Since when does a bankrupt company pay bonuses?

[Phil2016]

From Forbes:
Tilton: United Airlines Chief Gets Bonus As Employees Face Cuts

It's one thing to negotiate a handsome pay when you accept the job, but it just seems irresponsible to accept a bonus, of any size, in their present situation.

Get out from under Ch. 11 protection and turn a profit, then you can start scoring your bonuses.

[tonyw]

Don't you get it? If you're an exec with a bunch of toadies on your board, you just tell them, I deserve this bonus. And they give it to you.

You gotta love corporate America. Hey, Bernie, we know you cooked the books, but tell you what, we'll cover your loan. Mr. Kozlowski, no worries about that multi-million dollar party for your wife on the company tab. We'll pick it up.

But if the worker bees forget to put a new cover on the TPS reports, they hear about it.

[Doug Taylor]

Many things to learn, young Jedi!

[shooter13]

Tony, I got to call you out on this one. THe original post said that the exec shouldn't accept the bonus until the company was back on its feet...

How many times have I heard you say that you will take what you can take and the company be damned or something along those lines??? You aren't willing to take one for the team and all of that?

Would you have turned that bonus down?

[aloft]

Same thing happened post-9/11 -- management bonuses were based not on performance, but on losing as little money as possible. "Hey honey! I hit my loss target for the quarter, looks like we can afford that vacation home in Aspen now!"

For an exec to take bonuses while the company is in bankruptcy is an insult to the company's stockholders. Forget lawyers, MBAs are the real scum of the earth.

[flyover]

[ QUOTE ]
For an exec to take bonuses while the company is in bankruptcy is an insult to the company's stockholders.

[/ QUOTE ]

Well actually bankruptcy is the biggest insult since they get nothing. The creditors are running this show. Remember Tilton was recruited in to get the company through bk, he didn't take it into bk. They should have just promised a flat salary and left it at that since bonuses are such a symbolic hot button for the employees.

Note to employees. No matter how little CEOs make in the future it will always be more than the employees. When it isn't you will be in real trouble.

[tonyw]

There's a world of difference between a worker bee saying I'm getting every dime I can get from these people because they'll shaft me as soon as they can and an exec taking bonuses when he's demanding pay cuts and concessions.

If you ever needed proof that the first statement is true -- get what you can from any employer because they're going to shaft you the second they get the chance -- this proves it.

He's shafting the employees by demanding that they give up their pensions and take paycuts.

But then he's giving himself a nice bonus.

[Minnesota_Flyer]

Gotta go with Flyover on this one. As a general matter, there are times when, because of circumstances, history, whatever, there is nothing that anyone can do to avoid a year of losses for a business. If an brilliant manager manages to make the difference between a loss of $100 million and a loss of $10 million, he/she deserves a bonus for that.

With respect to the airlines specifically, I would tend to agree that Tilton's bonus is probably questionable (don't know for sure, don't know all the facts). But people gotta start to realize that the airline pay cuts aren't just a management vs. labor thing; it's a business survival thing. The compensation rates reached for airline employees at the end of the 90's were never supportable in this industry, even before the floor fell out on 9/11 (and, if you'll remember, things were looking bad even before that . . . remember SARS??).

Now, for my two cents, somebody needs to put a bullet in US Air and United. Things are not going to stabilize until some of the hub capacity and business infrastructure goes away. The bankruptcy process is artificially keeping alive two very dead companies and allowing them to tear apart the industry in their death throes. The gov't needs to either re-regulate the industry or stay the heck out of the way. This half-in/half-out regulation is terrible.

That would be my $0.02 worth.

MF

[FlyinRyan]

Well I have heard a lot of CEO's and top brass getting bonuses while the company is either loosing money or bankrupt. They will usually state it ws due to their contract or agreements that are unconditional to performance of the company as a whole. That being said its one thing to get the bonus and its another to take it. I have heard a few times that the top brass getting the bonus will decline it and as a token of the fight at hand to lead the company back. They want it to show this as him or her doing their part to help.

