If 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.
Perhaps 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.
I 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.
It'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.
The "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
I 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.
Sure 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."
But 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?
It’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.
Whenever 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.
If 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?
That'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.
There 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.
