The implication here is that the CEO was paid a bonus for slashing jobs and bankrupting the company.\u00a0 I suppose it would not have been as juicy a story if the lead were:<\/p>\n
Lear Corp., an auto parts maker caught in the maelstrom that bankrupted a large swath of the auto industry, was forced to close 28 factories and shed 20,000 jobs in order to stay alive.\u00a0 The company survived, eventually adding back those 20,000 jobs and more, due to the difficult decisions made by its managers working through a trying time.<\/em><\/p>\nThe employees collectively earned $20.6 million in bonuses for that effort, with the CEO earning $5.4 million of that.
\n<\/em><\/p><\/blockquote>\nThe problem with the second version is that it does not support the narrative that paying a lot to turn around a company might make sense.\u00a0 The latter version also undermines another purpose of this article, which is to report on the allegedly widespread skirting of a law intended to prevent companies from paying “retention bonuses” to managers when the firm is in bankruptcy.<\/p>\n
The 2005 measure\u2014an amendment to broader bankruptcy legislation aimed mostly at changing rules for personal filings\u2014severely restricted “retention” bonuses that reward executives for sticking with distressed companies. It was fueled by popular outrage over money paid to executives of Enron Corp. and other companies that imploded.<\/em><\/p>\nBut in the past few years, some corporations have found perfectly legal ways to escape federal strictures on bonus pay during bankruptcy cases. <\/em><\/p><\/blockquote>\n <\/em><\/p>\nThat’s because Congress can’t outlaw compensation for services.\u00a0 All compensation, whether it’s guaranteed (as in salaries) or at-risk (as in bonuses) have a retention element to them.\u00a0 So, instead of offering a “retention bonus,” those clever compensation consultants offered an “incentive bonus” with easy targets.\u00a0 Keep in mind, they did this with the full cooperation of the investors on whose behalf they were working.\u00a0 A rule that prevents people from doing what they think is right for them is always going to be tested.<\/p>\n
So, to prop up an illogical law, the courts had to get into the business of deciding whether the incentive goals were rigorous enough to qualify the resulting pay as at-risk versus guaranteed.\u00a0 As the judges drew the line out, this policy began to force investors to dilute themselves even more.\u00a0 That’s because the more at-risk the pay actually is, the more compensation investors have to promise their managers they need to retain them. \u00a0 That’s because managers, like investors (or anyone else), must be rewarded for taking risks.<\/p>\n
This rule, stemming from outrage over Enron, once again illustrates the old adage that tough cases make bad law.\u00a0 Of course, the people making bad laws get irritated when they feel they are being ignored.<\/p>\n
Sen. Charles Grassley, the Iowa Republican who introduced bankruptcy-reform legislation in 2005 that later included the pay restrictions, said: “You can’t use subterfuge to get around the law. It surely needs further inquiry.”<\/em><\/p><\/blockquote>\nWhich is why I am quickly gravitating to the presumption that every law Congress passes is a bad law, and every attempt to improve it makes it worse.
\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"In a warmup for the upcoming proxy season, we have the following lead in the WSJ: On the way to bankruptcy court, Lear Corp., a car-parts supplier, closed 28 factories, cut more than 20,000 jobs and wiped out shareholders. Still, Lear sought $20.6 million in bonuses for key executives and other employees, including an eventual […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,25],"tags":[],"class_list":["post-2943","post","type-post","status-publish","format-standard","hentry","category-executive-compensation","category-reporting-on-pay"],"_links":{"self":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/2943","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/comments?post=2943"}],"version-history":[{"count":10,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/2943\/revisions"}],"predecessor-version":[{"id":2953,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/2943\/revisions\/2953"}],"wp:attachment":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/media?parent=2943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/categories?post=2943"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/tags?post=2943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}