The other times they keep this very quiet because of the bad press. All I can say is it happens and the mistake is that it leaked out.... not that it happened.

[CapnJim]

Damn, I knew I shold have got my MBA instead of my CFI...

[Doug Taylor]

[ QUOTE ]
Damn, I knew I shold have got my MBA instead of my CFI...

[/ QUOTE ]

Pretty easy to shop for a graduate school too!

All you've got to do is order a medium pizza to have it delivered to your home. When the delivery guy shows up, ask him where he got his MBA from and what he thought about the program.

It'll save a lot of hassle!

It takes an MBA from a top-notch school and pre-existing 'inclusion' into the ruling class of the US, (ie "The Skulls") in order to get anywhere in the business world.

[aviategw]

Could the company award a bonus to everyone on their payroll? If not, why should the CEO get the bonus?

[Phil2016]

Looks like FLYi gets it. Though I still would never want to have been an ACA shareholder.

FLYi to cut top execs' pay, save $2.2 mln

[kellwolf]

[ QUOTE ]
Gotta go with Flyover on this one. As a general matter, there are times when, because of circumstances, history, whatever, there is nothing that anyone can do to avoid a year of losses for a business. If an brilliant manager manages to make the difference between a loss of $100 million and a loss of $10 million, he/she deserves a bonus for that.

[/ QUOTE ]

I agree with this, but I have to throw out some other things. I think it's pretty wrong if the CEO accepts the bonus under current cicrumstances at United. That money would be better spent towards getting the company out of bankruptcy as well as building goodwill with the employees. When/if United emerges, he can take the bonus (or probably a BIGGER one) without asking for cuts at the same time. I can almost guarantee that if he's not asking for pay cuts or pension elimination, half the employees won't notice if he gets a bonus. If he takes it now, the employees will see it as taking his and cutting their's at the same time. I wouldn't be surprised to see a repeat of the US Air "sick out" as a response. Keep in mind that with the lower echelons of airlines, perception is reality no matter what is said in the boardroom.

[Sean_S]

CEO’s have only two jobs; make money for share holders, and make sure the company complies with all SEC related laws. Sure, it is unfair that employees are taking huge pay cuts while executives are receiving huge bonuses. On the other hand if they are paying the bills and giving returns on investments then they are technically doing their jobs giving them plenty of justification for bonuses. I don’t feel that it is either ethical or moral to use pay and benefit cuts to return on investments but when it is your job to please share holders I guess your view could easily change.

In the case of United Tilton had no way of returning on investments, his job is to get the company back into shape. Have any of you that are complaining about the bonus actually looked at the companies 10-K? Tilton is doing his job maybe we shouldn’t be so fast to complain about his moral or ethics and bash Tilton, place the blame on the board they defined his job and he is doing it. He increased income and decreased expenses and did a pretty good job at it. Although he met his goals at the expense of the employees, his job is not to please the employees. He doesn't work for the employees he works for the investors and share holders of United, his job is to look after the interest of the investors and share holders.

I personally do not agree with him taking the bonus but he has every right to that bonus.

[tonyw]

Tell me how you enhance shareholder value when your company is bankrupt again?

Remember what bankruptcy means? Shareholder value is zip. Nada. Zilch. Zero.

[flyover]

This Tilton thing is way overblown. Again, he was hired as abankruptcy manager, if I remember correctly with the support of labor. He's not making much compared to what he's made in the past or what comparable CEOs make. But apparently he was willing to take on the job on those terms. Bonuses are a standard part of CEO pay packages and can be tied to any performance criteria the board wants, including just for the heck of it. But the term bonus has become so radioactive that it probably needs to be dropped.

As to whether Tilton has earned much the court is still out on that:

United Airlines Posts Wider 4Q Loss

[Minnesota_Flyer]

[ QUOTE ]
Tell me how you enhance shareholder value when your company is bankrupt again?

Remember what bankruptcy means? Shareholder value is zip. Nada. Zilch. Zero.

