[mostlyghostly]

I've actually helped manage a company in financial distress. Here's reality:

- First, most executives have little impact on the specific event that put the firm under. (I was a senior marketing person; the building burned down. Fire safety was most assuredly NOT within my purview or even something I could ask about)

- Running a business in financial distress basically sucks. Take your job and make it 10 X harder. You're basically running a startup, except your credit is officially shot, your employees know layoffs are coming, your competitors and customers know you're vulnerable, and key personnel with families are saying to hell with this, I want to be sure my kid is going to college (and bailing out).

- I'll go one better, speaking from experience. Most key executives can take part of the business with them. So when they leave, part of what little is left of the company leaves with them (customers, technology, capabilities). What are you going to do, sue? bwahahah. Good luck, your lawyers are already swamped...

- Most executives are actually reasonable talented people. They have value on the open market. Often significant and freed of any golden handcuffs they once wore.

- Oh yeah... there is a high probability of failure or other drastic changes. So promises are worthless. Our leadership structure changed three times in five months. You have no guarantees that the person who made a promise will be in a position to honor it (or even be around). Turnarounds are a cash-only game.

So unless you like working for free - in hell... the current system is the only way to get decent talent to stay.

[II2II]

There is no denying that it takes skill and hard work to keep a business afloat in these times, or that it is stressful, or that it is easier to walk away than deal with the situation.

On the other hand, very few businesses are the product of a small subset of its people. In many businesses, such as some of the businesses mentioned in this article, it isn't a question of whether those other people can afford to send their children to college. They already knew the answer to that question: they cannot. Instead, it is a question of whether they provide their family with the bare essentials.

I am not suggesting that executives should sacrifice themselves for the benefit of the company or other employees. What I am suggesting is that it is immoral to take more when others are given less. If you disagree with that, that's fine. Consider it an ideological difference. Yet it is also important to realize that there are people who would disagree with both of us, that those who have more also have an obligation to sacrifice more in a time of crisis.

[mostlyghostly]

"very few businesses are the product of a small subset of its people"

Hate to break it to you but that is EXACTLY what is going on here. Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building. Real world examples:

- Two sales people who knew every high profit customer in our local market, which was the core of our turnaround plan

- My product engineer, with "the specs in her head". We could have never rebooted the business without her.

- The last manufacturing engineer standing, who we needed in the event we could secure a new facility for operations.

- My boss, the master deal maker who knew every major retail chain on our side of the country. Our secret to rebuilding the critical mass required for survival.

- One commercial manager (there were two of us), who was tasked with re-balancing the entire business on the fly to deal with massive swings in costs and competitor activity. Our pre-fire business model was completely shot and the banks cut us off, so we needed to reorganize around the new reality and find a way to generate positive cash flow to survive.

Without those five people / groups, the game was over - there would be no recovery plan, no road back to sustainable operations. Everyone else is irrelevant, potential cost savings when we needed them. You are playing a very high stakes short term game for the humble prize of survival...

Finance's job was basically to keep the tie fighters off our back, keep the lawyers, bankers, and insurance people away from folks doing the actual work. Customer Service was there to gently wind down relationships with non-critical accounts, in the vague hopes we could come back someday. We were able to give a few people some runway on those teams, moving anyone who wasn't able to hit the street immediately onto those lists to give them a little more time.

And your key people are irreplaceable in that world. There's no way someone of equivalent expertise is walking into that mess for what you're able to pay them.

At an individual level? We had to invoke our worst endgame due to other issues (deal fell apart); four of the critical five are no longer with the company. Each of them landed with a promotion and a fairly substantial raise elsewhere, often with instructions to "go take their business back". (at that point, it was open season for those accounts; our prior employer was unable to service them) The typical job search for that level of talent is hours / days rather than weeks or months (there is a very specific set of people who will hire them immediately if given the chance) .

Any visions of nobility needs to balanced against your obligations to support your spouse and children. You're going to sacrifice your kids future for some random people they never met? Your spouse is cool with that? Get real. (Mine knew what was going to happen; I had "the talk" with her beforehand. We knew my job was going to be eliminated and I couldn't break ranks without screwing my people. But we've both done turnaround work before, so we had a plan to handle it. She's one in a million.)

So that's the shit-show you're trying to hold together.

Heck, I had a financial model sitting on my laptop to go buy one of my dying brands from the company, once it was very apparent that they weren't able to protect it. At that point, it was basically sitting by the side of the road waiting for someone to claim it...

