Not in this case. That is the oversimplified emotional response you see in the comments, but it doesn't jive with reality. Let's say you are the COO of Hertz, making 300K salary and 1M in options. The shareholders vote for Chapter 11 and those options are now effectively worthless, so your income decreased by ~70%. Are you going to stick around and try to dig out the company without a retention bonus?

Given that the shareholders are doing Chapter 11 and trying to turn the company around, there is nothing wrong with them voting for retention bonuses to try to keep the company rolling. The problem is that the system enables shareholders to do Chapter 11 without the debtors having a say in it, when the problem is typically debt.

> Are you going to stick around and try to dig out the company without a retention bonus?

No. You have a couple of times framed opposition to executive bonuses in these situations as "simple" and "emotional", while expressing an appreciation for "creative destruction". So, if an executive would rather leave than turn a company around while tightening their own belt -- especially given that some of these executives can be assumed to be at least partly responsible for the company's plight anyway -- then why not encourage them to leave, and open the door for a more creative, new executive?

Imagine if, instead of paying extortionate sums of cash to retain the architects of their destruction, large companies created an entirely new market for c-levels that wanted to specialize in turnarounds.

What you're describing sounds nice but apparently the incentives don't support it (perhaps because it's better to keep the people who know all about their company than contract execs who know nothing about the company or perhaps even the industry).

I agree with part of what you are saying, hence my tirade about how Chapter 11 bankruptcy laws need reform. But what bothers me is that most people just assume the executives (who mostly aren't even responsible for their pay) are evil, without understanding how everyone acted rationally and morally under the incentives of the broken system. The fact that it's happening on such a broad scale should be a clue that the system is broken, rather than a statistically significant collection of individuals.

Just to spell it out for everyone, there are a few actions happening here, highly incentivized by the system. I doubt many of the self righteous commenters here would do anything differently put in a position to make any of these decisions.

1. You are a major shareholder of a company. The company cannot pay its debts. The debts are greater than the company's assets. You have two options. Vote to file chapter 7 (liquidate to the debtors and get nothing) or file chapter 11 (get the court to forgive as much debt as possible and maybe you will get something back if the company turns itself around). Many of the major shareholders hold significant portions of their net worth in one company, or are institutions (e.g. Vanguard) which have a responsibility to do the financially prudent thing for mom and pop investors like you and me.

2. Predictably, the shareholders voted to file chapter 11. This has already happened. Given that it has happened, you want to give the company the best chance of making a recovery and returning value to shareholders. It makes sense to partially restore executive salaries with retention bonuses, so that you have leadership to keep the company afloat while restructuring. Note that most of these salaries would have been heavily impacted by the bankruptcy filing, in which options and RSU's (the majority of most exec salaries) are now nearly worthless. So you sign a retention bonus as soon as you know bankruptcy is inevitable.

Don't hate the players, hate the game. As I tried to elucidate in this thread, the problem is not any immoral actors, but the power of corporate chapter 11 bankruptcy and the fact that creditors' do not get to vote on the likelihood of it being a better ROI for them. It's simpler to blame it on the evil greedy executives (which makes no sense in this case) or try to make all sorts of band-aid amendments to how you can give bonuses to executives during a bankruptcy, but that misses the core problem.

> Don't hate the players, hate the game.

Who's going to get in the way if we try to change the rules of the game? The players, naturally.

The system produces an immoral result because it is in the interest of immoral actors to keep it that way. I have no confidence whatsoever that any reforms will make it past them.

Which players are going to aggressively lobby for this? Only ones who are in the early stages of declaring bankruptcy (not the deepest pockets). Whereas creditors (big banks) probably have more sway, and would benefit from chapter 11 to be weaker.

What you're saying is intellectually lazy and bordering on /r/conspiracy. You shouldn't stop identifying, understanding, and petitioning to fix the problem simply because you think you might get some pushback.

> Which players are going to aggressively lobby for this?

Corporate executives, of course. It is in their interest to ensure they maximize their benefit at all stages of the business life cycle. Any attack that could negatively affect executive compensation at any time will be staunchly opposed, out of principle.

Their arguments we can anticipate, we have seen already in this thread: the business needs their unique talent and deep knowledge, they are doing the business a favor by not jumping ship, it is only just that they be compensated...

> What you're saying is intellectually lazy and bordering on /r/conspiracy. You shouldn't stop identifying, understanding, and petitioning to fix the problem simply because you think you might get some pushback.

