclosing the amount of the bonuses paid to the executives who bankrupted the company "may create low morale and an unhealthy work environment.” As if keeping a secret of bonuses paid in any amount to those who bankrupted the company will prevent low morale and an unhealthy work environment?

It's looking like bankruptcy-for-executive-gain is becoming the business strategy of the new millennium. What makes it even scarier is anticipating that secret bankruptcy-retention bonuses may become a "trend" because judges are trying to "attract bankruptcy cases to their courtrooms"! We know what's in it for the executives but doesn't it make you wonder what's in it for the judges?

“All too often,” wrote Judge Stephen S. Mitchell, the plans “have been used to reward the very executives whose bad decisions or lack of foresight were responsible for the debtors’ financial plight. But even when external circumstances rather than the executives are to blame,” the judge added, “there is something inherently unseemly in the effort to insulate the executives from the financial risks all other stakeholders face in the bankruptcy process.”

When the cost of doing business increases, executives are supposed to develop strategies to remain competitive. Good executives do. But bad executives, who receive millions of dollars in salary and benefits, can't be bothered. They just finagle the books to make it look like everything is okay. After all, if the company goes bankrupt, what's it to them? They'll get millions in bonuses for laying-off employees, reducing or eliminating retiree pensions and medical insurance, and warding off creditors.

What can be done to stop this insanity? How about passing a law to disallow it? Good idea, but we've been there and done that. It's called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This law makes it illegal to pay executives "retention" bonuses for remaining with the company throughout the bankruptcy proceeding unless certain conditions are met—for example, the executive has received an offer from another company for an equal or greater amount. (One attorney explains it here.) As if another company is going to be chasing after an executive who just drove a company into bankruptcy! Well, maybe. If they don't want to manage their company in its competitive environment, they can hire one of these people to downsize, cut retirees off and tell creditors to get lost. But that would be a bit obvious so soon after leading a corporate demise.

So, in the same way that they find loopholes to get out of managing the business when problems and challenges arise, they find ways to get around the law: they just don't call it a "retention" payment. How clever. And effortless. It sure beats doing a job they don't like or aren't capable of, doesn't it?

Meanwhile, ordinary taxpayers, like you and me, pick up the burden left in their wake as hoards of their former employees collect unemployment insurance, welfare, Medicaid and pensions—picked up by the U.S. Pension Benefit Guarantee Corporation.

The people writing these laws must know that they're building in these loopholes. Why couldn't they have added a simple qualifying statement like, "This law prohibits payment beyond the salary already being paid—that means no additional payment of any kind, by any name"? We either need better writers in Congress or better Congressional representatives—representatives who aren't willing to help the unethical rich get richer by making ordinary citizens poorer.

And maybe we should send teams of business graduate students in to handle bankruptcies, under the direction of their professors, so they can learn first hand what not to do after graduation.