[simonh]

This is the Pareto Principle at work. 20% of the people involved in an enterprise produce 80% of the value. It’s not that you don’t need the other 80% of the people, it’s that it doesn’t matter who they are.

If you remove the people in the high productivity group and replace them with people from the low productivity type then the organisation loses (roughly) 80% of its productivity. Replace people in the low productivity group and nothing happens.

Yes I agree it’s galling to see a few people compensated so highly in these situations, but as has been pointed out a) they individually most likely had little or nothing to do with bringing the problems about. b) What else are you going to do? The alternative is let the most critically essential personnel go and watch the whole organisation seize up for good.

[HPsquared]

There's also Price's Law: half the value is produced by the square root of the number of people.

[_v7gu]

If you have a calculator on hand, could you post the n such that these two rules are equivalent? It’s wrinkling my brain.

[marcianx]

How can you? One is taking about 80% of the work and the other is talking about half the work. You would need a distribution of the work impact across the employee population first.

[gbacon]

If it’s galling for the essential people to be paid more, what’s a fair compensation structure in your view?

[simonh]

I think there’s no avoiding paying people what is necessary to retain them. The alternative would be worse for the company and its other employees if essential talent was lost, or would be coercive and intrusive of the freedoms of these people if they were somehow compelled to continue working against their will and personal best interests.

[jolux]

I mean yeah but at this point you are basically admitting that keeping the company alive is more important to you than treating your employees equitably. Entirely possible for others to disagree with that stance, though your position does make sense if you take it.

[mostlyghostly]

Eh, you're not getting just how deep in the shit we were.

Sometimes you can't give everyone a pony.

There simply wasn't any money. That's the essence of running in financial distress. No banks, no loans, insurance support payments got swiped by other people we owed money to... You're running on the cash in the till.

We started with 500 jobs, most of which were union gigs with benefits. About 50 were still with us a week later, when this brutal end game went into full effect.

The cost of failure for this nasty little endgame for the 50 survivors, the quest for a sustainable business? We were an older union workforce, operating in an area with young non-union shops with sketchy labor policies. Our local employees were getting offers for $12 / hour with no benefits. Or a 40%+ drop in compensation for office staff due to age discrimination.

That's the difference between retiring for a nice middle class lifestyle and eating cat food for your golden years. Fifty lives fucked up, for loyal company soldiers.

So yeah, I wanted to keep the company alive to save jobs.

I'm a high end mercenary; I had an offer within a week of formally rolling off the program and plenty of consulting work to tide me over. My only prize here was moral satisfaction.

[kelnos]

I think part of the question is: why try so hard to save the company at all? If 90% of the people working there ends up out on the street anyway, what's so special about the company itself that warrants showering money on the remaining 10% to try to keep it afloat? Why not let it fail, and those 50 people -- if they really are so high-performing -- will quickly find jobs with other firms. Some of them might even opt to start a new business instead of finding a new gig, taking with them knowledge and potential customers.

Instead of using the last of the money to keep the 10% around on a hail-mary, spread that money around to 100% of the company so their crash landing is a little softer.

[mostlyghostly]

A good question. Here's an attempt at a reply..

- You're trying to retain 5, not the 50.. the other 45 are objectively not-critical to the enterprise (in the sense we could eliminate or replace those roles).

- A large fraction of the 45 are basically screwed in the job market; most of them were older, had decades of very specific experience, or had worked their way up in an organization that valued effort/loyalty over credentials. Milking another decade of work in their current role has life changing consequences for these workers and their families. Many of them were primary breadwinners in a bad area, so their job was the last line of defense between a respectable lower-middle class existence and the trailer park for them and their kids.

- Current reality was not reflective of long run potential. If we could stabilize the business, not only would the 50 jobs in question be preserved but there was an opportunity to rebuild and hire back. (feel good moment: this actually occurred. The team was able to restart key areas of the facility and we rehired some manufacturing people)

Young, highly educated people have no concept of the degree of privilege they enjoy in the labor markets. That degree opens doors and you don't get tossed out the instant some hiring manager sees a little grey hair. You don't have 30 years of experience which immediately becomes the leading reason NOT to hire you for a job because someone thinks you're incapable of learning anything new.

Life basically sucks past 50...

[jolux]

>Sometimes you can't give everyone a pony.

I'm not suggesting you can, I'm suggesting it's bad to give some people the boot and others a pony in the hope of saving an abstraction. The company doesn't exist outside of the people whose livelihoods it sustains.

[mostlyghostly]

Not everyone is equal in that analysis.