[/ QUOTE ]Big difference in giving a bonus to the guy that led you into bankruptcy and giving one to the guy who came in after the bankruptcy to lead you out. Tilton doesn't work for the shareholders; he works for the creditors. His job isn't to maximize shareholder equity (at least not his first job); his job is to get the company back out of bankruptcy and maximize the creditor's recovery.

[Sean_S]

[ QUOTE ]
Tell me how you enhance shareholder value when your company is bankrupt again?

Remember what bankruptcy means? Shareholder value is zip. Nada. Zilch. Zero.

[/ QUOTE ]

Just because the companies stock has bombed doesn't mean that other parties and forms of investments are also worthless, those still have to be returned on. UAL still has out standing loans that were not thrown out by the courts; those still have to be returned on. Unless companies were giving UAL 0% interest unsecured loans then we can only assume that the lender was in the business of making money. So the lenders are also investors they invested large amounts of capital into UAL in hopes of a return. Maybe you should read over my first post a little better, I said investors and share holders. Sure the share holders are up the creek but the investors would still like a return.

[Sean_S]

[ QUOTE ]
This Tilton thing is way overblown. Again, he was hired as abankruptcy manager, if I remember correctly with the support of labor. He's not making much compared to what he's made in the past or what comparable CEOs make. But apparently he was willing to take on the job on those terms. Bonuses are a standard part of CEO pay packages and can be tied to any performance criteria the board wants, including just for the heck of it. But the term bonus has become so radioactive that it probably needs to be dropped.

As to whether Tilton has earned much the court is still out on that:

United Airlines Posts Wider 4Q Loss

[/ QUOTE ]

Look at the article in a little more depth; sure they are posting a larger loss then what had been expected. At the same time the article states that United posted a narrower loss for the full year by $1 billion compared to 03. We can also look at the fact that Tilton increased operating revenue by $1.4 billion while decreasing loss from operations by half a billion.

[flyover]

[ QUOTE ]
We can also look at the fact that Tilton increased operating revenue by $1.4 billion while decreasing loss from operations by half a billion.

[/ QUOTE ]

Those are the numbers that kind of shocked me. Great that revenue is up. A little worrying that this revenue increase isn't making it to the bottom line.

[Sean_S]

[ QUOTE ]
[ QUOTE ]
We can also look at the fact that Tilton increased operating revenue by $1.4 billion while decreasing loss from operations by half a billion.

[/ QUOTE ]

Those are the numbers that kind of shocked me. Great that revenue is up. A little worrying that this revenue increase isn't making it to the bottom line.

[/ QUOTE ]

Yep, it’s good to see them making more money from operations while it’s costing them less to do it. The problem this year is some outside expenses UAL had to pay in order to reduce debt, although they were able to get rid of pensions they had to pay the feds a nice chunk of change in order to take them. I think after they pay the associated fees and contributions to complete the reorg they will be making money. It looks like when UAL first went into chapter 11 they just ran operations as normal and reaped the benefits provided by the courts with out any planning for the future, but it looks like things are slowly starting to show now.

[flyover]

Well, it's good you're optimistic. The comment that caught my attention was this one:
[ QUOTE ]
United Airlines, which has been operating under Chapter 11 bankruptcy protection since December 2002, said its loss from operations for the quarter was $655 million, compared with $231 million a year earlier. Operating revenue rose to $3.89 billion from $3.68 billion.

[/ QUOTE ]

Add to that the latest from CAL and AMR such as this:

American Airlines May Need More Worker Concessions Due to Cash Crunch

and this:

Continental Tops Bankruptcy Watch

It kind of indicates to me that there is no amount of cost cutting that can save the legacies unless there is also a shut down of some hubs and reduction of capacity.

[Sean_S]

Although I don't think that they will turn into a money making machine anytime soon if ever. I do feel that if they can maintain this income to expense ratio (based on 04vs.03 not Q4 04) on the operating side and get a way from the domestic market and place an emphasis on the international side they will be fine.