By Annie-Rose Strasser on Nov 16, 2012 at 3:50 pm
Today, Hostess Brands inc. — the company famed for its sickly sweet dessert snacks like Twinkies and Sno Balls — announced they’d be shuttering after more than eighty years of production.
But while headlines have been quick to blame unions for the downfall of the company there’s actually more to the story: While the company was filing for bankruptcy, for the second time, earlier this year, it actually tripled its CEO’s pay, and increased other executives’ compensation by as much as 80 percent.
At the time, creditors warned that the decision signaled an attempt to “sidestep” bankruptcy rules, potentially as a means for trying to keep the executive at a failing company. The Confectionery, Tobacco Workers & Grain Millers International Union pointed this out in their written reaction to the news that the business is closing:
BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256.
Certainly, the company agreed to an out-sized pension debt, but the decision to pay executives more while scorning employee contracts during a bankruptcy reflects a lack of good managerial judgement.
It also follows a trend of rising CEO pay in times of economic difficulty. At the manufacturing company Caterpillar, for example, they froze workers’ pay while boosting their CEO’s pay to $17 million. And at Citigroup, CEO Vikram Pandit received $6.7 million for crashing his company, walking off with $260 million after the business lost 88 percent of its value.
more:
BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256.
The CEO who received a pay raise of 300 percent while in the middle of filing for bankruptcy was eventually ousted by the Teamsters union, but the fact remained the company had to commit to restructuring if it was going to survive, and the Teamsters union agreed to make concessions on wages and healthcare contributions.
While highly critical of management missteps, the Teamsters agreed in September to major concessions, including cuts in wages and company contributions to health care. As part of the deal, the union was to receive a 25 percent share of the company’s stock and a $100 million claim in bankruptcy.
“The objective was to preserve jobs,” said Ken Hall, the Teamsters’ general secretary-treasurer. “When you have a company that’s in the financial situation that Hostess is, it’s just not possible to maintain everything you have.”
But that wasn’t the end of it.
The bakery union refused to agree to another round of concessions because it had already agreed to over $100 million in concessions, and after years of conceding to failed management, union members chose to strike rather than be beaten down any further.
BCTGM International Union President Frank Hurt stated, “The recent claim by Hostess CEO Greg Rayburn that our strike is the reason for the closure of the three bakeries is simply not true. That statement is a continuation of a disturbing pattern by the company of issuing public statements that are erroneous at best and disingenuous at worst. [...]
“Our members are on strike because they have had enough. They are not willing to take draconian wage and benefit cuts on top of the significant concessions they made in 2004 and give up their pension so that the Wall Street vulture capitalists in control of this company can walk away with millions of dollars.”
Over the past eight years since the first Hostess bankruptcy, BCTGM members have watched as money from previous concessions that was supposed to go towards capital investment, product development, plant improvement and new equipment, was squandered in executive bonuses, payouts to Wall Street investors and payments to high-priced attorneys and consultants.
DealBook reports that the private equity backers who lifted to company out of bankruptcy after it’s previous filing loaded the company up with too much debt to invest in the business, thus contributing to labor costs.
More from Reuters
The company filed for its first bankruptcy in 2004, citing declining sales, high food costs, excess capacity and worker benefit expenses. It tackled some issues – closing bakeries and simplifying some union contracts — but it did not deal with its debt. It went into the first bankruptcy with $648.5 million in debt, and came out with more than $800 million, according to court documents.
As a result, the company’s second bankruptcy– after less than three years under the control of private equity firm Ripplewood Holdings — came as no surprise to some workers.
Going on strike as the company was on the precipice of liquidation may not have helped matters, however after years of gross mismanagement, false promises, lavish executive pay, and concessions from the union, employees voted not to commit to another round of cuts to appease investors. Employees had already made repeated concessions over much of the past decade, and the company never turned a corner.
Executives and investors will now ride off into the sunset following the sale of company assets while 18,500 employees will lose their jobs.
Bankruptcy judge gives Hostess OK to liquidate. General opinion is that few, if any, of those 18,500 jobs will come back with a buyer(s).
The American Thinker piece had some interesting tidbits, but wasn't all that relevant. Of course Romney had nothing to do with this. And this isn't really a partisan issue. Robber barons come in all political persuasions. They're probably more likely to be Republican, because wealthy white people usually are, but there are undoubtedly plenty of Democratic ones as well.
No deal. Hostess said it could not reach agreement with the bakers union in mediation today, talks are off, and it will ask the bankruptcy judge to allow it to liquidate on Wednesday.