I believe the more fundamental problem is mythologizing of corporate executives, and I am not afraid of pushback, such as I am receiving in this very exchange.

I think you overestimate how many executives think bankruptcy "could happen to them." It's almost as if you are mythologizing them as some omniscient, conniving villains. In any case, this is a very strange justification for doing nothing (instead of advocating to fix chapter 11).

Shareholders don’t pay these packages out of a sense of justice. They do it because it’s the best business option they see as available.

There is a very high correlation between board membership and CEO experience. Who decides CEO compensation? The board. The players are making the rules and they're choosing rules that favour themselves.

[0] https://finance.yahoo.com/quote/HTZ/holders?p=HTZ

Not really sure what your point is.

Hertz insiders control less than 1% of voting shares. You will see similar numbers amongst most of the other older companies doling out executive bonuses.

They did not have any power to grant themselves the bonuses. Keep in mind their overall compensation with the retention bonuses might still be significantly lower than their expected compensation pre-bankruptcy, due to the stock portion of their comp being near worthless now.

Every member of Hertz board has been in a Cxx position with most of them having been CEOs [0]. Some of them may want to be CEOs again someday so it's in their best interest to keep executive compensation high.

[0] http://ir.hertz.com/board-of-directors

So if I am a key employee in a company that is going bankrupt, I should threaten to leave and then negotiate a large retention bonus based on how much it would hurt the company to lose me during the crisis.

Many people who are not part of the executive-clique would feel uncomfortable being so manipulative, especially while their colleagues are being laid off or taking pay cuts, but seems like that is just playing the game.

Seems like Chapter 11 is a good time for employees to join together and collectively demand increased salary (and say in executive decisions).

If you’re an employee (key or not) in a company that’s encountering financial trouble (and you aren’t as financially set for life as you desire), you should absolutely understand what options you realistically have and determine if a conversation about your comp is indicated to ensure that your current company keeps your services. It doesn’t have to be a threatening conversation.

“Look, I’m trying to understand our outlook and my financial prospects, given that Google is actively recruiting people like me and it looks like all of our stock options are now worthless.”

You’re not entitled to be “paid back” for the fact that those options became worthless, but neither are you obligated to stay going forward for just the cash portion of your comp if you have clearly better [job] options elsewhere.

> You’re not entitled to be “paid back” for the fact that those options became worthless

I absolutely agree with this, and this is why I think the retention bonuses paid out to executives are unethical. If you can tell your employees that they aren't entitled to a compensation fix because their options/stock are now worthless, it's a bit hypocritical to turn around and tell your board/shareholders "hey, my options and stock are now worthless, give me lots of cash or I'll leave".

Just because you may have the leverage to do something, it doesn't mean it's ethical to do so.

As I discussed in another post. I was just an IC at a failing company and I was able to get a retention bonus. At the next company I worked at, I found out later that the team leads were given a retention bonus because they knew everyone was looking.

If you are in the tech field, you have the “leverage” to make anywhere from twice to five or six times the average salary. Do you take advantage of it?

You're assuming an uncaptured market which doesn't seem sound. You can definitely find insular peer circles in C-level exec positions.

You’re assuming that there is a pool of hypothetical executives who are a) familiar with the industry, b) familiar with the company, c) available, and d) willing to earn an amount less than what the existing executives are offered here, and e) willing to take a very risky job that will likely end fairly shortly.

I’m not an expert but it seems like these people may not exist and that keeping the existing management on may be in the shareholders’ interest.

Promote internally. That's what generally happens in the military under similar conditions.

Xenophon wrote about the march of the 10,000 Greek mercenaries whose officers were murdered by the Persians, inside Persia. They elected new officers, swearing to obey their orders, and fought their way out of Persia, returning the survivors to Greece.

Yes but... and I'm sorry to point out the obvious, but these executives haven't been murdered by Persians. They've just been paid a relatively trivial amount to do their jobs for a few months.

And who's to stay the internally-promoted folks will demand any less payment?

Anyways, sounds like you're just opposed to these payments fundamentally despite all of the rational arguments that have been elucidated in this thread in support of them.

He's arguing the support is nonsensical considering the facts. That you disagree is your opinion.

If you thought those internal candidates were better, why didn’t you promote them before?