And in a financially constrained endgame, you have to make choices about who to keep and cut.

Cutting that senior sales executive will cost 20 other jobs due to lost business and downstream implications.

Cutting the factory worker costs zero other jobs.

The harsh reality is not everyone matters equally.

[and to be clear, I'm not talking about bullshit deals just because someone was "loyal" to the CEO. This is real talk, people who actually can deliver a path to group survival]

[ajzinsbwbs]

I don’t understand what you are proposing as an alternative. If the company dies who is going to take care of the employees? Lay off everyone because it would be wrong to only save some? If everyone makes that noble choice all we get to show for it is a depression.

[jolux]

If you can't keep everyone on in the first place it's pretty ugly to give the people at the top bonuses, they have less to lose from losing their job in the first place.

[mostlyghostly]

I'm keenly aware of the disparity. However...

- If we do not keep the highly paid senior sales rep, we're going to have no customers and thus... everyone gets canned. - They are objectively better off leaving for another firm, where they don't need to worry about impending doom. So we need to provide an appropriate incentive to prevent them from breaking ranks and screwing everyone else left behind. - The humble factory worker or customer service person doesn't have that same kind of impact on the whole....

Any moral conversation ultimately becomes a discussion about why someone with objectively better and safer options should continue to work for a company that is paying them less than market. Unless everyone else is willing to work for reduced salary / benefits and promise not to quit, that's not a morally tenable position....

Personally, I'd love it if people acted for the greater good. That's not going to happen here, unless you want to restrict people from changing employers and force them to show up to work...

[cinquemb]

And they also have less incentive to stay because these are supposedly people who could provide the same work for other companies in similar situations at the same or higher prices. I find myself in this situation right now: ill stay on at higher prices if the company wants to renew its contract, or i'll leave for another place (I have more people emailing me for work than I have before the pandemic and I'm not on any social media and don't have a personal website).

In an environment where businesses have been operating on massive leverage for years, there's a fight brewing over who is going to get cash-flows and who will not, this obviously extends to workers who have outsized impact on whether any given business will stay open or file chapter 7/11.

[kelnos]

Take care of who? From the parent's tale, it sounds like 90% of the company got laid off anyway. They didn't get taken care of. Even if they did get some kind of severance package, they could have gotten more if the executives weren't paid retention bonuses and the company was just allowed to fail.

The bottom line is that most of the people who got hurt by a company's decline get zero say in how things go during that period, and obviously the people with the power are going to try to save the thing that signs their paychecks, even at the expense of the replaceable workers.

[WalterBright]

> Some people have EXPONENTIALLY more impact on saving a business than everyone else in the building.

This is true in every organization.

The canonical example is Steve Jobs.

[AsyncAwait]

So it's not NeXT engineers is it?

[simonh]

If he had either Avie Tevanian or Bertrand Serlet, the rest could be replaced. I was originally going to say he’d need both, but in reality one would do at a pinch.

[HPsquared]

Price's Law applies all the way down. It's a small portion of the engineers.

[AsyncAwait]

Sure, but isn't the problem that it's also a small portion of the executives, but practically all executives get paid rather well in cases like this?

[TheOtherHobbes]

And yet 1 - those people were also there when the disaster happened.

And yet 2 - good luck getting the business back up to a reasonable operating volume with just those people.

And yet 3 - in many failures the people at that level are directly responsible for the failure.

Force majeure lightning-strike failures are very much a minority. Many businesses fail because of avoidable mistakes made by poor management. Please explain why management should be rewarded for that.

[darkerside]

Luck plays into business so much now than people assume. Incomplete information and unpredictable black swan events mean you're not making decisions with certainty. You make the best decision with the information you have, try not to spend more time once you get to diminishing returns, and you hope things work out. Executive talent will not ensure success, but it can raise the odds. But on the other side, a dearth of executive talent can still ensure defeat.

[gbacon]

This idea that success is all about, mostly about, or largely about luck is intellectually lazy, is extremely misleading, and stokes envy. None of that benefits society.

To benefit from luck, you have to put yourself in position to get lucky, which does not happen by accident. There is all the difference in the world between good timing and dumb luck. Yes, we can all think of anecdotes where someone did buffoonishly stumble into good fortune, but insisting that this is a fair representative of all cases is the fallacy of composition.

[darkerside]

I feel like you only read the first half of my comment...

[scarface74]

Do you make minimum wage? Do you give any excess over minimum wage that you earn to charity? The vast majority of us posting here “make more when others are making less”. Even in your own company you probably make 10x more than the lowest paid contract worker who cleans your office after hours.