Reports last night were not clear on which side (or both?) were unyielding on this, but it seems like a compromise should have been reachable. But apparently one or both sides were too dug in.
(Reuters) – Hostess Brands Inc, the maker of the iconic Twinkies snack cake, will square off in a bankruptcy court on Monday against an agent of the U.S. Justice Department, who says the wind-down plan is too generous to management.
The U.S. Trustee, an agent of the U.S. Department of Justice who oversees bankruptcy cases, said in court documents it is opposed to the wind-down plan because Hostess plans improper bonuses to company insiders.
The 82-year-old Hostess wants permission to pay senior management a bonus of up to 75 percent of their annual pay so they will stay on and help wind-down the business.
More from Fortune
“The cessation of … operations is not a simple matter of turning off the lights and shutting the doors,” the company wrote in a court filing. “A freefall shutdown and fire sale liquidation” could result in damaged production equipment and the “improper disposal” of waste, the company added.
Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.
actors, athletes, singers are offering a unique service based on a specific talent. a ceo is offering a service based on an ability. whether you like cher's singing or acting, she's unique. you can't hire another cher. brad pitt, whether you think he is a good actor or not, has a certain appearance and persona that people are willing to pay to see. you can't hire another brad pitt. even tho these people are unique, they are still employees. they are manufacturing a product which is then distributed by a corporation, whether a movie, a cd or a sporting event. they do not directly control the business around them. if a brad pitt movie fails to make money at the boxoffice, he doesn't have the power or leverage to award himself a 200% pay increase while the movie is tanking. if cher makes a bad record, she doesn't have the power to give the producer and arranger a 75% bonus while cutting the percentage of royalties that the musicians may be making. in addition to all of that, athletes, actors and singers have a finite shelf life in all cases. no one is going to see a justin bieber concert when he's 55 and he's not going to sell out a stadium if he does give one. no one is going to see a jennifer lopez movie if she gains 200 lbs and her hair falls out. if a ceo is any good, he can continue indefinitely in his job regardless of his looks, health or the changing tastes of the public. his product may fail but his ability to run the company shouldn't. a ceo is hired and rewarded based on a skill. an actor and singer are hired based on an ephemeral talent. the product that they produce is also ephemeral.
i have a big problem, as i said before, with the pay rate of the entertainment and sports fields. nevertheless, i can't sing like cher or look like brad pitt. i can, however, go to business school and learn the skills necessary to make a good ceo. and so can a whole lot of other people. you can't go to school to learn to be cher.
Personally, I think rock stars and the like are way overpaid, too, and as a result, I don't go to arena shows anymore. Sorry, but I wouldn't pay $1,000 a ticket to see God himself. With my ever-shrinking paycheck, I wouldn't be able to afford it even if I did want to. If I go see a musical act these days, it's usually a smaller act in a nightclub or honkytonk, where prices aren't so outrageous.
In a lot of ways, at least with struggling companies, I would liken a CEO's job to that of an executioner. It's a job somebody is going to do for the money, but that doesn't mean I'm going to admire them for doing it.
And I agree with Phillip on this point: CEOs are beholden to the Board and investors. NOT employees. So if cutting workers will raise stock prices ..... Sorry, but it's a bad business. Workers used to be part of the solution for companies. Now they're about like the office furniture.
As for Brad Pitt, he's not being paid $20 million to fire hundreds or even thousands of people. Brad isn't paid EXTRA money for his movie to fail. CEOs who fatten their bank accounts on the backs of working people don't get any respect from me, whether that's the system or not.
And I don't want to imply that the union is blameless in this fiasco. But it's VERY obvious that management didn't try very hard to keep this company going and probably preferred to pull the plug on it. Be interesting to see what kind of exit package the CEO gets :)
one of the hostess factories that closed is here in my town. the front page story of the newspaper had a story of a woman who workef the line at the plant for 35 years and was laid off. same with a truckdriver of 18 years. he came back from a run out of state and was told his job was over.
and i think (but i'm not positive) that the ceo who tripled his own salary was brought in from kraft foods, not promoted in house.
If what U say is true, I'd certainly be in favor of a "setback" (perhaps 2 years or so) in the salary for ALL PERSONNEL in companies that go belly up after having either been bailed out by the government (not Hostess--but certainly other companies) or who have declared bankruptcy after staff had been been paid so handsomely. The money being given back only to help offset the creditors' losses.
In addition, ANY COMPANY that has declared bankruptcy should be disallowed in increasing salaries for ANYONE except a normal COL increase based on the standerd social security model.
Panditt should be prosecuted!
You live in a dream world!