Either you think they’re not, or you think that now you have evidence they are based on the fact that the current execs drove the thing to the brink. That’s a fair piece of data for a lot of cases, but I don’t think that’s the case for a lot of pandemic-shutdown-induced cases that we’re seeing now.

> If you thought those internal candidates were better, why didn’t you promote them before?

Bad judgment. I've seen plenty of capable people in management positions who get supplanted by outside hires installed above them. Sure, sometimes it does work out, but many many times it does not. The outside hire ends up pissing people off to the point where most of the high-performing talent (including the people who were passed over for promotion) leave, and the department goes down in flames. I've seen this happen firsthand quite a few times, and hear about it happening all the time.

If someone wasn’t thought to be good enough to be a manager in good times, why would they be good enough to be a manager when the company was in crisis?

Remember the whole rationale for the options in the first place was so management had something at risk.

So they failed, abysmally, and the company is now in chapter 11. And what they had at risk was nothing. The company probably would have had superior managment if it had /no/ bonus scheme. The incentives between owners and managers are not aligned.

More to the point the owners are represented by agents (fund managers who vote etc) who deal with other agents of the owners (company managers) and the whole incentive alignment thing breaks down pretty badly. How to do it better? It's a difficult and complex problem that probably doesn't have an easy 3 sentence internet forum answer.

But here's a very partial observational one:

It's harder to do it worse than paying bonuses for destroying the wealth of the owners.

When executive leadership has utterly failed, it’s probably better to replace them. The fact that their “1M” in options is worthless is a net positive as it lets the company drop dead weight and save money.

Handing out bonuses for retention is simply looting the company rather than being part of any efficient long term strategy.

So hertz, which was leveraged with a decision maybe (maybe!)outside and preceding the CEOs tenure, in a low margin industry, should shoot the (maybe good, maybe bad) CEO just because?

Would you join a company in a 363 process without even knowing who the new owner would be, or if you could compete on emergence, or if you could emerge in a commercially viable way? Where are these amazing industry turning executives that are willing to take market comp for way above market risk for their career? Where are these self sacrificing martyrs?

Would you have joined RIMM versus Apple in 2013 at the same (or likely lower) level of compensation? If no, then why would someone want to be part of a BK turnaround.

If a C level exec joins a failing company accepting stock compensation presumably they understood the risks. Having lost a bet, they could renegotiate a higher salary for future work but hardly need to be compensated for a lost bet on past work.

Exactly! They’re not being paid-back for their past losses. They’re being paid to stay on and do future work to try to salvage things.

These bonuses are pre paid, not compensation for future work.

Have you ever accepted a signing bonus? Did it have a requirement to be paid back if you quit before a certain date? If these bonuses have no requirement that the recipient "not quit before XYZ date", then I agree they're improper. I strongly suspect they have such a requirement.

If you interview with us for 4 hours and get a job offer with a $12K signing bonus and a requirement that it's paid back pro-rated if you leave within 12 months, are you being paid that $12K for the 4 hours of interviewing, out of the goodness of our heart, or $1K/month for each of the next 12 months of work?

The issue is the executives keep the bonus even if fired in bankruptcy. Further, because the money has technically already been paid out, the bankruptcy court can’t claw it back. It’s therefore not pay for work done.

At best executives get leverage in their job search and a fallback option should their job search fail to find better options. So, it’s not even an effective means to maintain someone actually talented.

As multiple people wrote: you don't need new execs to join the company, you can promote from withing directors or VPs that already know the business and have all the knowledge on how to run it. If you don't have such people in the company then it's a C level error and the company is doomed anyways.

Five months ago, those people were judged less competent to hold the top spots than the incumbents, as evidenced by the org chart at the time. What’s changed?

Filling the top spots in most listed companies is a matter of politics and relationships, not competence. There are many companies known in the market for hiring and promoting based on criteria other than competence, for example political influence, diversity or political stance. Not everybody is FAANG hiring experts, these are exceptions in a big world.

In an ideal, meritocratic world, sure, but people get promoted to positions for all sorts of reasons that have very little to do with their competence.

> Let's say you are the COO of Hertz, making 300K salary and 1M in options

I worked directly with one of these C people at Hertz in a previous job; even 300k is grossly overpaying. Good luck finding another castle of cards arrangement to get a C position anywhere.

Seems like the COO's fault for getting so much of their wages in stock. If you don't want to take risks, you shouldn't be holding onto stock.