[minitoar]

This is more like all the contract workers are getting laid off and you give yourself a bonus, then leave the company.

[scarface74]

That’s the deal you make as a contract worker. Yes, I’ve been a contract worker. Heck, I have even left a full time job for contract to perm role before knowing that there was a chance I would be let go if the project I was hired to lead wasn’t successful even if through no fault of my own. I negotiated a premium because of that risk.

On the other hand, half the issue with being a contractor is that we as a country decided to tie health insurance, workers comp, and unemployment insurance to the company instead of making them universal and state run like every other industrialized country on earth.

[darkerside]

Would you agree that those who do more should also get more? You are ignoring production in your ideological framing.

[texasbigdata]

Look at American business composition statistics. Most businesses are small. A few people totally matter.

[waheoo]

> What I am suggesting is that it is immoral to take more when others are given less.

You mean like how America takes more than the rest of the world?

I think the underlying problem here is that executive salaries and bonuses are at too higher multiples. Much higher than historical norms.

Not many would complain about an exec getting a bonus during this time if it was actually reasonable in the first place.

[jzb]

"Not many would complain about an exec getting a bonus during this time if it was actually reasonable in the first place."

This right here. If the CEO made, let's say, five times what I do - or some reasonable multiple during normal times, I wouldn't object to some retention bonus to maintain as much stability at the top as possible.

I acknowledge that 1) C-level and VP-level gigs come with responsibilities I would not want and 2) a good exec is hard to find. So I don't mind if company execs make much more than I do.

I do mind bullshit like this where they make in a year or two what I can expect to make over more than a decade, maybe even a lifetime, and then when times are hard get showered with more money while we get laid off or end up doing twice as much to cover for people laid off or hiring freezes.

Yep, being an exec of a company that's bankrupt probably sucks. Guess what? Being a average employee sucks then too. Everybody should have to suck it up, not just the run of the mill people.

[agensaequivocum]

> I do mind bullshit like this where they make in a year or two what I can expect to make over more than a decade, maybe even a lifetime

Why do you care?

[mjburgess]

Sure they would. These "time of crisis" instincts are very primitive, as are most emotional reactions of this kind. To makes sense of them just imagine an extended family operating, c. 100k years ago.

The idea is this: in a time of crisis (say, very low food) how immoral it would be for the father (, etc.) to take much more than the mother (etc.).

And these feels very plausible. It is in the nature of a family to expect sacrifce.

It is these small-scale familial impulses that ideologues often rationalise (on both left and right).

What economics as a (rough) science is meant to provide us with is a way of transcending these impulses. These microeconomic explanations should persuade us that they are being misapplied in this case, and "familial-crisis" thinking cannot plausibly apply to a buisness.

However most people cannot really critically relate to their own emotional instincts, and so often explaining the microeconomics is shouting into the wind.

[darkerside]

I think this is your point but helping spell it out. The father in this case is probably the best shot at obtaining more food for the starving family and needs energy to do so.

[clairity]

you've made a lot of assumptions to reach that conclusion.

for counterbalance, women burn less energy per mass on average and are less massive on average, which means they'd last longer in the search, raising the likelihood of finding food.

[darkerside]

I'm not educated on which sex would have truly had a better chance, and not totally concerned with it. Mostly concerned with illustrating more clearly the parent posters point.

My assumption is men did more hunting and women gathering, and that in a starvation scenario, known gathering food sources would have been exhausted.

Sorry for any Paleolithic women I may have offended with my post!

[hatchnyc]

> You mean like how America takes more than the rest of the world?

It is interesting how these discussions about "inequality" play out within America. I've traveled a small amount outside of the US/EU and have many close friends from poor countries and it strikes me that a real move towards equality would likely result in a step downward for nearly all Americans, even those who consider themselves poor and disadvantaged by American standards.

I'm not saying this isn't something to pursue within a country on its own merit, but some of the absolutist moralistic rhetoric used in these discussions definitely betrays living in a bubble.

[Supermancho]

> You mean like how America takes more than the rest of the world?

"Like" in the most obtuse aspect. What about how little I pay my kids or dog? Thats not in context.

The issue is the morality within the system in place in the US (US firms, per the article title).

[lotsofpulp]

I don’t see how it’s obtuse. The morality of paying an executive disproportionately more is the same morality as paying a worker in the US disproportionately more than a worker in a poorer country.

At the end of the day, everyone is looking out for themselves and their immediate tribes first, and everyone takes what they can get. However, society is more harmonious when the delta is not too great. The US simply also had the luxury of having a delta of two oceans and huge amounts of space.

[kelnos]

> First, most executives have little impact on the specific event that put the firm under. (I was a senior marketing person; the building burned down. Fire safety was most assuredly NOT within my purview or even something I could ask about)

That's perhaps reasonable for you, but business succession planning and disaster contingency planning is the job of the board and executive team. They made a choice to discount the possibility of a building fire taking out the business, and that's a failure they should be accountable for. Or, worse, they didn't make a choice, and didn't even think of that risk. And yet now they're being "rewarded" with a bonus so they'll stick around to fix their mistake after it's too late?

At the end of the day you have a company full of people, and you're going to lay most of them off. Given the financial distress the company is in, they're not going to get much of a severance package, especially since you "need" to throw much of the remaining money at the executive team to keep them around. And for what, really? So a bunch of high-paid executives can pat themselves on the back that they "heroically" brought a company back from the brink? That's little comfort to the people who got laid off and struggled to find a new job before their severance ran out.

[mostlyghostly]

You're assuming:

a) the risk can be neatly packaged and mitigated b) the cost of appropriately mitigating that risk wouldn't preclude running the business.

Long tail risks exist in every business, that rare event that takes the whole thing down. There are tons of them.

Each of which has a .00001% chance of happening.

The consumer brand version of this having one of your employees say some stupid shit in at bar (on video) or the summer intern like the wrong tweet, at which point a woke mob descends upon your brand with pitchforks at the ready....

There is no practical way to mitigate this. You can do the basics (don't hire assholes) but it's open season from there.

I've always thought the most thankless job in the world is running HR or PR at a massive retail company like Wal-mart or Macdonalds. You're one redneck idiot away from being on the national news (for doing or saying something most reasonable humans would never dream of) and you have literally hundreds of thousands of these people showing up for work each day.

At which point, you get the soul crushing task of getting on national television to explain the conduct of the moron in question and explain how it doesn't represent some embedded policy of the company to encourage <bad thing>. Better yet - you get do this every couple of months, since you have hundreds of thousands of these morons. Statistically, it becomes a predictable process.

[rstuart4133]

> Each of which has a .00001% chance of happening.

More to the point, you're in a dog eat dog world, and for most of those dogs this 0.00001% chance won't happen in the lifetime of the firm. So they don't spend money on mitigating it, which gives them a competitive advantage over every dog that does spend the money.

Spend money on enough 0.00001% things, and they will grind you into the dust. Locally the way out is legislation that evens that playing field by forcing everybody to spend that money. But you can't control low cost overseas producers in that way.

Nothing is as easy as it appears.

[darkerside]

Do you have an alternative proposal?

[fizixer]

So what you're trying to say is that execs getting these kind of bonuses in a financially distressed company is not unlike vultures feeding on a carcass, except that in this case the vultures were nurtured by the same "person" that's now the carcass, for years and probably decades, AND, it's part of the job of the vulture to keep the "person" from becoming the carcass.

Note-to-self: Stay away from vulture-minded execs.

Note-to-investors: Keep an eye on and go the extra mile in rooting out the vulture-minded execs in your companies, before shit hits the fan.

[sokoloff]

Investors would probably do well to find executives to run their companies who know about market value/comps, know that $X is greater than $X/2 for all positive values of $X, and make decisions based on that knowledge.

If their market value elsewhere and their replacement’s demand here is $X and the company’s current projected comp is $X/2, that’s only tenable for a very short time.

[rm445]

Complete tangent to your interesting post, but in companies that build a good safety culture, fire safety is within everyone's purview and something anyone can ask about. In the organisation I work at, the marketing manager could totally raise safety issues.

It's surprising until you start to think about it, at a certain size, many companies are very much at existential risk from a building fire.

[avs733]

- First, most executives have little impact on success of a firm in the best of times

- Working for a business in financial distress basically sucks.

[mostlyghostly]

Find better executives :)

[bryanrasmussen]

>- First, most executives have little impact on the specific event that put the firm under. (I was a senior marketing person; the building burned down.

without stats I gotta think your case is an outlier, and in many other companies having financial difficulties a senior marketing person might have more impact (although I think impact is generally supposed to be at a higher level than senior marketing)

[learnstats2]

Also - fire contingency planning is quite literally the executives' job. They may have perceived that as a small risk, or it may not have been on their radar, but that was their decision. Why do they get rewarded first?